At Metonic, a majority of our acquisition and development transactions are funded through a process called a direct syndication. Simply put, a direct syndication is a partnership between a sponsor and a group of investors. In this blog, we take a look at the basics of a direct syndication, how they are structured legally, and how they differ from funds.
The sponsor’s role in a direct syndication is to find the property or land, perform due diligence, execute the purchase agreements, raise equity, and obtain debt financing. Typically, the sponsor funds a percentage of the equity and raises the remaining funds through outside investors.
Syndications are typically structured as a Limited Liability Company (LLC) or a Limited Partnership (LP), with the sponsor taking the role of the General Partner or Manager, and the investors taking the role of limited partners. The sponsor will provide operating or partnership agreements to the limited partners which detail distributions, ownership percentages, terms, and more.
Direct Syndication vs. Fund
A direct syndication differs from a fund because the capital is committed to a defined asset or group of assets. When money is pooled in a typical fund structure, the sponsor acquires or builds multiple unidentified properties.
Why Direct Syndication?
When investing in a direct syndication, you have the opportunity to conduct due diligence and pick the exact property you want to invest in. You have access to details of the property, such as current operations, location, condition, etc. In a direct syndication, you are not going in blindly as you might be with a fund, where the sponsor pools capital prior to purchasing or developing the properties. As a passive investor, you do not have to worry about asset management, budgets, or property performance. Additionally, your capital will be deployed immediately as opposed to a fund structure, where your money may be sitting dormant while the sponsor finds assets to purchase.
At Metonic, our role as the sponsor is to do the heavy lifting and manage each asset through conducting routine site visits, frequent communication with on-site staff, monthly financial analysis, and annual budget reviews. We handle all aspects of the investment and execute strategic plans throughout the lifecycle of each asset to produce the highest returns. Additionally, we keep investors informed by providing regular reporting via access to an online portal. For more information on our syndication process, visit our website or email us at email@example.com.