Introduction to OSC
Behind the Door of Real Estate Syndication
Stonegate OpenSource helps clients syndicated real estate deals thats are funded by accredited investors, pursuant to a Regulation D 506c Securities Offering that is posted online.
Generally, these deals have high risk-adjusted yields because they are sold off-market to sophisticated investors that are looking for better terms than those offered in publicly traded deals.
Before formally launching an Offering, we read the market by informally polling select investors to gauge their appetite for the deal. Based on these discussions we will launch the Offering at a price we believe will clear the market.
Types of Syndications
There are three types of syndications: (1) an underwritten deal, (2) a “best-efforts” syndication, and (3) a “club deal.”
An underwritten deal is one for which we guarantee the entire commitment, and then syndicates the equity or debt with other investors. If we cannot fully subscribe the offering, we will absorb the difference and may later try to sell off units to investors. Underwritten deals usually require more lucrative fees because we are on the hook if potential investors balk.
A “best-efforts” syndication is one for which we commit to underwrite and market, but leaves the Offering to the vicissitudes of the market. If the deal is undersubscribed, the deal will 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, we will outline the strategy and our view on the market. We 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.
We 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, we will formally market the deal to potential investors. We distribute most IMs—along with other information that 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.