Glossary | Real Estate Syndication Terms

A

Absorption Rate Absorption Rate in real estate investing scenario is the rate at which available properties are sold in a given time phase. It is calculated by dividing the number of properties sold in a given time, by the total number of available properties. Read More View Less

Accredited Investor Accredited investors are individuals qualified to invest in apartment syndications by having annual income of $200k, or $300k for joint income, or a net worth of $1M (not including the primary residence). Read More View Less

ACH Payment Automated Clearing House (ACH) uses its network for bank to bank electronic money transfer in the USA. Users can transfer money from their bank account to any other bank account using ACH Payment facility. Read More View Less

ACH Return Code If ACH is unable to collect funds from the customer’s account, a three character code is given as a result, which briefs about the reason for return. This code is known as ACH Return Code. Read More View Less

Acquisition Fee Form of compensation earned by the general partner in a syndication in exchange for sourcing, vetting, securing financing and closing on a new investment asset. Read More View Less

Active investing An investing backed by active participation of the investor in the venture. Active investing may include sourcing of the opportunity, management of funds, and administrative work to manage the asset invested in. Read More View Less

Active Investment The opposite of passive investing. An active investor does all the work of sourcing, structuring, managing and exiting investments. Read More View Less

Amortization The schedule of monthly mortgage (re)payment is called as Amortization. Usually, a reducing interest is charged, and on regular payments, more amount goes into the principals. Read More View Less

Apartment Syndication Pooling resources from numerous passive investors through a sponsor to acquire, execute, and resale an apartment building. Read More View Less

App Integration Making independently designed applications work together in one interface, by accessing data and functionality. Read More View Less

Appraisal Appraisal is a valuation of a property estimated by an authorized person. It is estimated for taxation, insurance purposes and to determine possible selling price of a property. Read More View Less

Appreciation Increase in the value of a property as per time. Read More View Less

Asset Management Fee A recurring fee paid from property revenues to the general partner for asset management. Read More View Less

Assumption fee A fee charged on a buyer for taking over a mortgage from the seller of the property. The buyer agrees to make monthly payments for the assumed mortgage. Read More View Less

B

Bad Debt The loan amounts that are clearly determined as not collectible at present and in future. Read More View Less

Breakeven Occupancy The occupancy rate required to bear all the expenses of a multifamily real estate property. It is the ratio of the sum of operating expenses and debt service and the gross potential income (through rents, parking fees, etc.) Read More View Less

Bridge Loans Short term investor loans to leverage equity in one property to fund another or access equity as cash for a down payment on a new acquisition. Read More View Less

C

Cap Rate The capitalization rate is calculated by dividing net operating income by the current market value of a property in order to determine a forecasted rate of return. Read More View Less

Capital The money invested to fund a real estate venture (equity/debt), including property acquisition, formation of the company, and other expenses. Read More View Less

Capital Expenditure Capital expenditures are funds used by the management company or active partners to acquire, improve or maintain a property. Often referred to as ‘CapEx’. Specifically applied to funds improve the useful life of a property. Read More View Less

Cash Flow Cash profit left after deducting operating expenses and any debt service payments. Read More View Less

Cash-on-Cash Return COC returns are the rate of return calculated by dividing cash flow being produced by a property by the upfront cash investment. Read More View Less

Check Payment An instrument issued by the payer against the deposited funds to pay the recipient a specific amount on demand. Read More View Less

Closing Costs Any costs required to close on a real estate or refinancing transaction. Can include origination, application, processing, underwriting, appraisal, and recording fees, as well as impounds for taxes and insurance. Read More View Less

Concessions Incentives offered by the seller to the buyer of a property to close the deal faster. This may be reduced final price, repair cost, or personal possessions like furnishing. Read More View Less

Contract A legally binding agreement that guides a real estate transaction. Read More View Less

Cosponsor Module Unlike other syndication platforms in the market, SyndicationPro offers Co-Sponsor Module through which you can invite fellow sponsors and take down deals faster than before. Transform your business to quickly scale your acquisition portfolio confidently. Read More View Less

Cost Approach Property valuation method that assumes that the buyer should pay the price of constructing an equivalen building. Read More View Less

Cost Segregation The the process of identifying costs and assets, and their classification for tax purposes. Applied to reducing current tax liability and deferring taxes. Read More View Less

CRM Customer Relationship Management if the technology to manage all communications with existing and potential customers/clients of a business. Read More View Less

Crowdfunding The process of collecting funds/investments from multiple investors, by connecting them through social media and other online channels. Read More View Less

D

Deals An agreement entered into two or more parties regarding the transfer of ownership or other kind of real estate transaction Read More View Less

