When you’re putting together a real estate syndication, a lot of your world gets consumed by the world of Regulation D, the SEC, syndication, and funds. But what we oftentimes forget is that many people don’t know what we’re talking about when we say “real estate syndication,” and they would be interested, but they just don’t know. So a lot of times you’ll get the question, “Can you give me an example of what a real estate syndication would look like?” In this video, we’re going to do just that.
My name is Tilden Moschetti. I’m a syndication attorney with the Moschetti Syndication Law Group. Let me give you an example of what a real estate syndication is. I understand that if you’re watching this video, you probably already know what it is, but many people don’t. I’m oftentimes surprised myself because I forget, this is my world that I live in 24 hours a day, seven days a week, 365 and one-quarter days a year. But most people aren’t living in this world or thinking about this stuff all the time.
Here’s an example I could use if I was asked, “Can you give me an example of a real estate syndication?” I would probably say, let me tell you about one of the first deals that I did. I found this piece of property that was already developed by a developer. It was a medical office property, and they had a tenant lease already signed. I knew who the developer was, I already had the relationship with them, and I knew that they were interested in selling it pretty quickly because they wanted to move on to their next project. So I immediately thought this was a good opportunity to buy in at a lower price and get a nice piece of real estate.
I could have bought this property for myself, but I wanted to get started in syndication. So I did this deal. I put the property under contract, and then I started looking for investors. In this case, I have a good network, so I was using Rule 506(b) in order to find investors, which meant I could take both non-accredited and accredited investors. I went around to everybody that I know and talked to them about this investment.
I said, “I’m buying this piece of real estate. I’m getting it at a discount because the developer who’s just finished it already has the major tenant in place and is ready to move in as soon as development is over. But they want to go off and develop another project for that same tenant, so I’m getting it at a good discount.”
Now, I know that in the area, there is only one of these buildings and one of this kind of tenant. This is a medical tenant. There are some other reasons why this is a very specific purpose, and it’s an underserved community for the services that this medical company provides. So there was a good need in the marketplace for it, which creates value in that tenant. They want that tenant there, and the tenant is most likely going to stay there for a very long time and keep renewing their leases.
Also, the economics of the area and the demographics were really strong. It was strong in most areas, but it was also uniquely strong in the same medical service that was necessary and being provided by my tenant. So I had this great opportunity.
What I did is I divided it up. I think it was approximately a $2 million raise, and I’m rounding here because I don’t remember exactly. It was a $2 million raise, and then I put financing of another $2 million on it. So I got a loan for $2 million, so I still needed to raise $2 million. I divided it up into $50,000 shares, and then I started selling those $50,000 shares out to people that I knew, people who were already in my network.
Now, some people came in through family, and I would explain to them what the family was, and they wanted to support me, so they came in. Others were friends, so friends were interested, and they wanted to support me as well, and they saw a good opportunity. They knew I knew the industry very well, so they trusted me with their money. The other was business associates, so business associates knew that I knew what I was doing, that I knew the property well, and that they stood to gain financially with it.
Some people chose to invest just cash out of their savings or checking accounts. Some chose to invest with their self-directed IRA. At the end of the day, we raised that $2 million. So then at closing, all $4 million went to the property.
I managed that property. I didn’t hire a property manager; it was basically on a triple net lease, so it wasn’t very difficult to manage. Then every quarter, I made distributions to my investors. It turned out that we were making distributions right around the amount that we told investors we would be making. We made them very regularly. We didn’t let a day go by when if we said it was going to be on the first of the month, it had to happen on the first of the month, or the first Monday of the month. We didn’t let a week go by in order for me to make that distribution.
At the end of four and a half years (I projected that it was going to be a five-year term), I decided the market was in a really good position. I wanted to sell the property. I told all my investors, “I think now’s the time to sell. What do you all think?” Everybody seemed to agree with me. I marketed the property and found a buyer. I did this deal myself where I put it on the market and sold the property myself. The first transaction didn’t go through; the second one did.
We made a lot of money for my investors and made my final distributions. Each investor, I was projecting, would make a 15% IRR (Internal Rate of Return). So you can think of it almost like it’s 15% annually that they were getting from their investment. At the end of the day, I think it was 15 and a half percent. So we overachieved just by a little bit.
Investors got their money, they were happy, and investors came with me on the next round. So that is an example of a real estate syndication, a very simple one. I had one tenant, I had a bunch of investors – I think I had maybe 16 or 17 investors at that time in that deal – and we made the money.
So there is an example of what a real estate syndication is. Hope you found that useful. My name is Tilden Moschetti. I am a real estate syndication attorney with the Moschetti Syndication Law Group.