Syndication vs Partnership versus JV

Syndication vs Partnership vs JV

There are 2 basic approaches to structuring a partnership. One is a democracy and the other is a limited partnership.

What Is a Democracy

A democracy [artnership is one in which all of the members are voting members relative to all aspects. In a democracy, you can not limit other partner’s voting power – everyone has a say in how things run. Think basic LLC.

Generally speaking, all of the partners in a democracy are going to have some amount of money in the deal, and all are going to be guarantors on the loan if there is a loan. All of the partners will have operational voting power according to their contribution.

Find an attorney to structure this for you, but more or less we are talking a basic LLC.

What Is a Syndication

If, on the other hand, one of the partners wants to be the sole member running the deal and making the decisions on behalf of all of the other partners, then by default the other partners become limited members, limited by the fact that they have no voting power. Whenever this is the case a special structure is required, which is called a Limited Partnership. In real estate limited partnerships are often referred to as syndications.

Whenever you take someone’s money but limit their voting power what you are selling to them is in some ways a security. However, according to the SEC no one is allowed to sell securities without being licensed to do so. Therefore, a very special legal entity formation and structure is needed. The SEC does accommodate this via exclusions in the code, namely Rule 506.

In general, the word syndication simply means to combine, which could be to combine money, expertise, or anything else. In the context of real estate investing we generally mean to pool money. And the reason we use the word syndication to describe such a partnership is to draw a distinction between a simple democracy partnership and a limited partnership.

Syndications are expensive to put together, with a lot of legal and other overhead. But the benefit is that there is one cook in the kitchen making the decisions instead of having to manage every little thing by consensus, which is cumbersome and dangerous. Personally, I don’t see how anything smaller than a $5M deal is worth the cluster…. that is a Reg D syndication.

What Is JV

Finally, the term JV, which means joint venture, usually refers to people partnering at the sponsor level on large projects, think syndication. For instance, I JV with Sam at the sponsor level for apartment acquisitions. We do this because each of us have a skill-set which compliments the other, and together we are able to do much larger projects, such as the Silver Tree.

Syndication vs Partnership versus JV

There is the right time to use each of the above-mentioned structures. Generally-speaking, though, if it’s important to you to remain in control of the decision-making process then a property limited partnership syndication is the way to go. However, due to the legal and regulatory burden, it’s too expensive for small deals.

Hope this helps. Feel free to comment below.


    • Ben Reply

      I figure, why make it more complicated than it has to be 🙂

  • Peggy Reply

    I like your short articles. It’s straight forward, to the point. Thanks!

    • Ben Reply

      I am just fortunate that after all these years you still read my stuff – thank you 🙂

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