Real Estate Syndications

Shams Merchant is a Leading Real Estate Syndication Attorney and Lawyer with Billions of Dollars of Real Estate Investment and Development Experience.

Our real estate syndication and investment law firm represent clients in all aspects of structuring and forming their real estate syndications. Our syndication attorney structures and forms private placement securities offerings for real estate investors under Rules 506(c) and 506(b) of Regulation D.

How to Raise Capital for Investing in or Developing Real Estate: Launch a Real Estate Syndication or Single-Asset Investment Fund

Our syndication and real estate investment law firm represents real estate syndicators, fund managers, private equity firms, GPs, investors, developers, operators and sponsors in all 50 states to help them legally structure capital raises to acquire and develop real estate projects such as multifamily/apartments, retail/shopping centers, industrial/warehouses, student housing, built-to-rent (BTR), condominiums, land development, master planned communities, self-storage, industrial outdoor storage, and assisted living facilities. Some of the projects attorney Shams Merchant has represented many emerging and institutional private equity firms, real estate investment and development firms and real estate investors on the acquisition, financing, development and leasing of these projects. Project examples can be found here and a list of representative matters can be found here.

Many attractive commercial real estate opportunities require more equity than a single investor or sponsor wants to contribute. A sponsor may have the experience to identify an opportunity, negotiate the acquisition, obtain financing, execute the business plan, and operate the property but still need outside investors to provide a portion of the required capital. One way to raise that capital is to launch a real estate syndication or single-asset investment fund.

A properly structured real estate offering allows a sponsor to pool capital from multiple investors, acquire a larger property, execute a defined investment strategy, and share the investment’s potential income and appreciation with the participating investors. It can also help a sponsor establish an investment platform, build a track record, and develop relationships with investors who may participate in future transactions.

However, raising money for a real estate investment is not merely a matter of creating an LLC, preparing a pitch deck, and asking people to invest. When passive investors contribute capital and depend primarily on the sponsor to generate a return, the interests being offered will ordinarily be treated as securities. Every offer and sale of a security must either be registered under the Securities Act of 1933 or qualify for an available exemption from registration. 

The capital-raising process therefore requires three systems to work together:

1. A compelling and economically viable real estate investment;
2. A legally compliant offering structure; and
3. A credible investor acquisition and onboarding process.

This article explains how sponsors can build those systems by launching a real estate syndication or single-asset investment fund.

What is a Real Estate Syndication: Understanding the Basics of Private Placements Offerings

A real estate syndication is a structure through which a sponsor pools money from investors to acquire and operate a specific real estate asset.

The sponsor generally performs the active work associated with the investment, including:

• Identifying and evaluating the property;
• Negotiating the purchase agreement;
• Arranging debt financing;
• Completing due diligence;
• Developing and executing the business plan;
• Supervising renovations, development, leasing, or repositioning;
• Managing the property manager and other service providers;
• Preparing investor reports;
• Making distributions; and
• Refinancing or selling the property.

The investors generally contribute capital and receive passive economic interests in the entity conducting the offering. Depending on the structure, investors may receive a preferred return, a return of their contributed capital, and a percentage of the remaining profits.

The sponsor typically receives compensation through some combination of fees, a promoted interest, carried interest, or participation in the investment’s residual profits. Those economics must be clearly described in the offering documents.

A single-asset real estate investment fund is a pooled investment vehicle formed to invest in one identified property or project.

In market practice, the terms “single-asset fund” and “real estate syndication” frequently overlap. Both may involve a manager-controlled limited liability company that accepts capital from passive investors and invests the proceeds in one property.

The principal difference is often the way the investment platform is organized and presented.

A traditional syndication may use one issuer entity that owns the property directly or through a wholly owned subsidiary. A single-asset fund may use a more institutional structure in which:

• Investors invest in a fund or offering entity;
• The fund is managed by a separate manager or general partner;
• The fund invests in a property-level special purpose entity; and
• The property-level entity acquires the real estate and serves as the borrower.

