Introduction to OSC
Behind the Door of Real Estate Syndication
An OSC online syndicated project is a project funded by a group of investor that has been structured, arranged, and posted online by OSC.
Generally, these projects have high rish-adjusted yields because they are off market and purchased by investors looking for better than bank terms.
Before formally launching a project, OSC will often read the market by informally polling select investors to gauge their appetite for the project. Based on these discussions, OSC will launch the project at a price it believes will clear the market.
Types of Syndications
There are three types of syndications: an underwritten deal, a “best-efforts” syndication, and a “club deal.”
An underwritten deal is one for which OSC guarantees the entire commitment, and then syndicates the loan. If OSC cannot fully subscribe the loan, OSC will absorb the difference, which they may later try to sell to investors. Underwritten loans usually require more lucrative fees because OSC is on the hook if potential lenders balk.
A “best-efforts” syndication is one for which OSC commits to underwrite less than the entire amount of the loan, leaving the credit to the vicissitudes of the market. If the loan is undersubscribed, the loan may not close—or may need major revisions to clear the market.
A “club deal” is a project that is pre-marketed to a group of relationship investors.
The Syndication Process
Before going online, OSC will outline the syndicator’s strategy and their view on the market. OSC will prepare an information memo (IM) describing the terms of the transactions. The IM typically will include an executive summary, investment considerations, a list of terms and conditions, an industry overview, and a financial model.
OSC will solicit informal feedback from potential investors on their appetite for the deal and the price at which they are willing to invest. Once this intelligence has been gathered, OSC will formally market the deal to potential investors. OSC will distribute most IMs—along with other information the IM typically contains the following sections:
The executive summary will include a description of the issuer, an overview of the transaction and
rationale, sources and uses, and key statistics on the financials.
The list of terms and conditions will be a preliminary term sheet describing the pricing, structure, collateral, covenants, and other terms of the credit (covenants are usually negotiated in detail after the arranger receives investor feedback).
The industry overview will be a description of the company’s industry and competitive position relative to its industry peers.
The financial model will be a detailed model of the issuer’s historical, pro forma, and projected financials including management’s high, low, and base case for the issuer.
Most new acquisition-related loans kick off at a conference call at which time Management and OSC will describe the terms of the deal.