Commercial real estate syndication provides investors with a way to purchase and manage high-value properties that may be beyond the reach of individual buyers. The transaction involves one or more general partners and multiple limited partners.
Syndications can be complex and require careful management. The GPs need to identify suitable investment opportunities, raise funds from investors, and deploy the funds to the targeted projects. The administrative work can be both complicated and highly time-consuming.
This is where the right investment software, specifically a real estate syndication software platform, can play a critical role. It streamlines key processes like fundraising, reporting, and profit distribution, making it easier for GPs to scale their operations.
In this article, we’ll explore how such platforms help address common challenges in real estate syndications and enable sponsors to grow faster and operate more efficiently.
1. Fundraising
Raising adequate capital from investors is crucial to the success of real estate syndication, and therefore, the fundraising process should be highly efficient. GPs should not have to spend inordinate time on the administrative work involved in approaching potential investors and following up for fund collection. Instead, automation should be implemented wherever feasible. A robust investment platform can play a critical role in doing this.
Here are the specific ways in which an investment platform could help in the marketing of new investment opportunities and the capital-raising process:
- The platform can provide syndicators with a way to monitor investor details and manage communications.
- Customized landing pages and personalized deal presentations could be generated, boosting investor engagement.
- The real estate syndication software can play a crucial role in onboarding investors. It can assist in Know Your Customer and Anti-Money Laundering verification, as well as in the process of document signing.
- In real estate syndication, tracking investor capital commitments and ensuring funds are transferred on the promised dates are crucial. The real estate syndication software could help by providing investor dashboards and automated payment reminders.
2. Keeping Investors Updated is Crucial
It is imperative that GPs provide LPs with accurate and timely information. Every investor would like to get regular updates about each of the following areas:
- What is the cash flow their investments are generating?
- Are the returns from the project on track to meet expectations?
- Are the operational aspects being effectively managed? Are occupancy rates, lease renewals, and expenses under control?
- Are there any important changes in market conditions? How will these impact the property and investor returns?
- What is the current position regarding the exit strategy? Is a sale being planned, or is there a possibility of refinancing the transaction?
The real estate syndication software can take over the administrative burden of ensuring that LPs receive each piece of relevant information. Manual processes tend to be prone to errors. For example, the person tasked with emailing reports may forget to send them to some investors. There is also the risk of delays or of the wrong information set being sent to unintended recipients.
On the other hand, if the communication process works flawlessly, it can enhance investor trust and promote transparency. Additionally, investor confidence increases as they receive regular updates with information that addresses their questions and concerns. This works in favor of the GPs. If investors are satisfied with the communication process (and the returns they have earned), they are more likely to invest in future deals.
3. Getting Documentation and Record-Keeping Right
While documentation may be a routine aspect of the commercial real estate investment syndication business, its importance cannot be overstated. Accurate and timely documentation and the ability to quickly retrieve the relevant records are essential. Syndicators must get this aspect of the business right. The investment software you use can be a great help in this area.
You must also remember that real estate investment syndications are governed by Securities and Exchange Commission regulations. Non-compliance with SEC rules can have legal repercussions and lead to penalties. It could also undermine investor confidence and reflect poorly on the investment firm’s capabilities. The real estate syndication software can provide support by acting as a central repository for documents related to the syndication.
The software platform can also increase record-keeping efficiency in the following ways:
- It can play an important role in investor onboarding and document signing.
- It can keep documents audit-ready and track document versions.
- It can provide investors with access to all communications and reports instantly.
4. Payouts to Investors
Real estate syndication software can be immensely helpful in automating profit distributions to GPs and LPs. Software platforms can typically calculate waterfalls and even send out personalized distribution notices. The traditional method of calculating distributions involved using spreadsheets. However, manual processes are error-prone and time-consuming, and there are delays associated with checking and rechecking the numbers.
There is another major problem with using a manual process for the distribution calculations. The terms of the legal agreement laying out the waterfall structure can be incredibly hard to convert into an Excel formula. A minor error can have far-reaching implications. The last thing a GP wants is to have LPs point out an error in the payouts they have received.
Automating the calculations can be a game-changer for investment firms. The investment software provides an option to choose the rules governing the payments. Once the configuration is done, the payouts can be calculated in seconds. The process can be repeated each time a payout is to be made.
The software platform provides a couple of other advantages regarding payouts. First, the issue of auditing an Excel worksheet does not arise as the calculation is based on the software code embedded in the program. Second, sharing and collaborating on waterfall calculations using an Excel sheet is cumbersome. With a software platform, it is far simpler.
The Bottom Line
Investment software can automate many key aspects of the real estate investment syndication process. Consequently, the investment platform can handle the routine tasks associated with everything from raising funds to managing documentation, providing regular reports to investors, and distributing profits. This allows GPs more time to concentrate on strategic planning and expanding their investment portfolio.
Find a Home-Based Business to Start-Up >>> Hundreds of Business Listings.