A single-asset fund structure can be useful when the sponsor wants to accommodate multiple investor classes, feeder entities, co-investors, retirement-plan investors, foreign investors, or other structural considerations. It may also create clearer separation between the securities issuer, the investment manager, the borrower, and the real estate asset.

The word “fund,” however, does not eliminate the securities-law requirements that apply to the offering. The substance of the arrangement, the assets held, and the rights and responsibilities of the parties are more important than the name placed on the entity.

The Real Estate Syndication and Capital Raising Strategy Explained

1. Make the Deal Investable Before Marketing It

A sponsor should not begin with the question, “How can I convince investors to give me money?”

The better question is, “What would a prudent investor need to see before investing in this opportunity?”

Before launching the offering, the sponsor should be able to explain:

• What property is being acquired;
• Why the property is attractive;
• What creates the investment opportunity;
• How the purchase price was determined;
• What financing will be used;
• What improvements or operational changes are planned;
• How much additional capital will be required;
• What could cause the business plan to fail;
• How long the investment is expected to be held;
• How cash flow will be generated;
• How investors may receive distributions; and
• How the sponsor expects to exit the investment.

The sponsor should also prepare a complete sources-and-uses analysis. The capital raise may need to cover more than the equity portion of the purchase price. It may also need to fund:

• Earnest money;
• Closing costs;
• Loan fees;
• Legal and organizational expenses;
• Acquisition fees;
• Renovations or capital improvements;
• Tenant improvements and leasing commissions;
• Interest or operating reserves;
• Working capital;
• Insurance and taxes;
• Pre-opening expenses; and
• Contingency reserves.

An offering that is undercapitalized from the beginning can force the sponsor to make an unexpected capital call, obtain expensive financing, delay the business plan, or seek additional investors on unfavorable terms.

2. Establish the Investment Economics

The sponsor should finalize the economic terms before offering documents are prepared or investors are formally solicited.

Those terms commonly include:

• The total offering amount;
• Minimum and maximum offering amounts;
• Minimum investment amount;
• Sponsor co-investment;
• Investor classes;
• Preferred return;
• Distribution frequency;
• Distribution waterfall;
• Sponsor promote or carried interest;
• Acquisition, asset management, construction management, disposition, refinancing, guaranty, and other fees;
• Treatment of operating cash flow and capital-event proceeds;
• Capital-call procedures;
• Consequences of failing to fund a capital call;
• Reinvestment rights;
• Reserves;
• Transfer restrictions;
• Anticipated holding period; and
• Investor voting or consent rights.

The preferred return should not be described as guaranteed merely because it appears in the operating agreement. A preferred return generally determines how available distributions are allocated; it does not ensure that the property will generate enough cash to pay the return.

The financial model, investor presentation, private placement memorandum, operating agreement, and subscription documents must all describe the same economics. Inconsistencies among those materials can create investor confusion and potential liability.

3. Choose the Right Securities Offering Exemption

Most private real estate syndications rely on an exemption under Regulation D, particularly Rule 506(b) or Rule 506(c).

The sponsor should select the exemption before marketing the offering because the exemption determines who may invest and how the opportunity may be promoted.

Rule 506(b): Relationship-Based Private Placement

Rule 506(b) permits an issuer to raise an unlimited amount of capital from an unlimited number of accredited investors. It may also permit sales to as many as 35 non-accredited investors, provided those investors satisfy the applicable sophistication standard. If non-accredited investors participate, additional disclosure and financial-statement requirements generally apply. Most importantly, Rule 506(b) prohibits general solicitation and general advertising. 

A Rule 506(b) offering is generally most appropriate for a sponsor that already has an established investor network and intends to raise money privately through controlled, relationship-based communications.