Debt Investing Debt investment is the investment in debt obligations. Like a mortgage loan. Debt investors normally earn interest until the time the debt is fully repaid. These investments sometimes provide an option to convert to an equity position. Read More View Less

Debt Service Loan payments required to be paid back to a lender as considering debt service. Often used to calculate the DSCR for commercial real estate financing, and in evaluating investment returns. Read More View Less

Debt Service Coverage Ratio (DSCR) The Debt Service Coverage Ratio is the figure commercial mortgage lenders use to underwrite and qualify a property for financing. DSCR measures the cash flow that will be available to cover debt service after other operating expenses. A DSCR ratio of 1 means the cash flow should cover the debt payments. Lenders normally require a minimum DSCR of 1.2. A better ratio may qualify the borrower for better terms. Read More View Less

Defeasance Defeasance is a clause or condition in the sale deed or contract. If the condition is fulfilled, the contract or deed will be null or void. In another context, defeasance is a method to reduce the fees, when the borrower urges to prepay a fixed rate commercial real estate loan. The repayment may be in cash, or in the form of another cash-flowing asset for the original collateral for the loan. Read More View Less

Depreciation Depreciation is the decline in the value of a real estate asset over time. Practically, the value of a real estate investment gains appreciation over time, bringing better equity for the owner. However, the value of the asset or building reduces gradually due to structural parameters. This decrease in value is called depreciation. Read More View Less

Digital PPM Private Placement Memorandum is an offer document provided by a private company that comprises the details and disclosures for their private real estate offering. The private real estate is referred to as a Special Purpose Vehicle, which may be an LLC or LP. The investment is backed by the assets and investments owned by the SPV. Read More View Less

Distressed Property Distressed Property is a property that is in pre-foreclosure or foreclosure due to the owner’s failure in mortgage payments or property tax bills. Distressed Property also refers to the properties under the control of a bank or lender. Read More View Less

Distributions The funds paid out to investors. These profits can be paid monthly, quarterly, or on a successful exit event. Read More View Less

Distributions Calculator A digital tool used to calculate the profit shares, capital gains, and other financial benefits for the investors in a real estate syndication or even in an REIT. Read More View Less

Document Management Document Management is the process of searching and retrieving the required real estate deal-related and other crucial documents from a central storage location. Document Management System helps investors get the precise document whenever they need, through their browser-enabled devices. Read More View Less

Due Diligence Due diligence is a group of tasks and processes for screening and evaluating the property to satisfy lender underwriting requirements. Can include appraisals, surveys, inspections, and title work. Read More View Less

E

Earnest Money Deposit Earnest money is placed into escrow by the buyer of an apartment building as a deposit to show their commitment to execute on the purchase contract. EM is credited toward the purchase at closing. Read More View Less

Economic Occupancy Rate Economic Occupancy Rate is the proportion of the gross potential rental income of a property to the actual money earned by a business. Read More View Less

Effective Gross Income EGI is the effective income calculated by subtracting any losses due to vacancy, lease concessions, employees, model units, and bad debt. Read More View Less

Employee Unit A residential unit allotted to an employee on a subsidized or discounted rent or for free of cost, is called as Employee Unit. Read More View Less

Equity Investment The amount of cash put into an investment. In apartment building syndications this capital can be used toward the down payment, closing costs, borrowing costs, funding an operating account, and compensation earned by the general partners. Read More View Less

Equity Multiple EM is a method to calculate a rate of return on commercial investment properties. It is calculated by dividing total cash distributions (cash flow and cash on exit) by the equity investment made. Read More View Less

Equity Under Management (EUM) Equity Under Management refers to the total amount of Equity purchased by the end-user investors out of the currently active investment vehicles by a real estate syndication. Read More View Less

eSign An electronic signature made through any device, like a desktop, laptop, tab, or smartphone, using the eSign app. This has become a swift and easy way to sign important documents today. Read More View Less

Exit Strategy How the syndication plans to cash investors out of their stake in the future. This may be through selling the property, purchasing their shares, or refinancing them out. Read More View Less

F

Financing Fees Financing Fees are the total amount paid by the borrower throughout the life of a mortgage. This includes the processing charges for the mortgage and the interest paid till the last installment. Read More View Less

Floating Rate A floating interest rate is the same as an adjustable or variable or interest rate loan (ARM). The rate of interest charged, and payments can float and fluctuate with the market. Read More View Less

Fundraising Fundraising is a process of seeking and gathering financial contributions from investing individuals or businesses to complete a real estate project or to acquire a real estate property. Read More View Less

