Syndicated Offerings or Real Estate Funds?

Dear Investor,

How do you choose between syndicated offerings or real estate funds?

This is a question that comes up often with new investors. Which type of investment is better, and why are some companies offerings mostly project specific syndications?

Real estate syndications are private offerings that pool capital from multiple investors to invest in a single real estate opportunity. Syndications have a sponsor that manages the project —plans out the project and executes the plan – after which capital is returned to investors with gains or profits.

Real estate funds involve capital being invested with a manager who created an investment strategy and will use this guide to handle all aspects of the fund's performance. The investor may not know the specifics of what – or where – the investments may be. By investing in a real estate fund, investors can diversify holdings between different markets and property classes.

By way of disclosure, we have an advertising relationship with Mortar Group, meaning we get paid for making this introduction and sharing this content. As always with these types of deals, consider this an introduction and not a recommendation. Every deal is unique and the responsibility to vet any and every deal you invest in still lies with you. This opportunity is available to accredited investors only (income of $200K+ or investable assets of $1M+).

Differences between Syndications and Funds:

The cost to invest

This metric will vary greatly depending on the sponsor, but traditionally real estate funds charge the investor a fee of 1 to 2% for each year the capital is invested in the fund. With a syndicate, or the way Mortar does it – there is no asset management fee charged to the investor. In a syndication, the sponsor's fee is paid from the project revenue. So, for example if an investor contributes $100,000 to a real estate fund that charges 1% annually for asset management – after 5 years they will receive back $95,000, plus any gains. In a syndication, since there are no fees charged to investors – at the end of the project the investor will receive back their $100,000 in whole – plus any gains or profits.

The tax benefits are not equal

Real estate syndications can have tax benefits over a fund. A syndication's income and depreciation pass through to the investor's tax return, and an investor can be very strategic – and choose a particular project to offset other gains or defer taxes since they know the project deals in advance.

In addition, when you invest in syndication, state tax returns are typically easier as you are only investing in one property in one state. If you're not a resident of that state, you'll typically have to file tax returns both in your home state and the state where the investment is located. When you invest in a fund that isn't a REIT, you may be investing in multiple states which will require multiple state filings.

When do I get my money back

In a real estate fund, an investor's capital is typically invested over terms that range from 5 to 10 years. With a syndication, each company is different, but offerings at Mortar take about 30 months in total. This 30-month period begins when an investor commits to the offering and ends when the equity investment is paid back to the investor plus any gains. This shorter time frame is alluring to some investors who want to plan to get their money back after only 2 to 3 years instead of the traditional 5 to 10 years.

Control

Many real estate funds are also blind or semi-blind pool funds, in which the investor must commit capital to the sponsor prior to knowing what assets the fund will buy or invest in. In a syndication, the investor usually knows the project details and location, so they can do their homework on the specific deal to be purchased.

Due Diligence

Due to the nature of a syndication offering, the investor will be able to do more due diligence before diving into an investment. Prior to committing to a syndication, an investor is able to identify a specific property, evaluate the market where the property is located, understand the expenses and pro-forma and review sales and market comps. In a blind fund structure, investors will not have access to the specifics of a deal before hand and are investing in the capabilities of the sponsor and management team.

Summary

When you invest in a real estate fund or syndication, you're getting many of the benefits of real estate without needing to manage it actively. Whatever investment vehicle you choose, both are fantastic ways to create passive income, and start investing in real estate with a modest time commitment.

However, their differences are enough that you should weigh the pros and cons of each. Ultimately, it comes down to the sponsor on any deal, and doing your due diligence to properly vet the management team is important, as well as making sure you work with an experienced sponsor.

As a reminder, feel free to view Mortar's most recent offering for 319 Prospect Heights - a New York based, Multifamily Development Opportunity.

With the asset acquired in mid-2022 and currently under construction, Mortar is providing this offering to investors to take advantage of the current market opportunities. Located in one of New York's best neighborhoods, 319 Prospect will be a prime asset located in a low inventory sub-market, and they project the offering to deliver a high IRR yield of over 20% annually in a 24 to 30-month time frame. Mortar believe these opportunities represent some of the highest risk-adjusted returns in the current environment.

To schedule a call to learn more visit here: Schedule a Call

Also feel free to view a few of Mortar's most recent resources:

• What is Your Investing End Game? (Recent Article)
• Modern Guide to Real Estate Investing (Free Guide)
• Real Estate as an Alternative in a Turbulent Market (Blog Post)

Mortar believes in experience and smarter real estate investing. Their fully integrated in-house design, development, and asset managementexpertise has resulted in dozens of successful privately syndicated deals. This, combined with skin-in-the-game co-investments and in-depth local neighborhood knowledge, helps them mitigate risk and maximize investor returns. Focused opportunities combined with an intimate knowledge of New York's prime niche neighborhoods allows investors to diversify and deploy capital conservatively in projects and divest risk throughout the real estate lifecycle.

Mortar Group extends White Coat Investors access to exclusive opportunities on new offerings. If you would like to know more, please visit their website, or reach out to our Investment Relations Manager – Francesca Gaccione at 646-559-9471, or gaccione@mortargroup.com.

Learn more about Mortar Group today!

Jim and Brett

James M. Dahle, MD, FACEP
Founder, The White Coat Investor

Brett Stevens, MB
COO, The White Coat Investor

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