- acquisitions fee (paid to syndicators once the deal closes)
- asset management fee (paid yearly/quarterly from property’s net income)
- disposition fee (paid once the property is sold)
This fee structure can bring a conflict of interest between the syndicator and you, the passive investor. You want to make sure that the syndicator purchased the property because it was a great deal, or sold it at the right time to maximize investor’s returns, and not because the fee was tempting. Sometimes it’s not black and white; I’m not saying that syndicators buy or sell properties just to get fees, but they will be more careful if they had some skin in the game. The question is…how do you make sure of that.
In one of my previous blogs I wrote about syndication and how it works, but before you get to that, there are a few things you must pay attention to. When you are looking to take the leap into a new investment venture and invest passively, choosing the right syndicator is key.
Here are just a few ways you can make sure the syndicator’s interests are in line with yours.
1. The Syndicator Invests His/Her Own Money in the Deal
Always ask the syndicator if he/she is investing in the deal. When a syndicator invests his/her money in the deal – you know their interests are aligned with yours; after all, they put money from their own pockets in the deal and have the same risks as you. This is how REITs are different than some syndicators – they only take fees and never invest their own money in the deals. Their interests are to maximize their fees and that has a potential for a conflict of interests.
2. Make Sure You Have a Preferred Returns Mechanism
Not all syndicators give preferred returns, but as a passive investor, having such a mechanism in in your best interest. The preferred return is a return on investment that the syndicator offers to investors with the purpose of mitigating the risk associated with investing capital in the deal. Typically, you, as a passive investor, will be promised to get first dibs on profit at a rate of X%, as long as the partnership generates enough cash flow to pay it. Preferred returns are usually 6%-8%. The preferred returns is paid BEFORE the Syndicator receives any fees associated with the investment. Hence, the syndicator is extremely motivated to work hard to make the investment as profitable as possible.
3. The Syndicator Signs on the Loan as A KP (Key Principal) and Becomes a Loan Guarantor
By doing this, the syndicator is putting their balance sheet on the line, since even though most commercial real estate loans are non-recourse, they will become recourse if the syndicator commits a fraud. In that case, the lender is able to collect 100% of the loan balance from the syndicator’s personal wealth. As such, signing onto the loan is a way for the syndicator to vouch for their character. They have a lot to lose, and their interests are aligned.
To conclude, I cannot stress the importance of making sure you end up with the right syndicator and looking at these three ways will guide you in the process. Once you do choose the right syndicator, it is up to you to oversee the investment.
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About Ellie Perlman
Ellie Perlman is the founder and CEO of Blue Lake Capital, a woman owned multifamily real estate investment firm focused on partnering with family offices and accredited investors to build and preserve generational wealth. Since its founding in 2017, Blue Lake has successfully acquired and operated multifamily assets across high-growth U.S. markets, completing $1B+ in transactions.
At Blue Lake Capital, Ellie and her team work exclusively with family offices and accredited investors, offering carefully curated investment opportunities that emphasize long-term wealth creation, stability, and risk-adjusted returns. A defining aspect of Blue Lake’s investment strategy is its integration of advanced AI-driven analytics and data science into the entire lifecycle of acquisitions and asset management. By leveraging cutting-edge technology, the firm executes data-driven forecasting on market trends, asset performance, and tenant behavior, ensuring strategic decision-making and optimized returns.
In addition to leading Blue Lake Capital, Ellie is the original founder and host of "REady2Scale - Real Estate Investing" podcast, which provides insights into multifamily real estate, alternative investments, and finance.
Ellie began her career as a commercial real estate attorney, structuring and negotiating complex transactions for one of Israel’s leading development firms. She later transitioned into property management, overseeing over $100M in assets for Israel’s largest energy company.
Ellie holds a Master’s in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can learn more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.
*The content provided on this website, including all downloadable resources, is for informational purposes only and should not be interpreted as financial advice. Furthermore, this material does not constitute an offer to sell or a solicitation of an offer to buy any securities.
