Key Metrics and Terms Investors Should Know When Investing in Real Estate

Real estate syndication allows individual investors to pool their capital together to invest in large, high-value real estate properties without the management requirements of full ownership.

Investing in a real estate syndication can be a lucrative opportunity for investors looking to diversify their investment portfolios and generate passive income through real estate ownership. However, many real estate syndication investors are not real estate professionals and therefore don’t understand the terms and metrics used to analyze and compare deals.

Consider this your Fish Capital Investments glossary to help guide you through both our offerings and offerings made by other sponsors.

Understanding concepts will help you make better decisions on where to invest your capital and evaluate the potential returns and risks associated with a syndication investment opportunity.

Acquisition Fees

Acquisition fees are a standard one-time fee charged when a syndicator closes on a deal. The fee compensates for the time, effort, and resources required to source and purchase a real estate investment opportunity.

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Asset Management Fee

Asset management in real estate syndication refers to the sponsor’s efforts in executing the business plan. In exchange for these efforts, an asset management fee is charged. Asset management fees range from 1-3%.

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Capitalization Rate (Cap Rate)

A cap rate is a financial metric used to measure the rate of before-tax return in comparison to the value of a property. It’s also commonly used to value properties. Market cap rates are effective tools for analyzing property prices and comparing different markets.

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Cash Flow

Cash flow is a term used to describe all income from a property or investment that gets distributed to investors or owners.

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Catch-Up Provision

A catch-up provision in a real estate syndication that accompanies a preferred return, which is a provision of a waterfall structure designed to protect passive investors (LPs). This provision allows the sponsor (GP) to ‘catch-up’ on profit distributions once investors receive their preferred return.

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Co-General Partner (Co-GP)

A Co-GP is a partnership relationship that involves two or more sponsor entities who combine their complementary skills to work together in a syndication project.

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Development Spread

The Development Spread is a term that refers to the added return a developer expects to make in exchange for taking on the added risk of a new development or value-add project.

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