Fundraising Automation Fundraising Automation is a process of setting up an automated mechanism to take a potential investor through the sales funnel, based on his behavior, communication, and other parameters. In another context, allowing investors to invest their contribution swiftly through electronic payment modes is fundraising automation. Read More View Less

Fundraising Workflow Fundraising Workflow refers to the procedure to convert a potential investor into an actual investor. A syndicator pitches the project idea, convinces the potential investor, gets a token as a soft commitment, and finally the investor deposits the mutually agreed amount. Read More View Less

G

General Partner A General Partner usually owns the business partially and takes care of the routine administration of the business. General Partner gets a predetermined profit-share. Read More View Less

Gross Potential Income Potential income that a multifamily property could produce with no vacancies and all leases signed at market rates. Plus all other revenue. Read More View Less

Gross Potential Rent A hypothetical amount of revenue if a apartment community was leased at 100% occupancy year-round at market rental rates. Aka ‘GPR’. Read More View Less

Gross Rent Multiplier A calculation showing the number of years it would take for a property to pay for itself based upon the gross potential rent. Calculated by dividing the property purchase price by annual gross potential rent. Read More View Less

Guaranty Fee Guarantee Fee is a sum paid to the issuer of a mortgage-backed security, which reduces the risk for loss in the case of defaults. This amount is paid against the administrative costs and other expenses of the issuer. Read More View Less

H

Holding Period The holding period is the amount of time the sponsor plans to hold the property. Read More View Less

I

Income Approach Income Approach is a method in real estate to estimate the value of the property based on the income it can generate. Read More View Less

Interest Rate Part of the cost charged by a lender for the using their funds to finance a deal. Read More View Less

Interest-Only Payment A monthly mortgage payment only requiring interest to be paid, with no pay down to the principal balance. Balance may be due on sale, refinancing or at the maturity of the loan. Read More View Less

Internal Rate of Return IRR is calculated based on all future anticipated cash flow, plus principal pay down on debt and proceeds from the exit of a property. Read More View Less

Investment management In real estate syndication, Investment Management is the professional management of the assets and securities, especially the investments made by the pool of investors to acquire a property or to complete a real estate project. Read More View Less

Investment management software Investment Management Software is a tool that helps in various operations to manage investments made by the pool of investors in a real estate deal/project. An Investment Management Software helps syndicators to manage investment portfolios, optimize performance, track assets and audit compliances. Read More View Less

Investor Investor is an individual or business pouring in money in a property expecting profits in return. Read More View Less

Investor Portal Investor Portal is a tool to deliver deal-related content to the investors, including the details of their financial transactions, agreements and other deal-specific documents, tax-related documents, and more. Read More View Less

Investor Relations Investor Relations is a combination of communication, financial transactions, and marketing to control the flow of information between syndication and investors. Read More View Less

Investor Statements A document used to help explain the role of the investor and the responsibilities the investor might have within a syndication. Read More View Less

Investor Updates Periodic updates explaining how the investment has been performing and other relevant details. Investor updates are frequently given on a monthly or quarterly basis. Read More View Less

J

Joint Venture A Joint Venture is a partnership formed by two or more investment partners. They may be individuals or corporate investors. Read More View Less

K

K-1 Tax Form A tax form used for reporting business-related income, losses, and dividend payments. Read More View Less

Key Principal The key principle in apartment syndications is someone vital to the ongoing success of the investment. This person should be insured to cover any interruptions should something happen to them. Read More View Less

L

Lead Nurturing Lead Nurturing is the process of capturing information about a potential investor and converting that potential investor into an actual investor by convincing about the prospects of the syndication and the possible profit share for the investor. Read More View Less

Lead Sponsor The most important sponsor within a real estate syndication–this person often has the most responsibilities, in addition to being the largest stakeholder. Read More View Less

Lease Lease is the contract between two parties, where one party provides a property to the other, in return of a periodic payment. Read More View Less

Letter of Intent An LOI is a non-binding agreement provided by a buyer proposing their purchase terms. Typically used as a speedier method to make an offer, without being legally tied into the deal. Read More View Less

Limited Partner A Limited Partner’s liability is limited to the extent of their share of ownership. It is common in a real estate syndication that the limited partner is a passive investor who simply puts in capital. Read More View Less

Loan-to-Cost Ratio LTC ratio shows the value of the anticipated loan amount against total costs involved (acquisition and renovations). Read More View Less

Loan-to-Value Ratio The LTV calculates the ratio of the loan amount divided to the apartment building’s appraised value. It is how much a lender will loan compared to the current value. Read More View Less

London Interbank Offered Rate The LIBOR is a benchmark interest rate, often used to calculate mortgage loan rates and interest rate adjustments on variable rate loans. Read More View Less

