Real estate syndications are increasingly popular among passive investors, but what happens when they go wrong? Expert panelists Andrew Doup and Brett Siglin join Fund Playbook founder Jimmy Atkinson to share real-world stories and how you can learn from these lessons.
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Episode Transcript Summary
Real estate syndications offer investors opportunities for diversification, income, and tax benefits, but they also come with risks. In this episode of Fund Playbook, Jimmy Atkinson is joined by Andrew Doup of SyndicationCounsel and Brett Siglin of Fennemore to discuss the challenges and pitfalls that can cause real estate syndications to go wrong. They explore the most common reasons deals fail, how to mitigate risks, and what investors and sponsors should know before entering into a syndication.
The Reality of Syndication Failures
Andrew and Brett estimate that roughly half of all real estate syndications fail in some way, with many sponsors struggling to raise enough capital to close their deals. Andrew goes further, stating that nearly all syndications face obstacles at some point—it’s how sponsors handle those challenges that determines whether the deal ultimately succeeds or fails.
The three primary ways syndications can go wrong are:
- Partnership breakdowns – Misalignment between general partners (GPs) and limited partners (LPs) can lead to disputes and poor decision-making.
- Regulatory and compliance failures – Sponsors who fail to properly structure their deals or comply with securities laws can face legal issues that derail the project.
- Market or project-specific risks – Even well-structured deals can struggle due to economic downturns, cost overruns, rising interest rates, or labor shortages.
The Biggest Challenges in Raising Capital
Many syndications fail because sponsors overestimate their ability to raise capital. Brett notes that first-time sponsors, in particular, often struggle to secure commitments from investors. While they may have development or asset management experience, raising money is an entirely different skill set.
Some of the most common mistakes include:
- Underestimating the difficulty of securing investor commitments
- Failing to budget adequately for marketing and capital-raising expenses
- Lacking strong relationships with broker-dealers, registered investment advisors, or family offices
- Presenting deals that are too complex, poorly structured, or in undesirable markets
Sponsors who start with smaller, friends-and-family raises and gradually build a track record tend to have more long-term success than those who attempt to raise large amounts of capital without established relationships.
What Happens When a Syndication Fails?
Even when a syndication raises enough capital, many still face significant challenges that can cause the deal to go sideways. Some of the most common issues include:
- Delays and cost overruns – Rising construction costs, supply chain disruptions, and permitting delays can erode projected returns and force sponsors to make capital calls.
- Interest rate fluctuations – Higher borrowing costs can impact cash flow and make refinancing difficult.
- Lack of investor communication – When LPs don’t receive timely updates or financial reporting, trust erodes, and potential legal disputes arise.
- Poorly structured operating agreements – Unclear GP/LP rights and obligations can lead to conflicts over decision-making and profit distributions.
Brett shares that one of the worst syndication failures he has seen involved well-intentioned sponsors who lacked experience working together. The team had ambitious plans but failed to raise enough capital, secure proper financing, or align expectations.
The Importance of a Strong Legal Foundation
Andrew emphasizes that many syndication failures could be avoided if sponsors invested in strong legal structuring from the outset. He advises working with experienced securities counsel to ensure compliance and protect both sponsors and investors.
Key legal considerations include:
- Drafting clear operating agreements that define GP and LP rights
- Preparing thorough private placement memorandums (PPMs) that disclose all risks
- Securing proper SEC and state securities exemptions
- Setting expectations around investor communication, distributions, and reporting
Andrew notes that delivering timely K-1 tax forms is an often-overlooked issue that can cause frustration among LPs. Sponsors who consistently file late risk alienating their investor base.
What Are the Signs of a Syndication That Will Succeed?
While the discussion primarily focused on failure, Jimmy flips the question and asks what early indicators suggest a syndication will succeed.
Andrew and Brett point to several key signs of a promising syndication:
- The sponsor has a well-documented business plan with clear financial projections.
- The deal has strong market fundamentals and a compelling investment thesis.
- The sponsor has a proven track record or strong industry relationships.
- The capital raise gains momentum quickly, with a lead investor providing early commitments.
- The operating agreement and investor disclosures are well-structured, transparent, and clearly define expectations.
Brett adds that syndications with experienced teams who maintain discipline in execution tend to perform well. Deals that start with momentum and hit their initial fundraising and development milestones often continue on a positive trajectory.
The Legal and Financial Costs of Setting Up a Syndication
A listener asks for a ballpark estimate on legal fees for structuring a real estate syndication. Andrew and Brett agree that costs vary depending on deal complexity, but most straightforward syndications cost between $10,000 and $50,000 in legal expenses.
Typical legal expenses include:
- Drafting operating agreements, subscription agreements, and PPMs
- Filing SEC and state securities exemptions
- Negotiating purchase and financing agreements
Andrew cautions against using low-cost online legal services, as they often provide generic documents that lack proper securities compliance. He recommends working directly with a securities attorney to ensure the offering is structured correctly from the beginning.
Where Are the Best Real Estate Opportunities in 2025?
A listener asks what types of real estate deals are most viable in 2025. Andrew and Brett suggest that sponsors focus on:
- Distressed and underperforming properties – Many development deals are struggling due to high interest rates and cost overruns, creating opportunities for investors who can step in and restructure capital stacks.
- Workforce housing – Demand for affordable rental housing remains strong, and well-located workforce housing projects continue to attract investor interest.
- Smaller, niche-focused deals – Sponsors with deep expertise in a specific asset class or geographic market may have an advantage over large, generalized projects.
Brett notes that while Opportunity Zones remain an attractive tax-advantaged strategy, syndicators should not let tax incentives dictate investment decisions. The best deals are those with strong fundamentals, whether or not they qualify for OZ benefits.
Final Takeaways
- Many syndications fail due to poor planning, regulatory missteps, or market risks.
- Raising capital is often harder than new sponsors anticipate, and having a clear marketing and investor relations strategy is crucial.
- Strong legal structuring and investor disclosures can prevent disputes and mitigate risk.
- Real estate syndications thrive when sponsors have a solid business plan, strong partnerships, and clear execution strategies.
- Distressed assets and workforce housing are among the best opportunities in 2025 for sponsors with the right expertise.
Additional Resources
- SyndicationCounsel: syndicationcounsel.com
- Fennemore: fennemorelaw.com
Real estate syndications are complex, and while many face challenges, those with experienced teams, strong legal structuring, and solid investor relations practices have the best chance of success.