Fractional Dutch Auctions of Commercial Income-Producing Real Estate Properties - TIC Plan Ownership Syndications

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Sample Syndicate

This page is provided to demonstrate one method by which a Pre-Construction Phase Syndicate may profit from a given income-producing property development.  

This is only an example and not a warranty or guarantee of any kind.

Our sample transaction focuses on the Acme Development Company that is sponsoring the development of a rental apartment complex.  Acme Development Company has just started making applications for the construction mortgage financing loan, so Acme Development Company's syndicate will be a Pre-Construction Phase Syndicate.  Each Pre-Construction Phase Syndicate is for no more than three (3) years.  In point of fact, the proposed apartment complex will require no more than 18 months to develop, stabilize and sell-off.

The sample transaction economics are as follows:

  1. The total construction and development costs are $10,000,000 (Line 1).

  2. The total expected loan is $8,500,000 (Line 3).  This is based upon capital market conditions less a holdback to ensure coverage of the remaining gap by the net proceeds contributed by the Syndicate.

  3. The total loan fees are 2% - or $170,000 (Line 4).

  4. The total carrying costs and uses of working capital are estimated to be an additional $650,000 (Line 5).

  5. The total project costs (Line 1 + Line 4 + Line 5) equal $10,820,000 (Line 6).

  6. The total gap is equal to Total Cost (Line 6) minus the expected $8,500,000 Loan (Line 3); or, $2,320,000.

  7. The total gap (Line 7) divided by the Syndicator Sales Profit Rate (0.92) provides the total Syndicate funds required for the proposed Project; or, $2,521,739 (Line 8).

  8. Total syndication rounded down to the nearest multiple of $25,000 creates a gross Syndicate of $2,500,000 (Line 9).  This works out to 100 Units (Line 10) and a remainder of $21,739 that is paid in by the Sponsor (Line 11).

The bottom half shows the potential returns for an asset at the bottom end of the risk range (once the asset is placed in service and stabilized).  In the case above, we make some simple assumptions as to the income (conservative) and the capitalization rate for selling the asset is at the bottom end of the spectrum because of the lack of operational intensity (the more intense the operations of a project are, the more risky those operations become for investors) and the status of the asset (stabilized).  The result shows an investor who came into the transaction at the Pre-Construction Phase Syndicate level would have a 162.44% return on the $25,000 investment - or a total gross of $40,610.  Not a bad day's work and enough was left on the table so that a buyer could be induced to buy the project and the Sponsor can be induced to continue to operate the project provided there was a compensation arrangement that was mutually agreeable.

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