When, at the request of the promoters, a small group of investors contributes capital to buy a real estate project that the investors individually would not otherwise be able to own, the promoters create what is known as a private real estate syndication. The popularity of syndications has gone through several expansions and contractions, as changes in the tax law and/or the economy have created roadblocks along the way.
The provisions of the 1986 Tax Reform Act dealt a substantial blow to syndications by ending the tax treatment that permitted investors to deduct up to twice the amount of their investment and use the tax deferral as a source of their investment. More recently, the great recession and banking crisis of 2008 have led to an increased use of private real estate syndications. The typical private real estate syndication of the 1980s used a limited partnership format with the goal of purchasing revenue-generating real property. In contrast, current private real estate syndications use a limited liability company (LLC). Otherwise, the basic regulatory laws remain the same today as in the 1980s.