Loss-to-Lease Loss-to-Lease is the difference between the best rental rate as per the market conditions and the actual rent according to the Lease. Read More View Less

M

Market Rent The market value of a rental unit for lease according to comparable rental rates for similar units in close proximity to the subject. Used to calculate value, cash flow and potential mortgage loan amounts. Read More View Less

Metropolitan Statistical Area A MSA is a geo region with a substantial population. These are cities pooled together with neighboring communities having high degrees of integration. An example is the Miami Metropolitan Area. This MSA actually encompasses Miami, Fort Lauderdale and West Palm Beach, 3 counties, dozens of cities and even more neighborhoods. Read More View Less

Migration Process The process of moving a parcel of land from the old paper-based records to modern online parcel-based registry system is called Migration Process. When the procedure gets an approval by the Land Registration Office, the particular land is ‘migrated.’ Read More View Less

Model Unit Model Unit is a residential unit as a sample to be shown to prospects, but not for sale, unless all the housing units in the category are sold. Read More View Less

Mortgage A loan taken to purchase or maintain a residential property, land, or any other type of real estate property is called Mortgage. The real estate property serves as the collateral for this loan. The borrower repays the loan in regular instalments that include principal and interest as per mutually agreed rate of interest. Read More View Less

Multifamily Multifamily is a classification of housing property, in which multiple housing units are accommodated in the same building, or multiple buildings in the same complex. Read More View Less

N

Net Operating Income NOI of a property is calculated by totaling all incoming revenue from a property and subtracting operating expenses. Read More View Less

Non-Recourse Loan Non-recourse loans are loans on which the borrower is not obligated to sign a personal guarantee. The lender’s recourse to pursue the debt in default is effectively limited to the pledged real estate collateral the loan was made on. There may be carve-out exceptions to fraud and negligence. Read More View Less

O

Operating Account Funding The process of organizing and financing the day-to-day functions of a real estate syndication. Operating account funding helps maintain property values over time. Read More View Less

Operating Expenses The costs to run and maintain an investment property. In apartment syndications, operating expense usually includes; payroll, maintenance, repairs, contractors, management fees, property taxes, insurance, marketing, admin, utilities, and capital reserves. Read More View Less

P

Passive Investing Passive investing is a process of investing for a long term, earning a regular profit share regularly. Passive investing doesn’t provide any control on the business entity, however brings a regular source of income to the investor. Read More View Less

Passive Investment Placing your capital into a real estate syndication which is managed for you. Read More View Less

Permanent Agency Loan A long-term mortgage loan guaranteed by a government sponsored agency like Fannie Mae or Freddie Mac. Loans can be amortized over as much as 30 years. Read More View Less

Physical Occupancy Rate Physical Occupancy Rate is the percentage of residential units that are already occupied by tenants in a multifamily real estate property. Read More View Less

Preferred Return Investors with preferred shares or preferred returns receive distributions and returns up to an agreed upon percentage before the sponsor. This holds them accountable and ensures interests are aligned. Read More View Less

Prepayment Penalty A penalty for paying off a loan balance early, securing a desired rate of return for the lender and their investors. These clauses can be especially complicated calculations in commercial mortgage lending. Read More View Less

Price Per Unit The price per unit of in an apartment building. In example; a 100 unit building for sale at $100k would have an effective price per unit of just $1k. Used as a method of comparing competing properties, assessing value and weighing returns between investments. Read More View Less

Private Placement Memorandum Also known as the offering memorandum. A document that lays out the risks, objectives and terms of an investment, in addition to documenting the syndicator’s business operations and condition. Read More View Less

Pro forma Pro forma is a document provided as a courtesy, to showcase compliance with the norms or doctrine, and it is performed prefunctionarily. Pro forma shows that the minimum requirements are met. Read More View Less

Pro-forma Projected financial statement to estimate revenues and expenses. Often for 1 and 5 years. Read More View Less

Profile Management The process of controlling personal settings within a specific platform, such as SyndicationPro. Read More View Less

Profit and Loss Statement (T-12) A T12 is a profit and loss statement showing the actual reported numbers for the last 12 months. Read More View Less

Property and Neighborhood Classes Property and Neighborhood Classes reflect the classifications of the properties in a location, usually by using the letters/grades A, B, C, and D. The classification of the properties is done based on various criteria. Read More View Less

Property Management Fee Recurring cost of having a professional property management company handle the day-to-day operations of a property. Read More View Less

R

Ratio Utility Billing System A RUBS system is a method to bill tenants back for incurred utility costs. May be based on occupancy or square footage leased. Read More View Less

