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An apartment syndication is a temporary professional financial services alliance formed for the purpose of handling a large apartment transaction that would be hard or impossible for the entities involved to handle individually, which allows companies to pool their resources and share risks and returns. In regards to apartments, a syndication is typically a partnership between general partners (i.e. the syndicator) and the limited partners (i.e. the investors) to acquire, manage and sell an apartment community while sharing in the profits.

An accredited investor is a person that can invest in securities (i.e. invest in an apartment syndication as a limited partner) by satisfying one of the requirements regarding income or net worth. The current requirements to qualify are an annual income of $200,000 or $300,000 for joint income for the last two years with expectation of earning the same or higher or a net worth exceeding $1 million either individually or jointly with a spouse.

A sophisticated investor is a person who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.

The general partner (GP) is an owner of a partnership who has unlimited liability. A general partner is also usually a managing partner and active in the day-to-day operations of the business. In apartment syndications, the GP is also referred to as the sponsor, syndicator, or operator. The GP is responsible for managing the entire apartment project.

The limited partner (LP) is a partner whose liability is limited to the extent of the partner’s share of ownership. In apartment syndications, the LP is the passive investor and funds a portion of the equity investment.

Capital expenditures, typically referred to as CapEx, are the funds used by a company to acquire, upgrade and maintain an apartment community. An expense is considered to be a capital expenditure when it improves the useful life of an apartment and is capitalized – spreading the cost of the expenditure over the useful life of the asset.

Capital expenditures include both interior and exterior renovations.

Examples of exterior CapEx are repairing or replacing a parking lot, repairing or replacing a roof, repairing, replacing or installing balconies or patios, installing carports, large landscaping projects, rebranding the community, new paint, new siding, repairing or replacing HVAC and renovating a clubhouse.

Examples of interior CapEx are new cabinetry, new countertops, new appliances, new flooring, opening up or enclosing a kitchen, new light fixtures, interior paint, plumbing projects, new blinds and new hardware (i.e. door knobs, cabinet handles, outlet covers, faucets, etc.).

Examples of things that wouldn’t be considered CapEx are operating expenses, like the costs associated with turning over a unit (i.e. paint, new carpet, cleaning, etc.), ongoing maintenance and repairs, ongoing landscaping costs, payroll to employees, utility expenses, etc.

Net operating income (NOI) is all revenue from the property minus operating expenses, excluding capital expenditures and debt service.

For example, a 415 unit apartment community with a total income of $3,033,229 and total operating expenses of $1,032,109 has a NOI of $2,001,120.

Capitalization rate, typically referred to as cap rate, is the rate of return based on the income that the property is expected to generate. The cap rate is calculated by dividing the property’s net operating income (NOI) by the current market value or purchase price of a property (NOI / Current market value = Cap Rate)

For example, a 415 unit property with an NOI of $2,001,120 that was purchased for $24,750,000 has a cap rate of 8.09%.

Price per unit is the cost of purchasing an apartment community based on the purchase price and the number of units. The price (or cost) per unit is calculated by dividing the purchase price by the number of units.

For example, a 415 unit apartment community purchased for $24,750,000 has a price per unit of $59,639

Closing costs are the expenses, over and above the price of the property, that buyers and sellers normally incur to complete a real estate transaction.

Examples of closing costs are legal fees, insurance, survey, recording fees, 3rd party reports, title endorsements, utility deposit, and due diligence fees.

Financing fees are the one-time, upfront fees charged by the lender for providing the debt service. Also referred to as loan points or loan point cost. Typically, the financing fees are 1% to 2% of the loan amount.

The capital reserves account is a reserves fund, over and above the price of the property, to cover things like unexpected dips in occupancy, lump sum insurance or tax payments or higher than expected capital expenditures. The capital reserves account is typically created by raising extra money from the limited partners.

The MultiFamily Investment Partners is the upfront costs for purchasing an apartment community, which includes the down payment for a loan, closing costs, financing fees, capital reserves account, and the various fees paid to the general partner for putting the deal together. May also be referred to as the total raise.

A model unit is a representative apartment unit used as a sales tool to show prospective tenants how the actual unit will appear once occupied.

Concessions are the credits (dollars) given to offset rent, application fees, move-in fees and any other revenue line time, which are generally given to tenants at move-in.

An employee unit is a unit rented to an employee at a discount.

The vacancy rate is the rate of unoccupied units. The vacancy rate is calculated by dividing the total number of unoccupied units by the total number of units.

For example, a 100 unit apartment community that has 10 vacant units has a vacancy rate of 10%

Effective gross income (EGI) is the true positive cash flow of an apartment community. EGI is calculated by the sum of the gross potential rent and the other income minus the income lost due to vacancy, loss-to-lease, concessions, employee units, model units and bad debt.

For example, if an apartment community has a gross potential rent of $2,432,304, loses $145,938 due to vacancy (6% vacancy rate) and $149,561 in credit costs (loss-to-lease, concessions, employee units, model unit, bad debt, etc.) and collects $183,096 in other income, then EGI is $2,319,901.

The economic vacancy is the rate of tenants who are living at the apartment but not paying you to live there. The economic vacancy is calculated by dividing the actual revenue collected by the gross scheduled rents.

The gross rent multiplier (GRM) is the number of years the apartment would take to pay for itself based on the gross potential rent (GPR). The GRM is calculated by dividing the purchase price by the annual GPR.

For example, a 415 unit apartment community purchased for $24,750,000 with a GPR of $3,958,680 has a GRM of 6.25.

The profit and loss statement is a document or spreadsheet containing detailed information about the revenue and expenses of the apartment community over the last 12 months. Also referred to as a trailing 12-month profit and loss statement or a T12.

The exit strategy is the plan of action for selling the apartment community at the end of the business plan.

A metropolitan statistical area (MSA) is a geographical region containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core, which are determined by the United States Office of Management and Budget (OMB).

The private placement memorandum (PPM) is a document that outlines the terms of the investment and the primary risk factors involved with making the investment. The four main sections are the introduction, which is a brief summary of the offering, the basic disclosures, which includes general partner information, asset description and risk factors, the legal agreement and the subscription agreement.

A subscription agreement is an agreement between a company and investor(s) that sets out the price and terms of a purchase of shares in the company. The subscription agreement details the rights and obligations associated with the share purchase.