1. Define a syndicate and list its three cycles.

: A
syndicate is a descriptive term for a group of two or
more people who combine their financial resources
to achieve certain investment objectives.
A syndicate's three cycles are organization,
operation and liquidation.

2. What business forms can syndication take?:

Limited Partnership General Partnership
Corporation
Real Estate Investment Trust

3. List three important things to know about

partnerships. (See screen 7 for other correct
answers.): Partners' interests are undivided.
The partners' spouses do not have a direct
community property interest in partner- ship
property.

A general partnership agreement does not need to be

in writing to be valid.
4. In a limited partnership, what is the liability
difference between a general partner and a limited
partner?: Limited partners are liable only to the
extent of their investment.
General partners have unlimited liability.
5. List four important things about corporations. (See
screen 13 for other correct answers.): Corporations
can own property in the corporate name.
Shareholders of a corporation have limited liability
and do not participate directly in managing the
corporation.
Shareholders elect directors, who are the ones
responsible for setting corporate policy.
The directors hire corporate officers, who operate
the corporation.
6. What requirement does California have regarding
REIT shares?: California requires that each share
carry with it an equivalent vote in determining trust
policy. 7. What is the difference between an equity
trust and a mortgage trust?: Equity trusts buy and
sell real property.
Mortgage trusts buy and sell mortgage loans.
8. What is a hybrid trust? What does California call a
hybrid trust?: A hybrid trust unites real estate equity
investing with mortgage lending. In California, a
hybrid trust is called a balanced trust.
9. How do REITs handle taxes?: REIT shareholders
report the taxable income from their REIT shares on
their personal income tax returns.
10. How are REIT mutual funds different from other
REITs?: While REITs invest in real estate or
mortgage-secured debts, REIT mutual funds invest in
bonds or the stock of other companies.
11. What are the three types of private REITs?: REITs
targeted to institutional investors that take large
financial positions.

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REITs syndicated to investors as part of a package

offered by a financial consultant. "Incubator" REITs
that are funded by venture capitalists who expect
that the REIT will develop a good enough track
record to launch a public offering in the future. 12.
Explain how a REIT can grow its income from its
existing properties.: A REIT can do any of the
following:

Increase the occupancy level by renting more space.

Raise rents.
Redevelop the space.
Change the marketing strategy.

Control expenses.
13. The term syndication is a descriptive term for a
group of two or more people who combine their
financial resources to achieve certain investment
objectives. A syndicate is able to acquire real estate
that could not be pur- chased by an individual alone.

A typical real estate syndicate combines the money

of individual investors with the management of the
sponsor. The syndication has three cycles:
Organization - Planning, purchasing property,
meeting registration and disclo- sure rules, and
marketing.
Operation - Managing both the syndicate and the real
property, usually done by the sponsor.

Liquidation - Reselling the property.: Most organizers

of syndicates do not invest much of their own
money.

A syndicate is governed by whatever form of

business organization the participants adopt. This
could be a:

Limited Partnership
General Partnership
Corporation
Real Estate Investment Trust
Investors often choose to organize as a limited
partnership if they will be syndicating only one
project or only a small number of projects.

If a syndicate does not identify the properties it

plans to purchase, the offering is called a blind pool.

Because most syndicates intend to make a profit for

many people from the efforts

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Ch. 16 - Real Estate Syndication & REITs
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of a few people, they must comply with the rules and

regulations of the Securities and Exchange
Commission.

In California, the Department of Corporations

regulates control of syndicates. Under the
Corporations Code, real estate brokers may engage
in the sale of real estate syndicate security interests
without obtaining a special broker-dealer license.

The California Corporations Code states that a

limited partner may become liable for the total debts
of the partnership if the limited partner takes an
active role in management.
14. A general partner is an active partner in the
partnership who has unlimited personal liability for
the debts of the partnership. An advantage that part-
nerships have over corporations is that partnerships
do not pay income tax. The individual partners pay
the taxes. A corporation, on the other hand, has
double taxation.The corporation pays tax on its
corporate profits and then the stockholders pay tax
on their dividends.

