Real estate syndication is one of the most effective methods for raising funds and executing large-scale real estate investment projects. A real estate syndicate will involve two main parties: the sponsor, who helps organize the project and funding, and the investors who help contribute the majority of the needed capital.
In the United States, the passage of the JOBS Act in 2010 helped democratize the once much more exclusive real estate industry. For the first time, everyday individuals could begin investing in commercial real estate. Using crowdfunding and other methods, real estate sponsors have since been able to attract incredibly large amounts of capital in a very short amount of time.
Since the initial passage of this act, the industry has become increasingly competitive. This has especially been true over the past year or so when interest rates have been very low and the national housing stock has been very limited.
While the possible benefits of real estate syndication might be obvious to some, it is also clear that not everyone can succeed in this potentially profitable space. Firms that fail to build credibility or distinguish themselves from their competitors will often be overlooked by potential investors. Investing in better syndicate technology and software, like SyndicationPro, can help firms improve their operations and deliver better outcomes for investors.
Building credibility will be especially important in the early stages of the syndicate when there is a limited (or non-existent) track record available for potential investors to look at. Fortunately, with a few directed strategies, aspiring real estate syndicators are finding ways to break into this competitive space.
Leveraging Previous Experiences
If your syndicate has never completed a project before, potential investors will naturally be skeptical. You are asking them to risk their hard-earned capital, after all, and they will want to have at least some degree of confidence that this capital is actually safe.
Focusing on your broad experience in the real estate and/or finance industries can help put potential investors' minds at ease. What are your work and education backgrounds like? Do you have any special certifications? Have you worked on any similar projects in the past, even if you were not necessarily the sponsor?
The first question a potential investor might ask (even if just implicitly) will be: why should I trust you with my money? Why should I choose you over the many other commercial real estate investment alternatives currently available?
Being able to answer this question will mean that you are pointed in the right direction. Your previous experiences have all been leading up to the status quo and it remains up to you, the syndicate sponsor, to effectively leverage them.
Specialization is another way to distinguish yourself from your competitors. If you are broadly promoting yourself as a “general” syndicate, it will be much more difficult to stand out. Firms that claim they are just as comfortable developing individual homes as they are developing public schools (or anywhere else) will likely be experts in neither category.
As soon as your enterprise gets off the ground, you should find a specific type of asset class that you can specialize in. Real estate investors might be interested in investing in a “residential” project, but there will always be many others available for them to choose from. Instead, come up with a specific type of property that falls within the much broader residential category.
Constructing dual-family, multi-bedroom, tech-focused homes within the St. Louis area, for example, will be much more specialized (and noticeable) than investing in residential real estate, in general. Having a narrow vision will help build wider credibility.
If a real estate sponsor is having a hard time developing credibility, one of the best things he/she can do is, partner with others who are already considered credible. Keeping a credible company can help create possible in-roads and lead to long-term relationships and connections.
Partnering with tech-focused and investing in syndication technology can help firms of all sorts deliver a better end product and communicate with prospective investors. SyndicationPro, for example, is one of the leading real estate syndication software that helps eliminate the need for extensive (and confusing) spreadsheets and replaces them with centralized, accessible, and actionable aggregated information. This is exactly the sort of technology that potential investors want to see being used on a regular basis.
Contrary to what you might expect in a competitive market, it is quite possible for multiple syndicates to work together in pursuit of a broader project. This makes it easier for aspiring firms to start small and work their way up over time. Furthermore, strategic partnerships can help your firm begin building a track record that can be used to attract future clients.
Beyond other syndicates, you can also create strategic business partnerships as well. Your lawyer, your accountant, and other professionals can all be leveraged to improve industry-wide credibility. With the right connections, your firm will no longer be on the outside looking in.
When someone says, “I wrote a book”, your first instinct will probably be to assume that they are somewhat of an expert on whatever that book is about. Publishing—anything—helps turn your theoretical expertise into something that is actually tangible.
Writing a book about real estate investing, property syndication or any related topic will help show people that you actually know what you are talking about. But a book is just one of many forms of information marketing that you can potentially engage in. Even a 1,000-word blog post or other types of digital media will help begin improving your brand and demonstrating your understanding of the dynamic industry. Information marketing strategies can take time, but eventually, you will have a digital footprint that confirms your expertise and credibility.
Developing a Unique Selling Point
When all else is equal, a prospective investor will naturally prefer real estate syndicates with extensive experience over those that have limited experience. So, if the experience isn’t your firm's main selling point, you will need to determine how else you can potentially get ahead.
There are many ways your firm can distinguish itself from the alternative. Basic branding details—logos, slogans, websites, keywords, etc.—can be easily modified to appeal to a specific audience. Your investing platform, your target audience, your value proposition, and your promised (and justified) rates of return can also help your enterprise begin to stand out from the very crowded playing field.
Ultimately, credibility is something that is going to take time to establish. There is no “magic button” that will put you ahead of your competitors overnight. But with time, discipline, and a coordinated strategy, you can break into the real estate syndication industry and move closer to achieving your enterprise’s long-term goals.