Money, Power, and Responsibility: 6 tips to avoid passive investor pitfalls in a commercial real estate syndication

You have evaluated the deal metrics of a prospective commercial real estate syndication and you like the deal. What’s next?

Ask the sponsor for the offering documents.

The “offering documents” are the instruments that create a legally enforceable contract among the sponsor, the investors, and the business entity (the issuer) that is issuing a passive ownership stake in exchange for your investment. So while you have been given assurances by the sponsor and are satisfied with the deal metrics as presented, a review of the offering documents is the *only* way to verify whether your expectations are legally enforceable. It may be helpful to summarize the key terms of the offering into an investment abstract (example).

The offer and sale of passive equity interests are governed by federal and state securities laws, meaning sponsors have a legal obligation to disclose to prospective investors the terms of the offering as well as any risks that are material to making an informed investment decision. Sponsors that provide information with misrepresentations, misleading statements, or material omissions are subject to civil liability and criminal prosecution, which underscores the importance of verifying that the sponsor is advised by securities counsel. When you ask the sponsor for the offering documents, you should receive the following materials:

  • Private Placement Memorandum (PPM). Legal instrument used to disclose the terms of the offering and the risks that are material to making an informed investment decision.
  • Business Plan. May come in the form of an executive summary, pitch deck, or financial projections. This is not a legal instrument and so it is not an enforceable contract, but you’ll want to ask for the most current financial projections because the underlying assumptions can change during the term of an offering.
  • Subscription Agreement. Legal instrument used to close on your investment and also to allocate the risk of securities liability away from the sponsor and onto you as an informed decision maker. The subscription agreement will contain investor representations and warranties including that you are (a) an accredited investor; (b) purchasing for investment and not a view for resale; and (c) making an informed investment decision based on your independent evaluation of the PPM.
  • Operating Agreement. Legal instrument that governs the relationship of the sponsor and the investors as business partners, as well as their respective duties and rights to the issuer and to each other.

Typically, the Business Plan, Subscription Agreement, and Operating Agreement are all included as attachments to the PPM, and so a set of offering documents can easily approach a daunting 100+ pages of legalese. Don’t be discouraged! The Operating Agreement is the most important of the offering documents because it is the only instrument that governs the three key terms of a commercial real estate syndication:  Money, Power, and Responsibility.

Money. As a passive investor, you are primarily interested in verifying whether the Operating Agreement is consistent with your economic expectations. Economic rights are governed by provisions on cash distributions, tax allocations, and guaranteed payments.

  1. Cash Distributions. If you’re investing for cash flow, then you want to locate the provisions governing how net profits will be shared among business partners. Typically, the sponsor will reserve discretion on timing of cash distributions for when the project can afford it and only after payment of expenses and budgeting for contingencies. The surplus is then distributed pursuant to a distributions waterfall, which may provide for a preferred return of some annual percentage to investors, followed by a return of investor cash, and then some profit share between the sponsor and the investors as a class. More complex waterfalls will include one or more hurdle rates with adjusted profit splits. Pro Tip #1:  If your expectation is to receive a preferred return, then make note of when the preferred return will begin to accrue. Sometimes it begins to accrue on the date that your cash is contributed, sometimes it doesn’t begin to accrue until project stabilization.
  2. Tax Allocations. If you’re investing for passive tax losses, then you want to locate the provisions governing allocation of profits and losses among the business partners. Typically, items of profit and loss are allocated proportionate to cash contributions but this isn’t always the case if, for example, the sponsor is taking a promote (a share of upside as incentive compensation for services performed). Pro Tip #2:  If the sponsor is taking a promote, then verify that profits and losses are allocated in proportion to cash contributions and not percentage interests. Also ask the sponsor whether they plan to accelerate depreciation deductions via a cost segregation study.



  3. Sponsor Fees. A sponsor will perform certain services to the issuer that the issuer would otherwise need to pay to a third party but for those services being provided in-house. Examples include an annual asset management fee based on the amount of investor equity under management, a developer fee based on the amount of the development and construction budget, or a guaranty fee based on the amount of debt guaranteed to the project’s lender. Such fees are paid by the issuer to the sponsor prior to cash distributions to the investors, so it is crucial for investors to be fully aware of the sponsor’s authority to pay itself from amounts otherwise distributable to investors. Pro Tip #3:  Verify that guaranteed payments are fully disclosed (no hidden fees), paid for actual services performed, and no less favorable than would be available at arms-length from a third-party service provider.
  4. Transfer Rights. Transfer rights govern whether a partner is able to sell its ownership stake, whether to another partner or to a third-party purchaser if, for example, a partner needs liquidity prior to the deal going full-cycle. These rights range from a right of first offer/first refusal to call options, put options, and tag-along/drag-along rights. Provisions that govern transferability of an ownership stake in the issuer will also set forth the purchase price for an early investor exit. Pro Tip #4:  Generally, syndications are illiquid investments, meaning you are along for the ride until either (i) the sponsor refinances the project’s existing indebtedness and buys you out, or (ii) the sponsor sells the project and everyone gets cashed out. Provisions that govern transfer rights are the exception to that general rule.


Power. If the key economic rights outlined above are consistent with your expectations as a passive investor, then the next most important category of rights involve issues of control. In a commercial real estate syndication, the bargain is fairly straight-forward:  the sponsor is primarily responsible for day-to-day decision-making as the general partner (GP) or manager and the investors are passive participants. Whereas passive investors are typically not interested in approval rights on operational decisions, it is not uncommon for the investors to have an approval right on certain major decisions that would have a material effect on any individual investor or on the investors as a class. Pro Tip #5:  Operating Agreements typically contain a provision that enumerates the rights of investors to vote on major decisions, such as whether investors must satisfy additional capital calls by the sponsor if, for example, the sponsor busts the project’s development and construction budget.

