Syndications and Deal Structure
As a long-time real estate practitioner, I’ve learned a few things over the years. If I can help just one person by sharing ideas and lessons learned, then this format will be worthwhile. Some have resulted from the joy of success, while others were learned the hard way. I promise to be transparent and not hold back. Sharing is how I choose to start my week.
May 11, 2026
Syndications and Deal Structure
If you read my article a few weeks ago “What is an Accredited Investor?” you learned that the equity portion of our real estate projects are funded through 506(c) offerings which fall under the purview of the Securities and Exchange Commission. The documents used to enroll an investor into an offering are prepared by a syndication attorney. They explain the structure of the deal and how the participants get paid.
The group putting the deal together and performing the day-to-day operations is the General Partner, sometimes referred to as the Sponsor. The investors with no management responsibilities or financial obligations are Limited Partners.
The deal structure spells out the terms of the financial arrangements between the parties. There are typically different classes of shares offered to investors depending on minimum investment amounts. The more money an investor puts into a project, the better the terms they receive. This is called a Waterfall Structure and includes different terms which dictate how returns are divided among the partners.
The first term is Preferred Returns. 100% of the first available cash distributions go to satisfy this return, up to the preferred return percentage amount, referred to as Hurdle 1. Different share classes may have different preferred return amounts.
The next available cash is distributed as a split of profits between the Limited Partners and General Partner. The split is in the favor of the Limited Partner and may be referenced for example as 70%/30% or 80%/20%. Again, different share classes may have different split arrangements. This split will continue until a pre-determined metric is achieved, referred to as Hurdle 2. The metric will be a targeted rate of return such as an Internal Rate of Return.
Complex deal structures may involve several levels of waterfall splits and hurdles. It is common to structure the final hurdle as a 50%/50% split between the LPs and GP once a targeted rate of return is achieved. At this point the Limited Partners are pleased that the project has exceeded the projected hurdle rate of return. The General Partner is incentivized to run the project as efficiently as possible to achieve this level of the waterfall structure to catch up on returns clearly favoring the Limited Partners earlier in the project.
At Founders Development Company we invest in every project alongside our investment partners. That means our capital is invested in Limited Partner shares right along with you. Our incentives are truly aligned - same terms, same commitment.
If you have any questions or want to discuss investment in one of our projects, please reach out to me.
