Small syndicates usually hold property in an LLC or LP and are structured to be exempt from SEC registration under one of the sections of SEC, Regulation D. The players are usually one or more syndicate managers, generally of the LLC, and one or more investors, in the LLC, with no management role. There should be a competent attorney employed to put the deal into writing, and there may be a CPA, real estate agent and/or a real estate appraiser, to support the "due diligence" required. It is possible, but often not advisable, for the syndicate managers to do their own due diligence. For the smaller, say <$M), deals it may be necessary for the syndicate managers to do their own due diligence. If so, then they should be very competent in the commercial property category they choose.
I assume, from the wording of your question, that you intend to be the syndicate manager. I further assume that you feel competent to assemble a due diligence team to analyze the investment, or you and associates are competent to do so.
If my assumptions are true, then I can provide references too attorneys competent in real estate syndication in Texas and Louisiana. My email address is email@example.com.
If you need help with due diligence, or syndicate management, that's a harder problem. The laws that controls these beasts provide for criminal penalties if they are breached. Those criminal penalties can apply to everyone in sight, syndicate managers, attorneys and other consultants who provide due diligence. It can also apply to people who answer this question. Contact me and perhaps I can give some guidance that might help keep you out of trouble (jail).
There are several Internet sites that purport to generate forms for these deals. Some appear competent, others will be lucky to stay out of jail. Every form the latter generates, that actually gets used to form a syndicate, will be laying out there for years, just waiting for the deal to go wrong. When it does, they will get swept up with the syndicate managers and everyone else who relied on there incompetence.
Don't let all this scare you! In my opinion, small syndicates that are formed with very low, or no leverage, may well be the only safe investment available today. The banks, scared of the Federal Government, won't make commercial loans. They say they will, but their underwriting is onerous and takes much much longer than normal. It's mostly a dishonest way to hold onto potential business. At the same time, investors are almost at zero interest on their bank deposits. The market for commercial real estate is tanking for lack of financing. That results in ever larger cap rates for good commercial properties and an abundance of investors that are capable of funding the deals. A savvy syndicate manager should find it easier to put deals together now, that make sense, than since the late 1980's. Just be careful! and do it right.
A word to investors. Avoid the stock market, especially the larger syndicates and the REITs. We know what has happened to our investments there and about the crooks that inhabit that world. Need there be more said? Look for small(<$5M), one property, income producing deals with income distribution. Don't put all your investment dollars in one deal. Go look at the property before you invest. If it doesn't appear to have the occupancy claimed and if there are other competing properties that are being advertised for lower rents, then ask questions and don't invest if you're not satisfied with the answers. If the syndicate managers are doing their own due diligence, then you, the investor, should have reason to believe that they are very competent in what they are doing.
A further word to the investor. Real estate, like gold, is a hedge against inflation and every prognosticator today claims that we can expect inflation in the very near future. Real estate, unlike gold can't be quickly sold, so you must hold for a good market. That may be some years. But, real estate, unlike gold, can provide income and that softens, even makes it pleasurable to hold. Your investment in real estate can be in either the holding entity's debt, in it's equity, or in a combination of debt and equity. To have a true hedge against inflation, there must be some equity ownership. To be guaranteed some income(sometimes commercial property becomes vacant) it would be well to own some debt. The ideal structure of a deal should make it extremely unlikely that any participant will lose his investment. Unlike the stock market, where the managers make money no matter what, the parties to a small syndicate should all prosper or have low income times together.
Hope this helps!
Nov 8, 2009