Real Estate syndication is and investment partnership that pools its capital into a single investment. It allows investors who don’t typically have enough capital to invest in large commercial project to participate on a fractional level and gain access to investment opportunities that would otherwise be out of reach.

Real estate syndicates are commonly formed as Limited Liability Companies or Limited Partnerships, with the operating agreement detailing the responsibilities of both the syndicator and investors involved in the deal. This includes distribution and voting rights, as well as compensation arrangements.

Investors who have experience with Venture Capital, Private Equity and Venture Debt structures will find these agreements familiar. The purpose of such agreements is to ensure clarity on everyone's roles and revenue-sharing arrangements.

There are two critical roles in any real estate syndication: the syndicator (commonly known as the sponsor and in this case, 47 North Development LLC.) and the passive investors (limited partners).

• Syndicator – In terms of investment strategy and execution, syndicators do the heavy lifting. They’re responsible for finding investors, structuring the deal, acquiring the asset, and managing the property or build out. Syndicators create and implement a business plan for the asset—and they’re on the hook for delivering returns to investors. Syndicators are typically real estate professionals with specialized expertise in a particular niche. The syndicator often invests 2% to 10% of a deal’s total required equity.

• Passive Investors – The rest of the equity capital comes from the limited partners, who contribute money in exchange for ownership shares. As passive participants, these investors aren’t involved in the day-to-day operations of the property.

Real estate syndication provides an appealing alternative investment option that can potentially diversify a portfolio. However, investors must meet capital and classification requirements to take advantage of this opportunity. Experts in the securities industry believe that maintaining portfolio diversification is crucial to hedging against market volatility. Conventional asset allocation recommends a 60% allocation into public stocks and 40% into fixed income. Nevertheless, incorporating 20% of alternative assets in a balanced portfolio with a split of either 60/20/20 or 50/30/20 may make it less susceptible to short-term swings in public markets.

"Alternative investments" encompass real estate, private equity, venture capital, digital assets, and collectibles as among its various asset classes. Private market investments such as these are typically less correlated with public equities; hence they present great potential for diversification, guarding portfolios against extreme market downturns. Previously, alternative assets were only accessible to select high-net-worth individuals and institutional investors who were required to buy-in at very high minimums—most likely between $500k and $1 million.

When companies aim to sell securities in order to raise capital, they typically must adhere to SEC registration requirements intended to safeguard investors. Real estate syndicates tend to sidestep the expenses and responsibilities of registering with the SEC by leveraging Regulation D, a loophole in the Investment Company Act of 1940. Real estate syndications commonly utilize either Rule 506(b) or Rule 506(c) of Regulation D, which determines what sorts of investors can participate in the transaction.

With 506(b) offerings, syndicates can generate an unlimited amount of funds and offer securities to an unlimited number of accredited investors — but they cannot engage in any kind of general solicitation or advertise their securities publicly, such as on a company website. Furthermore, no more than 35 non-accredited investors can purchase these securities; often known as "friends and family" offerings since only those familiar with the deal are likely aware it exists.

On the other hand, with 506(c) offerings, syndicates can broadly solicit and openly advertise so long as all purchasers are accredited investors. Non-accredited individuals cannot take part. Generally speaking, 506(c) syndicate offerings tend to be more prevalent than their 506(b) counterparts.

In the U.S, the definition of an accredited investor is put forth by SEC in Rule 501 of Regulation D.2

To be an accredited investor, a person must have an annual income exceeding $200,000 ($300,000 for joint income) for the last two years with the expectation of earning the same or a higher income in the current year. An individual must have earned income above the thresholds either alone or with a spouse over the last two years. The income test cannot be satisfied by showing one year of an individual's income and the next two years of joint income with a spouse.

A person is also considered an accredited investor if they have a net worth exceeding $1 million, either individually or jointly with their spouse. This amount cannot include a primary residence. The SEC also considers a person to be an accredited investor if they are a general partner, executive officer, or director for the company that is issuing the unregistered securities.

Each syndication deal is different, however most have a target hold period for the individual project. This can range from 2 to 5 years and during this period the investment is considered illiquid. The investor needs to be comfortable allocating their capital for the duration of the target holding period.