A sponsor relying on Rule 506(b) should be extremely careful about publicly discussing a live investment opportunity through:

• Social media posts;
• Public webinars;
• Podcasts;
• Paid advertisements;
• Publicly accessible offering pages;
• Mass email lists;
• Open networking events; or
• Online investment platforms.

Publicly promoting the specific offering can undermine the sponsor’s ability to rely on Rule 506(b).

Rule 506(c): Publicly Marketed Accredited-Investor Offering

Rule 506(c) allows an issuer to use general solicitation and public advertising. A sponsor may therefore be able to promote the offering through social media, email campaigns, podcasts, webinars, paid advertising, public websites, and other broadly distributed communications.

In exchange for that flexibility, every purchaser must be an accredited investor, and the issuer must take reasonable steps to verify each purchaser’s accredited status. 

Verification may be based on a principles-based review of the facts and circumstances or on one of the non-exclusive verification methods identified in Rule 506(c). Depending on the investor, verification may involve financial documentation or written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant. The SEC has stated that investor self-certification alone, without other information, is not sufficient to satisfy the applicable standard. 

A Rule 506(c) offering may be appropriate for sponsors who want to scale beyond their personal networks or create a repeatable, publicly marketed investor acquisition system.

4. Form the Offering Entities

After determining the structure, the sponsor will generally form the manager, issuer, and property-level entities.

The organizational documents should address more than the names and ownership of the entities. They should establish:

• Who controls each entity;
• Which entity is conducting the securities offering;
• Which entity will receive investor capital;
• Which entity will own the property;
• Which entity will serve as the borrower;
• Which entity will receive each sponsor fee;
• Whether the sponsor is required to contribute capital;
• How conflicts among affiliates will be handled;
• What decisions require investor approval; and
• What happens if a sponsor principal dies, becomes disabled, resigns, or is removed.

The structure should also be coordinated with the acquisition contract, loan documents, guaranties, property-management arrangements, tax planning, and any co-GP or joint-venture agreement.

5. Prepare the Real Estate Offering Documents

A real estate syndication offering package commonly includes several integrated documents.

Private Placement Memorandum

The private placement memorandum, or PPM, describes the offering and provides material information investors should consider before investing.

A properly prepared PPM may address:

• The property and investment strategy;
• The sponsor and management team;
• The acquisition and financing;
• Sources and uses of funds;
• Investor classes and economic terms;
• Distribution waterfall;
• Sponsor compensation;
• Conflicts of interest;
• Use of proceeds;
• Prior performance;
• Tax considerations;
• Transfer restrictions;
• The applicable securities exemption; and
• General and deal-specific risk factors.

A PPM should not be treated as a generic collection of disclaimers. Its disclosures should be tailored to the actual asset, financing, strategy, sponsor, market, investor terms, and risks.

Operating Agreement or Limited Partnership Agreement

The operating agreement or limited partnership agreement is the governing contract among the investors, the issuer, and the manager or general partner.

It should legally implement the economics described in the PPM, including:

• Capital contributions;
• Percentage interests;
• Distributions;
• Allocations;
• Management authority;
• Investor voting rights;
• Capital calls;
• Defaults;
• Transfers;
• Indemnification;
• Removal rights;
• Dissolution; and
• Sponsor compensation.

Subscription Agreement

The subscription agreement is the investor’s agreement to purchase interests in the offering. It generally contains the investor’s representations, warranties, acknowledgments, and agreement to be bound by the governing documents.

Investor Questionnaire

The investor questionnaire collects information relevant to the investor’s eligibility, accredited-investor status, sophistication, beneficial ownership, tax classification, ERISA status, and other compliance matters.

Depending on the offering, the package may also include side letters, bad-actor questionnaires, privacy notices, escrow instructions, electronic signature procedures, and supplemental state disclosures.

6. Develop a Compliant Capital-Raising Strategy

A well-drafted PPM will not raise capital by itself. The sponsor still needs a system for attracting, educating, qualifying, and converting potential investors.

