Syndication is an investment strategy where multiple investors pool their resources to participate in larger opportunities. This collective effort allows investors access to a wider range of investments that might be inaccessible individually.
In such an arrangement, a general partner (GP), or sponsor, takes the lead. The GP’s role is to identify promising opportunities, manage the acquisition process, and oversee daily operations. The investors, or limited partners (LPs), contribute capital and, in return, share the profits without being involved in the daily management.
At Citizen Capital, our application of syndication goes beyond traditional real estate. We’ve diversified our investment approach to include the acquisition of service providers essential to the real estate lifecycle, investment in knowledge-driven firms like engineering and financial advisories, and supporting innovations in the real estate technology, or proptech, sector.
Our syndications provide investors with access to a broad array of opportunities, and the potential for strong, risk-adjusted returns, alongside recession-resistant operating businesses. The alignment of our interests with our investors remains at the core of our approach, creating a foundation for successful and trusted partnerships.
The subscription documents in a real estate syndication typically consist of three distinct, but interrelated legal documents, all prepared by a securities attorney. These include the Private Placement Memorandum (PPM), the Operating Memorandum (also referred to as the “OM”), and the Subscription Agreement. Each document serves a unique purpose within the syndication process.
Private Placement Memorandum (PPM): This comprehensive document provides potential investors with in-depth information about the investment offering. It outlines the nature of the investment, the structure of the offering, and the potential risks involved. The PPM is designed to ensure that investors have all the information they might need to make an informed decision.
Operating Memorandum (OM): The OM provides detailed information about the operations of the investment, including the structure of the managing entity, its strategy, and the specific mechanics of the proposed investment.
Subscription Agreement: This document details the terms of the investment from an individual investor’s perspective. It includes information such as the amount being invested, the percentage of ownership being acquired, and the investor’s commitment to adhere to the rules set out in the Operating Memorandum.
While the SEC doesn’t explicitly require these documents, they are crucial in complying with securities laws, providing protection for both the issuers and the investors.
Remember to thoroughly review and understand these documents before making an investment. We highly recommend consulting with a financial advisor or securities attorney to ensure you fully comprehend the investment you are considering.
Annual returns are targeted in the 8-10% range and with an average IRR in the 15% range over the hold period. In a value-add project, a large part of the investor returns come in the year of sale. Actual returns vary on a property by property basis. See the private placement memorandum (PPM) for specific property investment risks.
We model each investment with a 5 year hold period. This provides ample time to execute our value-add plan and then cash flow for a few years while looking for an opportunistic sale. Some investor principal could be returned as early as year 2 from a refinancing event or we may want to continue to cash flow till year 7, if the market is down in year 5.
Minimums vary from deal to deal but generally are set at $100K with preference given to investors with more to invest.
Investor distributions vary from deal to deal but most syndications make monthly or quarterly distributions.
Communication is vital to us at Citizen Capital. Expect regular email updates, monthly or quarterly, detailing your investment’s progress. These updates cover various aspects, including renovation statuses, rental incomes, and distribution amounts for each period.
And when it’s time for tax filings, you’ll receive a K-1 statement from us each March. We’re always available for any questions or concerns you might have. You’re an integral part of Citizen Capital, and we’re here to ensure you’re well-informed every step of the way.
Apartment syndications are very tax efficient. As a limited partner, you will benefit from your portion of the investment’s deductions for property taxes, loan interest, depreciation, etc. We will also use a cost segregation strategy to accelerate depreciation. The tax loss can then be used to offset other income depending upon your individual tax situation. At the time of sale, the partnership gains are treated as long-term capital gains.
Yes – We operate on a core value of treating investors’ money as if it were our own. We invest alongside our clients in every deal.
Absolutely. At Citizen Capital, we recognize that real estate investing involves a dynamic set of variables that can impact profitability. That’s why we take a rigorous approach to our financial analysis, going beyond static projections to model a range of scenarios.
A core part of our investment strategy is performing sensitivity analyses. This allows us to understand how different conditions might affect the outcome of an investment. By adjusting variables such as occupancy rates, rental income, operating expenses, and cost of capital, we can simulate various scenarios, from the most optimistic to the more conservative.
This kind of robust analysis helps us to prepare for different market conditions and gives us the ability to be proactive in our management strategy. It’s all part of our commitment to make thoughtful, data-driven decisions that protect our investors’ capital and strive for the best possible returns. At Citizen, we’re always working to anticipate the unexpected and safeguard your investment.
Yes – You can invest in real estate with certain retirement accounts. We are happy to discuss how to boost your IRA investing returns with real estate investing.
In a real estate syndication, general partner (GP) fees may vary depending on the specifics of the deal. At Citizen Capital, we maintain a straightforward fee structure:
Acquisition Fee: Charged at 1% of the purchase price, this one-time fee compensates the GP for the work involved in identifying, analyzing, and acquiring the property.
Asset Management Fee: This ongoing fee, also charged at 1%, is for managing the property and overseeing its operations. It’s calculated as a percentage of the gross revenues or net operating income of the property.
While some syndications charge additional fees, such as disposition or refinance fees, we choose not to. Aligning our interests as the General Partner (GP) with those of our Limited Partners (LPs) is fundamental to building trust and fostering successful long-term relationships. This alignment ensures that we, as the GP, are incentivized to maximize the performance of the investment, since our success is directly tied to the success of our investors. By eliminating these additional fees, we further demonstrate our commitment to this alignment of interests and to the overall success of our investors.
The specifics of our fees are detailed in the subscription documents for each individual syndication. We always encourage investors to review these documents carefully and consult with a financial advisor or attorney to fully understand our fee structure before investing.