Top 5 Things to Consider When Evaluating a Real Estate Syndication as a Limited Partner

As a lawyer specializing in real estate law, I’ve helped numerous clients navigate the world of real estate investments, including syndications. For those unfamiliar, a real estate syndication involves pooling funds from multiple investors—typically led by a general partner (GP) or sponsor—to acquire, manage, and profit from properties that might be out of reach individually. As a limited partner (LP), you’re essentially a passive investor with limited liability, but that doesn’t mean you should invest blindly. In today’s market, with interest rates stabilizing and multifamily opportunities rebounding as of 2025, syndications can offer strong returns, but due diligence is key.

Here are my top five considerations when evaluating a syndication deal as an LP:

1. The Sponsor’s Track Record and Alignment of Interests: Always vet the GP’s experience. Look for a proven history of successful deals, including past returns, property types, and how they’ve handled downturns. Importantly, check if the sponsor has “skin in the game”—ideally at least 5% equity—to ensure their interests align with yours. A sponsor with a strong reputation reduces risks, but red flags like frequent failures or lack of transparency should make you walk away.
2. Deal Structure and Fees: Understand the waterfall distribution (how profits are split), preferred returns, and any promote fees the GP takes. Understand who is acting as the guarantor. Fees for acquisition, management, or disposition can eat into your returns, so evaluate if they’re reasonable—typically 1-2% annually for management. Also, confirm investor requirements: Are you accredited? Does the minimum investment (often $25K+) fit your portfolio? Misaligned structures can lead to unexpected dilution or poor payouts.
3. Property and Market Analysis: Dive into the deal’s fundamentals. Assess the property’s location, condition, and market trends—things like vacancy rates, rental growth projections, and economic factors in the area. Syndications often target value-add opportunities, so scrutinize the business plan for realism. High minimums and illiquidity mean you’re locked in for 5-10 years, so ensure the projections hold up.
4. Risks and Exit Strategy: Syndications are illiquid investments, with no guaranteed liquidity until the property sells or refinances. Consider market risks, such as economic shifts or interest rate changes, and review contingencies for worst-case scenarios. As an LP, you have no say in day-to-day decisions or distributions, so a clear exit plan (e.g., hold period and sale strategy) is crucial to avoid being stuck in a underperforming asset.
5. Legal and Compliance Documents: Review the Private Placement Memorandum (PPM), subscription agreement, and operating agreement thoroughly. These outline risks, returns, and your rights as an LP. Ensure the syndication complies with SEC regulations (like Regulation D for accredited investors) and that disclosures are accurate. Overlooking this can expose you to unforeseen liabilities or disputes.

Why You Need a Real Estate Lawyer to Evaluate the Underwriting

Underwriting in a syndication refers to the detailed financial evaluation of the deal, including projected cash flows, risk assessments, and return assumptions. While sponsors handle the numbers, having a lawyer specializing in real estate law review this is essential. Why? First, we ensure the underwriting complies with securities laws, preventing misleading projections that could lead to regulatory penalties or investor lawsuits. Second, we spot legal red flags in the assumptions—like overly optimistic rent growth or hidden fees—that might not align with market realities, protecting your investment from fraud or disputes. Third, we review key documents to safeguard your interests, ensuring the deal is structured fairly and compliant with state and federal rules. In my practice, I’ve seen clients avoid costly mistakes by catching these issues early—ultimately, it’s about minimizing risks and maximizing your peace of mind.

If you’re considering a syndication, don’t go it alone. Contact me for a consultation to review your potential deal. Remember, smart investing starts with solid advice.