That system should be designed around the selected exemption.

Capital Raising Under Rule 506(b)

A Rule 506(b) strategy generally focuses on developing genuine investor relationships before presenting a specific offering.

That may include:

• Maintaining an investor relationship database;
• Holding private investor meetings;
• Communicating regularly with existing contacts;
• Providing general real estate education;
• Sharing sponsor updates that are not offers of a specific security;
• Documenting the history and substance of investor relationships; and
• Qualifying potential investors before presenting an opportunity.

The sponsor’s process should distinguish between general brand-building and communications that condition the market for a particular offering.

Capital Raising Under Rule 506(c)

A Rule 506(c) strategy may use a broader marketing funnel, such as:

1. Educational articles, videos, podcasts, or advertisements;
2. An offering or sponsor landing page;
3. An investor qualification form;
4. An investor portal or data room;
5. A sponsor presentation or webinar;
6. Individual investor calls;
7. Accredited-investor verification; and
8. Electronic subscription and funding.

Even though Rule 506(c) permits public marketing, it does not permit misleading marketing. Public advertisements, decks, webinars, financial models, emails, testimonials, and investor calls must be accurate and consistent with the offering documents.

All securities transactions—including exempt offerings—remain subject to the federal antifraud provisions. The issuer can be responsible for false or misleading statements made orally, in writing, or by others acting on its behalf. 

Accordingly, sponsors should avoid:

• Describing projected returns as guaranteed;
• Presenting a preferred return as a promised yield;
• Omitting material fees or conflicts;
• Using unsupported valuation claims;
• Cherry-picking prior investments;
• Presenting gross performance without appropriate context;
• Minimizing material risks;
• Claiming that an investment is “safe” or “secured” without adequate explanation;
• Using testimonials that create a misleading impression; or
• Including financial projections that are inconsistent with the underwriting model.

The PPM is not a shield against misleading statements made elsewhere. Every part of the investor experience should tell the same story.

7. Create a Professional Investor Onboarding Process

Once an investor decides to proceed, the sponsor should follow a controlled acceptance and closing process.

That process may include:

• Providing access to the final offering documents;
• Collecting the completed investor questionnaire;
• Completing accredited-investor verification when required;
• Reviewing entity, trust, retirement-account, and beneficial-owner information;
• Conducting identity and compliance checks as appropriate;
• Obtaining electronic or physical signatures;
• Accepting or rejecting the subscription;
• Providing verified wire instructions;
• Confirming receipt of funds;
• Countersigning the subscription documents;
• Updating the capitalization table; and
• Delivering closing confirmation to the investor.

The issuer—not the investor—should determine whether a subscription is accepted. The offering documents should give the issuer discretion to reject subscriptions that do not satisfy the offering’s legal, financial, administrative, or strategic requirements.

Sponsors should also use appropriate controls for wire instructions. Real estate offerings are attractive targets for impersonation and wire fraud, particularly when large investor contributions and acquisition closings occur simultaneously.

8. Complete the Form D and State Notice Filings

An issuer relying on Regulation D generally must file a Form D electronically through the SEC’s EDGAR system no later than 15 calendar days after the first sale. For Form D purposes, the first sale generally occurs when the first investor becomes irrevocably contractually committed to invest. 

The Form D discloses certain information about the issuer, offering, related persons, offering amount, investor count, and sales compensation. Once filed, the Form D becomes publicly available through EDGAR.

Rule 506 offerings are generally preempted from substantive state registration and qualification requirements, but issuers may still have to make state notice filings, submit consents to service of process, and pay filing fees in the states where investors reside. 

Form D amendments may also be required when certain information changes, a material error is discovered, or the offering remains open on an anniversary of the prior filing.

9. Operate the Investment After the Capital Raise

Closing the offering is the beginning of the sponsor’s obligations—not the end.