Joint ventures are partnerships for a single

undertaking rather than a contin- uing business.
Because the joint venture is set up for a limited
purpose, the implied authority of the members is
more limited than in general partnerships.- : Limited
partnerships are partnerships in which the limited
partners have limited liability as opposed to the
unlimited liability of a general partnership. Limited
partners are liable only to the extent of their
investment. However, a limited partnership must
have at least one general partner who has unlimited
liability.

Limited liability companies provide the limited

liability protection of corporations without the
regulations associated with corporations.

Real estate investment trusts (REITs) allow smaller

investors to pool their resources for quality
investments with limited liability. Qualifying REITs
have tax-free status. To qualify for tax-exempt status
under federal law, a real estate investment trust
(REIT) must meet several conditions, including:

Shares must be owned by at least 100 investors.

Five persons or fewer cannot hold more than 50
percent of the shares during the last half of any tax
year.
At least 75 percent of the trust's assets must be
made up of cash, real estate, mortgage notes, or
government securities.
No more than 30 percent of gross annual income can
come from gains from the sale

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Ch. 16 - Real Estate Syndication & REITs
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of securities held for less than a year or real estate

held for less than four years.
At least 90 percent of the trust's gross income must
be distributed to shareholders within one year after
the end of each fiscal year.
15. There are three types of trusts:
Equity trusts buy and sell real property.
Mortgage trusts buy and sell mortgage loans.
Hybrid trusts, or balanced trusts, combine both real
property investing and mortgage loan investing.
Since the REIT itself must be a passive investor, the
trustees or directors hire managers called advisors
to carry out the general affairs of the REIT.: REIT
shareholders are in a position that is somewhat like
that of the limited partners in a real estate limited
partnership. Shareholders may have to pay income
tax because of the cash dividends they receive, but
they do not face the issue of double taxation that
distributed corporate earnings usually deal with. So,
REIT shareholders benefit from the corporate
attributes of limited liability, centralized
management, continuity of life and the ability to
transfer interests freely. And they do not incur the
related tax disadvantages.
An investor on a limited budget can acquire a
diversified portfolio by purchasing shares in a REIT
mutual fund. Like REITs, mutual funds avoid paying
income taxes by distributing most of their earnings
to the shareholders each year. While REITs invest in
real estate or mortgage-secured debts, mutual funds
invest in bonds or the stock of other companies.

REITs that are not listed on an exchange or traded

over the counter are called private REITs.

Because REITs are required to pay out 90 percent of

their earnings as dividends, they have limited
opportunity to keep earnings for purchasing
additional real estate. There are five ways in which
REITs can increase income and boost funds from
operations:

Growing income from existing properties. Growing

income through acquisitions. Growing income
through development. Growing income through
provision of services. Financial engineering.

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Ch. 16 - Real Estate Syndication & REITs
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16. Which statement about syndication is false?:

Most organizers of syndicates invest a lot of their
own money.
17. Which of these is not a REIT property type as
defined by the National Association of Real Estate
Investment Trusts?: Recreational

18. What is it called if a syndicate does not identify

the properties in an offering?: Blind pool
19. Swapping operating partnership units for other
interests is an example of growing income for a REIT
through which method?: Acquisition
20. How much of a REIT's taxable income must be
distributed to shareholders yearly?: 90%
21. Which of the following is a descriptive, non-legal
term for a group of two or more people who combine
their financial resources to achieve certain
investment objectives?: Syndicate
22. What do we call an accounting treatment that
would tend to magnify the funds from a REIT's
operations?: Financial engineering
23. Louis Hopkins has invested in a real estate trust
that will get income from mortgage interest and loan
origination fees. Louis has invested in what kind of
trust?: REMT
24. What type of organization provides the liability
advantages of a corpora- tion, without the
regulations corporations must deal with?: LLC
25. Because a REIT itself must be a passive investor,
who typically manages the REIT?: Advisor