Apologies for the long post.
I have been pitched a real estate syndication deal for a commercial property by a friend of a friend. I received their "agreement" and it was way too long for me to read and I am inexperienced with syndication anyway. So, I fed it to chatgpt and asked it to identify any non-standard terms and give me a risk summary and comparison to typical syndication practices.
Here's what it said:
I looked up specific sections and read through the language in the agreement and chatgpt is right. All of these terms exist in the document as I read and understand them. I want to know if these terms are in fact non-standard and how much of a red flag they might be? If it needs to be said, I will not be investing in this venture. But, I am curious to learn more about real estate syndications. Where would one begin to learn how a syndication agreement should look like? Is there a bogleheads equivalent for real estate syndications?
I have been pitched a real estate syndication deal for a commercial property by a friend of a friend. I received their "agreement" and it was way too long for me to read and I am inexperienced with syndication anyway. So, I fed it to chatgpt and asked it to identify any non-standard terms and give me a risk summary and comparison to typical syndication practices.
Here's what it said:
Here are the major risks you would face as an investor in this deal:
1. You May Be Required to Personally Guarantee the Loan
In most real estate syndications, only the sponsor/syndicator signs any loan guarantees.
In this deal, every investor must personally guarantee (or cause an affiliate to guarantee) the initial loan.
This places substantial financial and legal risk on you—banks may pursue your personal assets if the project fails.
2. You Must Fund Unlimited Future Capital Calls
The Manager can demand more money (“Assessment Contributions”) at any time, for virtually any reason:
•Taxes
•Insurance
•Construction overruns
•Vacancies
•Reduced rents
•General operating shortfalls
•Any purpose the Manager deems necessary
You get only 14 days to wire the money.
If you fail:
•Another investor can pay on your behalf, and you now owe them at a high interest rate (10% or Prime + 5%).
•They receive all distributions you would have received until repaid in full.
•Your ownership interest becomes collateral.
•You owe attorneys’ fees.
This is far more aggressive than the industry norm.
3. The Manager Can Unilaterally Dilute Your Ownership
The Manager may:
•Issue unlimited new units,
•Create new classes with new rights,
•Admit new members,
•Change the existing class structure,
•Change the agreement itself
without any investor approval.
Your ownership percentage can drop significantly—even 10%, 20%, or 50%—and you have no right to object.
4. Investors Cannot Remove the Manager Without Manager Approval
Even if the manager performs poorly or acts against investor interest, you cannot remove them unless Class B approves.
Class B appears to be affiliated with the sponsor. Practically, this means: the manager cannot be removed.
5. Your Return is Capped
The Put Option (your ability to redeem your units) is priced using:
•A “Calculated Return Rate,” OR
•A maximum 20% annualized return, whichever is LOWER
•Then reduced by prior distributions
This caps upside even if the deal performs far better than expected.
6. Manager Can Compete Directly With the Company
The agreement explicitly allows the Manager to:
•Compete with this project
•Pursue opportunities that would otherwise benefit the company
•Keep all benefits from those opportunities
•Not offer them to investors
This eliminates any obligation of loyalty from the manager to investors.
7. Manager Has Irrevocable Power of Attorney to Amend the Contract
You give the manager the right (via power of attorney) to:
•Amend the agreement
•Execute filings
•Modify terms
Even without your signature.
This gives the Manager extraordinary control.
Based on the provisions in the document:
✔ This is not a standard passive investor syndication.
✔ It resembles a structure where investors take major financial risks normally held by the sponsor, while the sponsor retains:
•Control,
•Authority to dilute,
•Guaranteed voting power,
•Protection from removal, and
•No obligation to share opportunities.
✔ If you expected a typical passive-income LP investment, this deal is meaningfully outside industry norms.
I looked up specific sections and read through the language in the agreement and chatgpt is right. All of these terms exist in the document as I read and understand them. I want to know if these terms are in fact non-standard and how much of a red flag they might be? If it needs to be said, I will not be investing in this venture. But, I am curious to learn more about real estate syndications. Where would one begin to learn how a syndication agreement should look like? Is there a bogleheads equivalent for real estate syndications?
Statistics: Posted by SirCheeseBurger — Tue Nov 25, 2025 1:27 am — Replies 0 — Views 9