After raising the capital, the sponsor should operate the investment in accordance with the offering documents and maintain appropriate records concerning:

• Investor contributions;
• Capital accounts;
• Property revenues and expenses;
• Sponsor and affiliate fees;
• Distributions;
• Reserves;
• Material contracts;
• Debt compliance;
• Conflicts of interest;
• Capital calls;
• Investor votes and consents;
• Financial reporting;
• Tax reporting;
• Refinancings; and
• Property dispositions.

Investor communications should be timely and accurate, particularly when the property is materially underperforming the original projections. Delaying bad news or providing overly optimistic updates can compound the sponsor’s legal and reputational risks.

A sponsor that wants to raise capital repeatedly should treat every single-asset offering as part of a long-term investment management business. Consistent reporting, transparent communication, disciplined underwriting, and accurate recordkeeping are essential to building investor trust.

Knowing how to raise capital for investing in real estate requires more than finding potential investors. The sponsor must create a credible investment, select the appropriate offering exemption, establish the correct entities, design the economics, prepare consistent offering materials, implement a compliant marketing strategy, and properly onboard each investor.

Mistakes made at the beginning of an offering can affect the entire investment. A public post made before selecting an exemption, an undisclosed sponsor fee, an improperly compensated finder, or a generic set of offering documents can create problems long after the property has been acquired.

Our syndication and investment fund attorneys help real estate sponsors develop and launch legally compliant, professionally structured investment offerings. Our services can include:

• Real estate syndication and fund structuring;
• Regulation D and securities exemption analysis;
• Rule 506(b) and Rule 506(c) offerings;
• Entity formation;
• Private placement memoranda;
• Operating and limited partnership agreements;
• Subscription agreements and investor questionnaires;
• Distribution waterfall drafting;
• Sponsor compensation and conflict disclosures;
• Investor marketing compliance;
• Accredited-investor verification procedures;
• Form D and state notice filings;
• Investment Company Act and investment-adviser analysis;
• Fund management and investor onboarding systems; and
• Coordination with financial-modeling, investor-presentation, tax, escrow, and other offering professionals.

A real estate offering should be structured around the sponsor’s investment strategy, investor base, capital-raising plan, and long-term business—not assembled from generic forms after the marketing has already begun.

Contact our real estate syndication and investment fund law firm to discuss launching your next real estate syndication or single-asset investment fund.

Should I Launch a Real Estate Syndication or a Real Estate Fund?

A real estate syndication raises capital for a deal. A real estate fund raises capital for a strategy.

That distinction sounds simple, but it changes almost every aspect of the offering: what investors evaluate, when capital is committed, how quickly the sponsor can acquire properties, how fees are calculated, how much discretion the sponsor receives, and what legal and operational infrastructure the sponsor needs.

In a typical real estate syndication, investors are shown a particular property before deciding whether to invest. They can review the location, purchase price, financing, business plan, projected returns, and property-specific risks.

In a typical real estate fund, investors commit capital before all properties have been identified. They are investing primarily in the sponsor’s investment mandate, acquisition criteria, track record, team, and ability to select and manage future investments.

Neither structure is automatically better. A syndication may be the right choice for an experienced sponsor pursuing an unusually large single property. A fund may be appropriate for a smaller sponsor with a highly repeatable strategy, a credible track record, and a strong pipeline of similar acquisitions.

The correct decision depends less on which structure sounds more sophisticated and more on what the sponsor is actually prepared to operate.

The Quick Answer: Syndication or Fund?

A real estate syndication will generally be the better structure when:

• You have one identified property under contract;
• Investors expect to evaluate each acquisition independently;
• Your track record is still developing;
• You do not have a predictable pipeline of similar deals;
• You want the offering terms to be tailored to one property; or
• You are not yet prepared to administer a discretionary, multi-asset investment vehicle.