Recourse The right of a lender/creditor to pursue the debt owed to them. A full recourse loan can expose liability to personal assets beyond the collateral in the case of a default on the loan. Read More View Less

Refinance The process of revising and replacing an existing credit agreement as per the current scenario is called as Refinance. Read More View Less

Refinancing Replacement of a debt obligation on a property with a new loan. Read More View Less

Refinancing Fee Refinancing fees is an amount to refinance a loan agreement. This cost includes lender fee, insurance, taxes, escrow and title fees, credit fees, and appraisal fees. Read More View Less

RegD 506b RegD 506b is a provision in Regulation D of the Securities Act. It allows companies to raise funds without registering with the Securities and Exchange Commission (SEC). Read More View Less

RegD 506c RegD 506c is a provision that allows issuers to broadly solicit and advertise an offering, when all the investors are accredited investors. The issuer can verify the accredited status of all investors and some conditions in Regulation D of the Securities Act are met. Read More View Less

Rent Comparable Analysis (Rent Comps) An analysis and comparison of rents for properties with same features in an area or neighborhood is called Rent Comparable Analysis or Rent Comps. The process is similar to running sales comps. Read More View Less

Rent Premium Rent premiums can be earned by completing upgrades and renovations. Read More View Less

Rent Roll The spreadsheet or document detailing each of the unit in an apartment community. A good rent roll will include unit numbers, tenant names, unit types, square feet, market rents versus actual rent, deposit amounts held, move-in date and lease-start dates, plus lease-end dates and current status. Read More View Less

Reposition Repositioning is a strategic utilization of renovations, remodeling, and upgrades to a property to change its position in the real estate market. Read More View Less

Reservation Module A part of a real estate investment management system, where users can manage their reservations, make necessary changes, and complete certain actions. Read More View Less

Reservations A common component of the property buying process in which a potential buyer (for a fee) reserves the right to buy the property for a specific period of time. Read More View Less

S

Sales Comparison Approach The common method of estimating a property’s value based on recent similar sales in the area. Read More View Less

Sales Proceeds Sales Proceeds are the actual proceeds from selling any real estate asset, after deducting any cost required to sell the real estate property. The cost for selling the property includes commissions and legal fees. The value is further deducted by the amount of any debts occured in the real estate asset. Read More View Less

SEC Compliant SEC Compliant entity strictly adheres to the rules and regulations drawn and enforced by the Securities and Exchange Commission. Read More View Less

Soft Commitments Soft Commitments are commitment term-sheets, wherein potential investors indicate their intent to invest in the project specified in the term-sheet, through a small payment in advance, and a mutually agreed deadline to invest the rest of the amount, while acquiring a property or completing a real estate project. Read More View Less

Sophisticated Investor An individual deemed to have enough experience and knowledge to assess the risks and merits of an investment opportunity for themselves. Read More View Less

Sponsor The General Partner individual or team, hosting a real estate syndication by gathering a pool of investors to acquire a property or completing a real estate project, and leading the routine administration and management of the real estate project (offering) is called Sponsor or Syndicator. Read More View Less

Subject Property Subject Property is the residential unit that someone seeks to finance or refinance through a mortgage. Read More View Less

Submarket Submarket is a geographic boundary outlining a core area competitive with other such areas comprising similar property types. Read More View Less

Subscription Agreement Document used as a promise by the LLC that owns the property to sell a specific number of shares to a limited partner at a specified price, and a promise by the limited partner to pay that price. Read More View Less

Syndication Syndications of apartment buildings are basically real estate partnerships. They bring together passive investors who have the capital with the active investor (syndicator or sponsor) which organizes, puts deals together, and manages the process. Read More View Less

T

Two-Way Email Sync The facility to record one’s emails and responses automatically. The user doesn’t need to copy-paste emails. Read More View Less

U

Underwriting The process of evaluating an apartment building community to determine the status, value, risks and potential returns. Read More View Less

V

Vacancy Loss How much potential revenue and cash flow is lost on vacant units. Read More View Less

Vacancy Rate The percentage of vacant units in a multifamily community. Read More View Less

Value-Add Property Value-Add Property is a property that requires corrective actions or upgrades to reach its potential value. Read More View Less

Vet Soft Commitments Vetting soft commitments involves reviewing possible investor partners and trying to determine whether they’d be a good fit. Read More View Less

W

Waterfall Structure Waterfall Structure is a financial structure showing how the return on real estate investment will be distributed among the investors. Read More View Less

Y

Yield Maintenance Yield Maintenance is a prepayment penalty to let the lender gain a similar yield, if the borrower could have made all the scheduled interest payments till the maturity of the particular loan. Read More View Less