An investment solution for real estate investors with discretionary capital but limited resources and limited access to investment opportunities afforded the privileged.
X-PLORA – A “DIP-YOUR-TOE” SYNDICATE MODEL
Arcadia has launched our “X-Plora” syndicate model for the ﬁrst time investor, who wants to “dip their toes” and explore the syndication investment world.
We will be making available, to selected ﬁrst time investors, our X-Plora subscription agreement in which the participant will partake in project speciﬁc U.S.A., Canadian, Belizean, The Caribbean and Mexican real estate projects.
Those of you, who have participated with us, already know by now, how effective syndicate funding works, given the fact that it might be a new investment strategy for some. We believe this, now is the right time, to explain and understand with a little more depth what a syndicate is, how it works and why it is interesting for both savvy investors and those starting their investment career.
In one of our white papers, we described the differences between syndicates, crowdfunding, and seedfunding.
We shall now answer speciﬁc questions related to what X-Plora is all about: syndicate participation for the new investor.
What’s a syndicate?
A syndicate is an investment solution allowing investors (participants) to co-invest with relevant and reputable lead syndicators, who themselves are investors, with their own capital in the project and its offerings.
What is a lead syndicator?
A Lead syndicator is a who, and often made up of a group of people who are business people with vast experience in selecting, developing, investing in and adding value to investment opportunities. Although the word syndication is synonymous with real estate, these opportunities may not only be real estate related. The opportunities expand to various sectors of business. As an instance, Arcadia has an association with a company who funds Artiﬁcial Intelligence (AI) or Machine Learning, the technology sector in this case. In the AI funding model the transaction produces revenues along with an equity stake in the AI company that most investors wouldn’t have access to.
What makes a good lead syndicator?
Taimour Zaman, co-founder of Arcadia, has been quoted to say that there are six characteristics a lead (real estate) syndicator must have:
- Access to investment opportunities: Proprietary access to below market value, real estate transactions, so that the invested capital is secured by the built-in appreciation on the date of acquisition of the asset, not years from now.
- Skin in the game (their own capital): Anyone can spend other people’s money, it takes a savvy investor to create an opportunity and invest his or her own capital, proving leadership, next to the capital of others, that is what raises the investment bar to higher standards.
- Analytics of mind: To scrutinize the transaction with the ability to discreetly, analyze any opportunity, process the transaction through a stringent due-diligence procedure, and create proﬁt producing project with a solid plan for holding the asset, maintaining the asset, and exiting the transaction within 5 years, 7 years and 9 years of the acquisition date.
- Know how of legal (proprietary) transaction structures: To effectively handle the tax consequence of the proﬁt distribution to the participants. It’s about after-tax returns that ought to interest any investor participant.
- A strong working knowledge of the tax rules related to investing: Tax rules are ever changing keeping up with these rules provides an edge over any other investment model.
- Ability to lead: To lead, in today’s world, seldom do you ﬁnd, leaders with skills, knowledge, experience and foresight which can translate to a creative development of a working model for (ﬁnancial) success. Behind any leader, there is a robust team of thoughtful men and women who support and build upon the grand vision.
It’s worth noting that a single investor, working on his own, may possess these characteristics, this, however, doesn’t guarantee his or her success. Investing in real estate takes work and can be risky, BUT co-investing, as in a syndication, decrease the risk dramatically while affording a team, a team to support the inner workings of the business at hand.
What’s an Exempt Participant
An Exempt Participant is an investor with discretionary capital to invest with limited experience and limited access to well selected real estate, purchased below market value. A syndicate participation is a perfect match for such an investor to gain experience and knowledge.
What’s an accredited investor according to North American law?
There are some minimum requirements that an investor needs to meet in order to be able to participate in syndicate offerings unless the participant is exempt from accreditation.
What are the advantages of a Syndicate to Participants and the Lead Syndicator?
The advantages to both Leaders and Participants are
- More capital is available beyond the leader’s bankroll to invest.
- More transactions can be completed.
- More below market value opportunities become available.
- Better returns to equity partners.
- Discount to yield increases with more capital available.
- A stronger portfolio which can withstand market or economic ﬂuctuations.
- A business case for (the taxing authority) the distribution of capital gains or dividend declaration and or distribution.
- Access to investment opportunities they might not be able to ﬁnd on their own.
- A team to support the goals of the project and participants.
- Less risk to the Participants.
- Gains experience and knowledge.
- Preference Shares secure Participants capital.
How do syndicates work?
We can distinguish the 11 phases which Arcadia goes through to establish an active offering.
- Identiﬁed: In this phase, the lead syndicator identiﬁes the investment based on Arcadia’s analytics, enters negotiations and acquires the asset using its own capital.
- Executive Summary: Provides relevant transaction data through an executive summary for consideration. This summation includes capital, proﬁt share and descriptions, plans pertaining to 5,7,9 years of holding, through to exiting the transaction.
- Letter of Intention: This letter of Intention is sent to the legal division of Arcadia from the participant.
- Subscription: Participant receives a subscription for speciﬁc projects. Signed subscription agreements are sent to the legal division of Arcadia, who veriﬁes accuracy, and conﬁrms the subscriber.
- Carrying Costs and Fees: Up to 5% ( five percent ) of operating budget is paid out to various fees including carrying costs (where appropriate) legal, accounting, issuance of shares, maintenance of corporate documents, marketing and administration fee related to the project. The current fee schedule is attached to each subscription agreement.
- Direction of Funds: Arcadia’s legal division verifies all documents meet criteria and grants permission to Treasury to direct funds from lawyer’s trust account to the transaction company associated with the subscription agreement, which in turn directs the funds in the next phase of the project or to the appropriate parties to the transaction or their legal agents to complete the transaction.
- Operating Company: An operating company, speciﬁc to the project is set up, the purchase is completed and title is transferred to the operating corp. The funds from the transaction company correctly distributed complete the transaction.
- Distribution of Shares: The correct type of shares are distributed to the party who qualifies.
- Expenses: All related operational expenses of the project will be paid by Arcadia before distribution of proﬁt sharing.
- Monitoring and Reporting: All monitoring will be done by Arcadia within one of its operational divisions. The Communication Division of Arcadia shall provide updates and reports to Participants, performance, targets, cash ﬂows, any vital economic ﬂuctuations affecting the project’s value. A third-party fee-based property management company manages the rental aspects of the project.
- Liquidation Events: In the event, the project is liquidated prior to its maturity (in all cases maturity shall mean up to 8 years) the proﬁt share will be in line with the terms and condition as set out in the subscription agreement.
What are carrying costs and fees?
Lead Syndicator Arcadia uses its own capital to close on transactions where participant capital, is not readily available at the time of closing (due to delays on the participant’s side). The carrying costs and project associated fees are absorbed and or paid by Arcadia during the time it has fully funded the transaction. On participant’s capital replacing Arcadia’s capital, the carrying costs and or paid fees are recaptured by Arcadia. Arcadia may elect to recapture the carrying costs and fees from the capital gains of the project in which case it will retain a portion of the capital gains as an offset to the carrying costs and other fees. Arcadia may grant this election to some of its more loyal Participants.
BY WHEN WILL YOU CO-INVEST IN X-PLORA SYNDICATION?