Multi-Family and Apartment Investing

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Trey Wheeler
  • Real Estate Broker
  • Irvine, CA
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Syndication Structures - Return of Capital

Trey Wheeler
  • Real Estate Broker
  • Irvine, CA
Posted Sep 17 2019, 14:30

Hi BP Community! My question relates to syndication structures with respect to how a sponsor categorizes cash distributions. 

If you have syndicated a MFH deal, have you chosen to categorize the cash distributions (whether a pref or straight-split) as a return-of-capital, or, as a return-on-investment?

As I understand it, paying distributions as ROI (not ROC) makes sense with a pref structure, however, from a sponsor's perspective in a straight-split, what is the benefit to a sponsor to pay distributions as ROI? It seems to me that paying distributions as ROC means there's less (or no) capital to return to investors at the time of sale. Thus, treating the distributions as ROC (not ROI) would undoubtedly provide a larger "pie" of net sales proceeds to then divide among investors and sponsors according to the PPM straight-split agreement, correct?

@Brian Burke provided excellent thoughts on ROC vs ROI in this forum post (https://www.biggerpockets.com/forums/432/topics/215958-what-are-typical-apartment-syndication-returns-for-an-investor). 

Thanks in advance! 

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