Blind Pool vs Real Estate Syndicate. What's the difference?

8 Replies

Okay so the more I look at the two options the more they start to seem more and more similar. in both situations Investors are giving their money to a central figure (Operator/Sponsors) who goes and invests in real estate with that money.

However, for some reason a Real Estate Syndication is required to register with the SEC and a company with a Blind Pool is not? What's up with that?

Why are syndicated deals required to be considered securities and blind pools are not.

And how can I go about starting a Blind Pool Investment company that isn't mistook for a Unregistered Real Estate Syndication?

I appreciate any feedback that any of you here can offer me.

This would require an official response from a SEC attorney, but here are my 2 cents

I believe you are comparing apples to oranges. A real estate syndicate is basically a person or group that puts together a deal from acquisition, raising capital, property & asset management, securing debt & final disposition.

A blind pool is a method of raising funds, where in you are not raising funds for a specific project but rather raise funds based on a specific set of criteria of acquisition criteria, i.e. multifamily, storage, office, etc and other factors like geography, risk profile, etc. & then would invest in multiple real estate syndicates that fits the aforementioned criteria. Blind pools are still very heavily controlled by SEC regulations

Real estate syndications can either be for specified one off deals, or can be pooled assets in a fund. The fund assets can be fully, partially or unidentified.

All are securities and require a securities lawyer to draft documents under specific SEC exemption guidelines.

@Joshua Manning

If a security is being sold, proper documentation is required. 

The test is: 

1. Investment of money

2. More than one investor

3. Investors expect their money to be return along with a "profit" or "return" on their money

4. Someone else is doing all the work (presumably the person/entity selling the securities).

If the opportunity passes the test, then all proper documentation is required (PPM, operating agreement or bylaws, subscription agreement.) Hope this helps. 

I was wondering if forming a syndication to invest in a class A stabilized apartment that was recently built 3 years ago. Keeping current management in place and no value add. Would this still be considered a security since the success of the investment would not be relying on the success and skill of the sponsor.

@Joshua Manning there are two types of syndications.

1) single asset - one/few properties - easy to underwrite and a lot of transparency - think single malt whisky

2) blind pool - pretty much a free pass for the sponsor to do whatever - most times this is where most of the scams are found since it’s hard for a LP to audit what’s going on. Think blended whisky. Sometimes it’s better diversification.

I personally like single malt whisky I mean single asset LLC because I can analyze that particular apartment building and know what I am investing in.

Thank you all for all your advice I just wanted to make sure creating a syndicate would still be the best way to go for me and there wasn’t an easier route> I feel a lot better informed now, Thank you all!