Resources / Why Most Real Estate Syndications Use At Least Two Entities

One structuring question I often get is why real estate syndications have at least two entities. Usually, of the two entities, one is the entity that holds the asset or the property, and the other one is the entity that acts as the manager or sponsor.

But why two entities? Why can’t you just lump everybody into one? First of all, if you lump everybody into one entity, there tend to be control issues, and a lot of sponsors don’t like giving up control. Most real estate syndicators would honestly rather have more passive investors who are not involved in the day-to-day, and whose consent or vote that they don’t need to be able to act quickly and make critical business decisions.

The vast majority of real estate syndicators tend to use two LLCs. One holds the asset, the other is the manager. The manager takes a piece of the LLC that owns the asset, meaning they may have some sort of ownership interest, but definitely have an interest in the distributions. Also, having a manager entity is better in terms of segregating liability, and it’s very clear that the manager has the day-to-day responsibility for the project, leaving investors with a much more passive role.