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| | Syndication Processing & Background Information
The object of this
page is to provide developers and prospective syndicate participants with
information to help them understand the requirements and expectations
participation will require. This is a multi-party program that includes:
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The
players. Here's the scorecard of who's playing in your playpen:
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The
Syndicator - Real Estate Plays Dot Com, LLC is the holder of a real
estate purchase contract. Once all of the required due diligence
documents have been provided to Real Estate Plays Dot Com, LLC ("Syndicator"),
the
Syndicator enters into a contract with the syndication Sponsor to
purchase the real property interests of the Sponsor
pursuant to a
defined real estate contract.
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The Sponsor -
can be the Project Developer, the project founders' group, the owner,
the owner/operator, the sponsor and/or any combination of the
above. Essentially, this is the entity that is seeking financing
using the commercial real estate syndication method. Sometimes
this is done by the Developer and sometimes the
Developer and the Sponsor
are the same entity. So we sometimes refer to them as the
"Developer/Sponsor", the "Sponsor" or the
"Developer". No matter what the nomenclature says, this
party is the party that will be responsible for the ongoing operations
of the resulting project that receives the funding.
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The Team -
refers to the companies and/or individuals who constitute the project
development team and include due diligence report providers. These
entities include (but are not limited to) the following:
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The Developer. In the case of a new syndication at the
pre-construction level or construction level, there will be
development operations that must be managed (for everyone's benefit)
by the Developer pursuant to an agreement approved by the
Syndicator.
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The
Design/Builder. The company responsible for designing and
constructing the buildings and structures associated with the
development program in accordance with a schedule approved by the
Syndicator.
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The
Project Property Manager. The company responsible for the
day-to-day operations of the syndicate's property, employee
management, collection of sales revenues and sign-off on all project
financial statements.
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The
Project Environmental Engineer. The company responsible for
the Environmental Phase I report.
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The
Project Civil Engineer. The company responsible for preparing
the approved development plat of the proposed project.
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The
Project Structural Engineer. The company and person
responsible for reviewing and approving all structural designs in
accordance with the expected end-use.
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The
Project Surveyor. The company and person responsible for
conducting all onsite surveys.
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The
Project MEP Engineer. The company and person responsible for
the review and approval of all mechanical, electrical and plumbing
designs and construction.
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The
Project Architect. The company and person responsible for
designing the building exterior and interior, landscaping and
related spaces and amenities.
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The
Developer's Legal Advisor. The person responsible for advising
the Developer as to the legal issues.
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The
Project Accounting Advisor. The company and person responsible
for providing a complete accounting of all cash flows pertaining to
the proposed Project and the accompanying local, state and federal
tax return filing requirements.
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The
Project Auditor. The company and person responsible for
auditing the financial statements of the proposed Project Sponsor
on
an annual basis.
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The Syndicate
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the investing public that makes an investment by executing a commercial
real estate purchase & sale agreement with Real Estate Plays Dot
Com, LLC to purchase a unit of fractionalized real estate ownership (you
get a deed for your ownership percentage).
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The
program. Before you can make your playsm
we have to get things ready. We don't want any projects to be
syndicated that cannot reasonably be expected to be successful (in the
sole opinion of the
Syndicator), nor do we want any syndication to
commence with incomplete due diligence documentation. The Sponsor
must provide us with certain documents that quantify and qualify all of
the issues pertaining to the transaction. To learn what these
documents are, click here. To get a more in-depth explanation on
how the
Syndicator goes about vetting transactions, click
here.
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Once the due
diligence review has been completed, the exhibits are placed on the board
and the auction is ready to move forward. Every auction uses the same
listing for all 76 of the due diligence documents that make up the
transaction. To make things easier to remember, we utilize the
following naming conventions:
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A1 through A9
- Architectural Exhibits.
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C1 through C9 - Construction Exhibits.
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D1 through D6
- Development Exhibits.
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E1 through E18
- Engineering Exhibits.
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F1 through F19
- Finance & Accounting Exhibits.
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L1 through L6
- Legal/Organizational Exhibits.
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O1 through O4
- Operations Exhibits.
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P1 through P12
- Property/Site Exhibits.
The Syndicator's
due
diligence review happens before the buying public ever sets its eyes upon the
syndication listing. These documents represent the end-product of an
investigation of a pending business investment in the form of a real estate sale
that, has been conducted by the Developer; and, at the
Developer's sole expense
and liability. The resulting reports are then reviewed by the
Syndicator for the purposes of:
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Determining
whether or not each specific exhibit represents an acceptable outcome with
respect to the goals of each specific exhibit. For instance, Exhibit
F-5 calls for the Developer to provide a pro forma financial
presentation pertaining to the proposed Project (the "Project Pro Forma
Financial Analysis Presentation"). The
Syndicator will review the
document and make a determination whether the pro forma financial
presentation provides a fair and reasonable projection (based upon the costs
of development and development requirements that are endemic to the proposed
transaction) of the future financial results of operations. This is
not a guarantee or warrantee of any kind. If the review finds the
Developer's Project Pro Forma Financial Analysis Presentation was created
without regard to the findings of the market study, then it would be
rejected and the Developer informed that it has been rejected and why it was
rejected.
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Determining
whether a waiver for a certain type of exhibit is allowable. For
instance, if the syndication is for a project that is already under
operations, then it may not be necessary (for instance) to prepare a new
construction contract if there are no construction activities contemplated
in the Developer's Business Plan of Operations (see Exhibit
D-4). Evidence of zoning and building permits would not be
necessary if the proposed Project is already operating and the future
business will be essentially identical to the existing business.
Common sense goes a long way here.
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Determining the
overall viability of the proposed capital funding plan of the Developer. This analysis is undertaken based upon current capital
market considerations to determine if the funding gap (the difference
between the primary construction mortgage financing loan and the total
development cost of the project) is adequately covered based upon commercial
bank underwriting guidelines published on the Internet as reviewed by the
Syndicator. Again, this is not a guarantee or warrantee as to the
future performance of the real estate investment, but a back-check performed
by the
Syndicator for the purposes of eliminating proposals that do not
appear to be achievable given the current condition of the capital markets.
In all cases, the goal of the
Syndicator is to err on the side of
caution. This means the capital funding plan must provide for the
balance of the required funding not otherwise provided for as a result of a
successful syndication.
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Determining
whether or not the totality of the submittal constitutes a reasonably
assumable presentation of all of the issues, each in terms of the other;
and, in terms of the stated goals and requirements of the resulting project
operations program the Developer claims to be a reasonable interpretation of
future events is one of the prime considerations the
Syndicator places on
each new syndication candidate.
Once the proposed
syndication has completed the due diligence review, the proposed syndication
becomes a "pending syndication" - meaning it is pending the successful
sale of the minimum subscription requirement and closing thereafter as quickly
as can be contrived. Each new syndication is a modified Dutch Auction
where every unit is $25,000 and additional units are always purchased in
multiples of $25,000.00 (USD). There are no partial units available in any
syndication. This makes it easy to remember and easy to compute yields and
other economic information on the fly.
Each pending
syndication is for no less than 100 units of fractional tenants-in-common
ownership interests that are available subject to a defined profit-sharing
formulae proposed by the Developer/Sponsor to the
Syndicate participants (the
investing public). The initial syndication is for the greater of:
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the capital
funding plan equity gap - the difference between the project's total
development budget price and the construction mortgage financing that it
may, under all conditions, be able to attract based upon capital market
conditions at the time; or
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$2,500,000.00.
Click here to read a working example. |
