If you are looking to participate in apartment syndication, you may be interested in knowing more about “fees real estate syndicators charge.”
Who are syndicators?
Apartment syndication is a type of real estate investment arrangement where individuals or companies come together to pool their money to buy large apartment buildings that an individual investor cannot afford. The group of individuals participating in the apartment syndication also share risks as well as returns from the investment.
The syndicator is the individual who plays an active role in getting together investors for the syndication. The syndicator is also known as the general partner or sponsor and is responsible for finding the right property to invest in, getting investors on board as well as operating and managing the day-to-day matters of the real estate property. The passive investors are those who offer financial equity and are known as Limited Partners.
While the syndicator invests 5 to 20% of the capital needed to acquire the apartment syndicate, the Limited Partners provide 80 to 95% of the equity.
Fees syndicators charge
The Syndicators or General Partners can make money in different ways from the apartment syndication deal. Here are the three common ways for syndicators to make a profit:
The syndicator can charge acquisition fees that range between 1 to 5% of the property purchase price. In some instances, the fee can also go beyond 5% or rarely be less than 1%.
For instance, if the apartment complex is worth $1 million, the syndicator can make $50,000 by charging a 5% acquisition fee or $20,000 at 2%.
The acquisition fee is generally structured on a sliding scale where the bigger the real estate deal, the smaller the fee charged.
Asset management fee
The asset management fee may be collected as a percentage of the property income, and the standard fee in the industry is 2%. The syndicator earns $2000 per month if a property collects $100,000 as monthly income.
Another structure for the asset management fee is the annual cost per unit, where the standard fee per unit fee is $250. When there is a 100-unit asset that the syndicator is managing, the fee earned is $25,000 each year.
A third way for the syndicator to charge a fee is to get ownership interest. Based on the apartment syndication deal, the amount of money the syndicator invests personally, and the overall investment opportunity, the ownership can range between 10% to 70%.
Typically, passive investors or limited partners retain 70% ownership while the syndicator or general partner retains 30%. These percentages translate to dollars when the apartment complex is sold or refinanced.
Equity Participation fee
Syndicators are also compensated through equity participation. While the passive investors are the first ones to receive the return of 8 to 12% or more on the invested capital, the remaining cash flow is split between the investors and the syndicator based on the percentage agreed on.
-The Multifamily Review Team
Hi, my name is Michael Avent. I founded The Multifamily Review in 2020. I’m a Commercial Agent at Northcap Multifamily located in Las Vegas, Nevada. My vision for The Multifamily Review is to be the most trusted resource for all Multifamily Investors and Industry Professionals. We strive to offer the best and most up to date content to our readers and are always open for suggestions. Make sure you sign up to join our newsletter to stay up to date on our latest blog, ebook, and more exclusive content that’s coming your way! The Multifamily Review team and I look forward to building a deeper relationship with you!
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