Syndication contract - help

27 Replies

For a syndicator, when you go under contract, do you sign on the contract with your own name? Or the LLC you and your LP's will form? What I want to know is that would my LP need to involved in the contract phase at all?

Thanks so much all!

It sound like you have no experience with being a General Partner.

To do a limited partnership I you must have an attorney and there are many laws you have to abide by. There are many laws that protect the limited partner you are not probably aware of and you can get into some serious legal problems. What could possibly happen when you do not abide by the laws and give your partner the legal forms is if your partner wants out of the deal, for any reason, and you can expect that your partner will want out, if your partner sues you then you will not get any type of trial where you can speak on your own behalf nor will you get any relief from the court. The judge will rescind your partnership agreement, give judgement if favor of your partner and you will pay every penny back plus court costs and damages.

I've been involved with several syndicated partnerships where I was the limited partner and every partnership failed to produce the results projected. I was in very large partnerships with K-Mart shopping centers and even those failed miserably.

When you are dealing with other people's money you have serious obligations and you had better be really good at bookkeeping, handling income taxes, and reporting to your partner(s).

@Jack Orthman I do have experience being a GP. I do have attorneys on my team. I'm not sure how your answer addressed my question...

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@Jingwen Dunford agree with @David Miller. Once you get control of the asset you most likely will setup a SPE (single purpose entity) that will be used to take down the deal.

Most deals your LP's are not involved in the contract and negotiation phase, etc.

Awesome that you already have legal counsel. There are many steps to putting syndicates together and you need to make sure your PPM (private placement memorandum), OA (operating agreement) and subscription booklet cover the many and vast disclosures.

@Brian Adams so would it be ok to sign the contract with my own name, and then assign the PSA to the SPE prior to closing?

@Jingwen Dunford I am not an attorney and can only offer my opinion. 

In your contract make sure your attorney has language addressing your ability to assign the contract to another entity. 

Assuming you have the legal covered, yes you can sign the contract in your name and assign the contract to a new entity as provided in the sales agreement.

@Brian Adams much appreciated! I'm about to go under contract and I just wanted to seek some opinions:)

@Brian Adams also I see that you are a syndicator as well. So do you recommend your LP's to set up an LLC for themselves. And then they use this LLC to participate in our SPE? are there tax advantages to that? Just curious.

@Brian Adams exactly. Being under contract is just a start. There is a long long way to go till closing.

It takes about $95 and 5 minutes of time to set up a SPE LLC (at least in my state). Why not have an entity bare the legal and financial recourse of signing the PSA rather than you personally? Many would argue that it's easy to pierce the veil of an LLC, but only $95 dollars that may add an extra layer of legal protection and in my opinion is more professional I believe is worth it.

You can set up an "acquisition entity" that you only use for the purpose of putting a property under contract with the plan to assign the PSA to the eventual SPE. That way you can reuse the acquisition entity over and over and not worry about loosing the $95 (a rounding error in syndication btw).

@Brian Adams In your opinion, would it work for a passive investor in a syndication on an apartment complex, in exchange for the money invested receive the syndicator's portion of tax write offs for the project instead of return of capital?

Originally posted by Account Closed In your opinion, would it work for a passive investor in a syndication on an apartment complex, in exchange for the money invested receive the syndicator's portion of tax write offs for the project instead of return of capital?

There was another thread where some CPAs pointed out the tax benefits (depreciation) needs to apply to all investors rather than a select group. If If my summary is fair, you can not do what you are suggesting. 

@Jingwen Dunford LPs are generally not involved in the contract or negotiation phase of locking up the deal. Unless they have an active role on the GP side with active duties that allows him to make decisions, then No they’re not involved. With that being said you will sign the contract using the Llc name that the property is in.

I go under contract with my Asset Management Co. (Bluebonnet Asset Manager LLC) but say or assigns, once you have the actual acquiring entity LLC chartered you will then change it out to that LLC.

This of course is done prior to close, once you close you won't be able to change the name on title or at least not without a crap ton of heart burn and money.