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How Syndication Works

  • Syndicator: The syndicator, also known as the sponsor or general partner (GP), is responsible for identifying the investment opportunity, managing the property, and executing the business plan. They typically have experience in real estate and property management.
  • Limited Partners (LPs): Investors who contribute capital but do not participate in day-to-day management are referred to as limited partners. They typically receive a share of the cash flow and profits from the investment proportional to their investment.
  • Legal Structure: The syndication is often structured as a Limited Liability Company (LLC) or Limited Partnership (LP), which outlines the roles of the GP and LPs, profit-sharing arrangements, and other terms.
  • Investment: Investors (LPs) contribute capital to the syndicate, which is then used to purchase, renovate, and manage the multifamily properties.
  • Returns: Investors typically receive returns through cash flow distributions from rental income and potential proceeds from the sale of the property. The syndicator may also earn acquisition fees, management fees, and a share of the profits.

506B Syndication

  1. Accredited and Non-Accredited Investors:
    • Under Rule 506(b), issuers can offer and sell securities to an unlimited number of "accredited investors" and up to 35 "non-accredited investors," provided those non-accredited investors are capable of understanding the risks of the investment.
  2. No General Solicitation:
    • Unlike Rule 506(c), Rule 506(b) does not permit general solicitation or advertising to market the securities. The issuer must have a pre-existing substantive relationship with the investors they are offering securities to.
  3. Disclosure Requirements:
    • While there is no requirement to provide extensive disclosure documents like a registered offering would require, issuers must provide sufficient information to non-accredited investors to avoid making misleading statements.
  4. Form D Filing:
    • Issuers must file a Form D with the SEC after selling the securities, providing basic information about the offering and the issuer.
  5. State Regulations:
    • While 506B offerings are exempt from federal registration, they might still be subject to state securities laws, which vary from state to state.
  6. Investment Limits:
    • There are no specific limits on the amount of capital that can be raised under Rule 506(b).

506C Syndication

  1. General Solicitation: Unlike other exemptions, 506(c) allows issuers to engage in general solicitation and advertising to attract potential investors. This means they can publicly promote their investment opportunity via various channels such as social media, websites, and public events.
  2. Accredited Investors: To qualify under 506(c), issuers can only sell securities to accredited investors. An accredited investor is typically someone who meets certain income or net worth thresholds, such as having a net worth over $1 million (excluding primary residence) or annual income exceeding $200,000 for individuals (or $300,000 for couples) over the last two years.
  3. Verification Requirement: Issuers must take "reasonable steps" to verify that all purchasers of the securities are accredited investors. This can involve reviewing documentation such as W-2s, tax returns, bank statements, or obtaining written confirmations from financial institutions.
  4. No Limit on Raise: A significant advantage of 506(c) is that there is no limit on the amount of capital a business can raise.
  5. Filing Requirements: Issuers must still file a Form D with the SEC to notify them of the offering, but there's no requirement for extensive financial disclosures that would accompany a registered offering.
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Investing involves risk, including loss of principal. Past performance does not guarantee or indicate future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. While the data we use from third parties is believed to be reliable, we cannot ensure the accuracy or completeness of data provided by investors or other third parties.

Bella Nova Capital Group nor any of its affiliates provide tax advice and do not represent in any manner that the outcomes described herein will result in any particular tax consequence. Offers to sell, or solicitations of offers to buy, any security can only be made through official offering documents that contain important information about investment objectives, risks, fees and expenses. Prospective investors should consult with a tax, legal and/or financial adviser before making any investment decision.

For additional important risks, disclosures, and information, please
send and email to gm@bellanovacapitalgroup.com  © 2024 Bella Nova, Capital Group

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