A real estate fund may be the better structure when:

• You have a repeatable acquisition strategy;
• You expect to acquire multiple properties during a defined investment period;
• Speed and certainty of capital are important to winning deals;
• Investors are willing to commit based on your strategy and track record;
• Your team can source, underwrite, close, operate, and report on multiple investments; and
• You want to build a long-term investment management platform rather than raise money separately for every acquisition.

The most important question is this:

Are investors being asked to approve a specific property, or are they being asked to trust the sponsor’s future investment decisions?

If investors are approving a property, the offering resembles a syndication. If they are approving the manager and its investment mandate, the offering resembles a fund.

What Are The Differences Between Real Estate Syndications and Other Real Estate Investment Strategies

How Real Estate Syndications Work From a Legal Perspective

The Key Players in a Real Estate Syndication and Their Roles

What is Real Estate Crowdfunding? Is Crowdfunding the Same as Real Estate Syndication?

How To Identify Potential Real Estate Investments for Syndications

How to Structure a Real Estate Syndicated Investment Property

What About Real Estate Joint Ventures? Are Joint Ventures Considered Syndications?

LLCs, LPs and Legal Entities for Real Estate Syndication and Funds

Overall Structure of a Real Estate Syndication Private Placement Offering

Legal Considerations and SEC Regulations for Real Estate Syndications

Understanding Real Estate Syndications and the Regulation D Framework

Who Are Real Estate Syndication Attorneys and Why You Need One for Your Offering

Real Estate Securities Licenses and Real Estate Broker Licenses for Reg. D Syndications and Offerings

Licensing and Qualifications for Real Estate Securities Attorneys That Structure Real Estate Syndications and Funds

What Should You Consider When Hiring a Real Estate Syndication Attorney

What Questions Should I Ask A Real Estate Syndication Attorney Who I am Consider Hiring?

Real Estate Syndication Attorney Legal Fees, Expenses and Costs

Raising Private Capital from Investors for Your Real Estate Syndication

Syndicator Investment Theory

Now That You’ve Launched Your Syndication, How Do you Raise Capital?

How the Real Estate Syndication Model Works for Large Projects

Real Estate Syndication Fees and What You Can Charge as a Manager

Real Estate Syndication Waterfall Models and Structures to Consider

How to Communicate With and Update Your Investors in a Syndication

Why Do Real Estate Investors Invest in Real Estate Syndications?

What Are the Offering Documents You Need in Real Estate Syndication Offerings

The Private Placement Memorandum (PPM)

The Operating Agreements for LLCs or LPs

The Subscription Agreements

The Investor Questionnaires

The Securities and Exchange Commission Form D Filing

The Blue-Sky Notice Filings Per State

The Various Types of Real Estate Syndications and Which One is Right For You

The Real Estate Syndication Launch Program and Course for New Syndicators

Conclusion

More About Shams Merchant, The Go-To Real Estate Syndication Attorney

Shams Merchant

States Our Real Estate Syndication Lawyer, Shams Merchant, Represents Clients in Their Real Estate Syndications and Investment Funds

1. Texas
2. Florida
3. New York
4. New Jersey
5. California
6. Illinois
7. Arizona
8. Pennsylvania
9. Ohio
10. North Carolina
11. Indiana
12. Washington
13. Colorado
14. Oklahoma
15. Tennessee
16. Washington, D.C.
17. Maryland
18. Nevada
19. Massachusetts
20. Oregon
21. Kentucky
22. Michigan
23. Wisconsin
24. New Mexico
25. Missouri
26. Georgia
27. Louisiana
28. Hawaii
29. Rhode Island
30. Connecticut
31. Delaware
32. Utah
33. Kansas
34. Arkansas
35. Wyoming
36. Mississippi
37. South Carolina
38. West Virginia
39. Vermont
40. New Hampshire
41. Virginia
42. Minnesota
43. Minneapolis
44. Maine
45. Nebraska
46. Idaho
47. Alabama
48. Iowa
49. South Dakota
50. North Dakota