Terms for Real Estate Syndication

Terms for Real Estate Syndication

Know your industry lingo and terminology and negotiate better deals with confidence.


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. 

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. 

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. 

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. 

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. 


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

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. 

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). 

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. 

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. 

Active Investment

The opposite of passive investing. An active investor does all the work of sourcing, structuring, managing and exiting investments.

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. 

Asset Management Fee

A recurring fee paid from property revenues to the general partner for asset management. 

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. 

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. 

Cash Flow

Cash profit left after deducting operating expenses and any debt service payments. 

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. 

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. 

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. 


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


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. 

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. 

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. 

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. 

Effective Gross Income

EGI is the effective income calculated by subtracting any losses due to vacancy, lease concessions, employees, model units, and bad debt. 

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. 

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.

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.

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.

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’. 

Interest Rate

Part of the cost charged by a lender for the using their funds to finance a deal.

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. 

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.

Holding Period

The holding period is the amount of time the sponsor plans to hold the property.

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.

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.

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.

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.

Loan-to-Cost Ratio

LTC ratio shows the value of the anticipated loan amount against total costs involved (acquisition and renovations).

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.

Market Rents

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. 

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.

Net Operating Income

NOI of a property is calculated by totaling all incoming revenue from a property and subtracting operating expenses.

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.

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.

Passive Investment

Placing your capital into a real estate syndication which is managed for you.

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.


Projected financial statement to estimate revenues and expenses. Often for 1 and 5 years.

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.


A T12 is a profit and loss statement showing the actual reported numbers for the last 12 months.

Property Management Fee

Recurring cost of  having a professional property management company handle the day-to-day operations of a property.


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.

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.

Rent Premium

Rent premiums can be earned by completing upgrades and renovations.


Replacement of a debt obligation on a property with a new loan.

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.

Sophisticated Investor

An individual deemed to have enough experience and knowledge to assess the risks and merits of an investment opportunity for themselves.

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.

Sales Comparison Approach

The common method of estimating a property’s value based on recent similar sales in the area.

Vacancy Loss

How much potential revenue and cash flow is lost on vacant units.

Vacancy Rate

The percentage of vacant units in a multifamily community.


The process of evaluating an apartment building community to determine the status, value, risks and potential returns.