A Commercial Real Estate Syndication is a collection of investors who are pooling resources together to purchase a large asset that would otherwise be out of reach for those investors independently. This is all possible due to Rule 506(b) and Rule 506(c) of Regulation D.

Rule 506(b) allows for investors to work together to purchase larger assets. Before the JOBS act, this would require to get SEC approval through a lengthy, costly process. By the time that process would have completed, there is no way you would have been able to buy the property in time.

Enacted in 2012, the Jumpstart Our Business Startups Act, or JOBS Act, is intended, among other things, to reduce barriers to capital formation, particularly for smaller companies. The JOBS Act requires the SEC to adopt rules amending existing exemptions from registration under the Securities Act of 1933 and creating new exemptions that permit issuers of securities to raise capital without SEC registration. On July 10, 2013, the SEC adopted amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act to implement the requirements of Section 201(a) of the JOBS Act. The amendments are effective on September 23, 2013

Section 4(a)(2) of the Securities Act exempts from registration “transactions by an issuer not involving any public offering.” Rule 506(b) is a rule under Regulation D that provides conditions that an issuer may rely on to meet the requirements of the Section 4(a)(2) exemption. One of these conditions is that an issuer must not use general solicitation to market the securities.

Source: https://www.sec.gov/info/smallbus/secg/general-solicitation-small-entity-compliance-guide.htm
More information: https://www.sec.gov/oiea/investor-alerts-bulletins/ib_privateplacements

"An offering memorandum is a legal document that states the objectives, risks, and terms of an investment involved with a private placement. This document includes items such as a company's financial statements, management biographies, a detailed description of the business operations, and more."

This document is typically used as marketing material and can range from 20-50 pages long. This is created by the general partner group.

Source: https://www.investopedia.com/terms/o/offeringmemorandum.asp

"A Private Placement Memorandum (PPM) is a securities disclosure document used by a company (issuer) that is engaged in a private offering of securities. A PPM serves as a single, comprehensive document outlining the material details about the offering."

This document is typically used as the fully detailed description of the investment plan and can range from 90-125 pages long. This is drafted by an attorney.

Source: https://www.foster.com/newsroom-publications-white-papers-elements-private-placement-memorandum-real-estate

The SEC defines what is an accredited investor on their website: https://www.sec.gov/capitalraising/building-blocks/accredited-investor

You can use options like Self Directed IRA or Solo 401k for investing retirement funds in real estate. Many 401k providers from current employers allow for rollover while still employed, but you will need to check with your 401k custodian.

LP is short for Limited Partner, also known as a passive investor.

GP is short for General Partner, also known as a Sponsor.

Many Syndication groups aim for a 5 year maximum hold period. Sometimes an asset is able to go full cycle earlier than predicted. You should always assume your funds will be locked in for the full term.

Many Syndication groups have their minimum investment criteria set to $50,000.

Liquidity of funds in a Syndication are dependent on the Private Placement Memorandum(PPM). If you have concerns with liquidity of your investment, you need to review this with your sponsor group to determine if it is possible to sell your shares during the hold period. This can vary between assets.

You should not invest funds which you are going to need to rely on within the expected hold period.

Commercial Real Estate Funds allow for equity distribution over multiple assets which provides diversity in your investment. At the same time, this also reduces your control over which assets you are investing in. Typically there is a target range for Preferred Return, IRR, and ARR. This makes sure that the investor is able to confidently trust their money is going to an asset they would normally have been interested in. These numbers are based on projected assumptions, but the General Partner group should have a track record which supports their ability to perform.

These funds are typically open to new investors for a 12 month period due to limitations in place by the SEC. You can see some of the limitations on the SEC site. https://www.sec.gov/education/capitalraising/building-blocks/private-fund

We work hand in hand with attorneys who work specifically with these funds so that we make sure to meet all SEC requirements.