Responsibility. Probably the most overlooked provisions in an Operating Agreement involve the sponsor’s responsibility to provide periodic reports that keep investors apprised of construction progress, lease-up, and operations. Investor information rights range from a high standard (annual audited financials and monthly summaries) to a lower standard (annual K-1s only). Pro Tip #6:  The right balance is somewhere in between these high and lower standards, typically involving annual internally-prepared financials and a quarterly summary of issuer activity.

Once you’ve completed review of the Operating Agreement and summarized into an investment abstract, you are better positioned to compare your understanding of the offering with the disclosures in the PPM. A reputable sponsor will be responsive to any inconsistencies, but any response that falls short of your expectations as a prospective investor presents the opportunity to (a) walk, (b) assume the risk, or (c) request a side letter agreement that modifies the terms of the offering to align with your expectations.


A sponsor’s obligation to provide full and fair disclosure does not end when you wire funds; the anti-fraud provisions of federal and state securities laws apply to sponsor conduct through to dissolution and winding up of the issuer. Nevertheless, conducting this exercise up-front will better align your expectations with what’s enforceable, and like in any business deal, an ounce of prevention is worth a pound of remedy.

Andrew P. Doup, Esq. is a nationally ranked Top 25 attorney for tax-advantaged real estate syndications. He is counsel to private investors, developers, entrepreneurs, and fund managers on a range of real estate development projects to include commercial, hotel, office, student housing, multifamily, senior living, and mixed-use asset classes. He has extensive experience with federal and state securities regulation involving exemptions for the offer and sale of securities, including private real estate investment fund formation and real estate syndications, private placement memoranda, subscription agreements, and SEC and state “blue sky” filings. Contact Andrew P. Doup at (740) 504-3198 or

The information in this blog post is for general educational purposes only and does not constitute legal advice.

Nothing on this website should be considered financial advice. Investing involves risks which you assume. It is your duty to do your own due diligence. Read all documents and agreements before signing or investing in anything. It is your duty to consult with your own legal, financial and tax advisors regarding any investment. 

Chris Franckhauser

Vice President of Strategy & Growth, Advisory Partner

Chris Franckhauser, Vice President of Strategy & Growth, Advisory Partner for Left Field Investors, has been involved in real estate since 2008. He started with one single-family fix and flip, and he was hooked. He then scaled, completing five more over a brief period. While he enjoyed the journey and the financial tailwinds that came with each completed project, being an active investor with a W2 at the time, became too much to manage with a young and growing family. Seeing this was not easily scalable or sustainable long term, he searched for alternative ideas on where to invest. He explored other passive income streams but kept coming back to his two passions; real estate and time with his family. He discovered syndications after reconnecting with a former colleague and LFI Founder. He joined Left Field Investors in 2023 and has quickly immersed himself into the community and as a key member of our team.  

Chris earned a B.S. from The Ohio State University. After years in healthcare technology and medical devices, from startups to Fortune 15 companies, Chris shifted his efforts to consulting and owning a small apparel business when he is not working with LFI (Left Field Investors) or on his personal passive investments. A few years ago, Chris and his family left the cold life in Ohio for lake life in the Carolinas. Chris lives in Tega Cay, South Carolina with his wife and two kids. In his free time, he enjoys exploring all the things the Carolinas offer, from the beaches to the mountains and everywhere in between, volunteering at the school, coaching his kids’ sports teams and cheering on the Buckeyes from afar.  

Chris knows investing is a team sport. Being a strategic thinker and analytical by nature, the ability to collaborate with like-minded individuals in the Left Field Community and other communities is invaluable.  

Jim Pfeifer

President, Chief Executive Officer, Founder

Jim Pfeifer is one of the founders of Left Field Investors and the host of the Passive Investing from Left Field podcast. Left Field Investors is a group dedicated to educating and assisting like-minded investors negotiate the nuances of the passive investing landscape and world of syndications. Jim is a former financial advisor who became frustrated with the one-path-fits-all approach of the standard financial services industry. Jim now concentrates on investing in real assets that produce cash flow and is committed to sharing his knowledge with others who are interested in learning a different way to grow wealth.

Jim not only advises and helps people get started in passive real estate syndications, he also invests alongside them in small groups to allow for diversification among multiple investments and syndication sponsors. Jim believes the most important factor in a successful syndication is finding a sponsor that he knows, likes and trusts.

He has invested in over 100 passive syndications including apartments, mobile homes, self-storage, private lending and notes, ATM’s, commercial and industrial triple net leases, assisted living facilities and international coffee farms and cacao producers. Jim is constantly looking for new investment ideas that match his philosophy of real assets producing cash flow as well as looking for new sponsors with whom he can build quality, long-term relationships. Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Chad Ackerman

Chief Operating Officer, Founder

Chad is the Founder & Chief Operating Officer of Left Field Investors and the host of the LFI Spotlight podcast. Chad was in banking most of his career with a focus on data analytics, but in March of 2023 he left his W2 to become LFI’s second full time employee.

Chad always had a passion for real estate, so his analytics skills translated well into the deal analyzer side of the business. Through his training, education and networking Chad was able to align his passive investing to compliment his involvement with LFI while allowing him to grow his wealth and take steps towards financial freedom. He has appreciated the help he’s received from others along his journey which is why he is excited to host the LFI Spotlight podcast and share the experience of other investors and industry experts to assist those that are looking for education for their own journey.

Chad has a Bachelor’s Degree in Business with a Minor in Real Estate from the University of Cincinnati. He is working to educate his two teenagers in the passive investing world. In his spare time he likes to golf, kayak, and check out the local brewery scene.

Ryan Steig

Chief Financial Officer, Founder

Ryan Stieg started down the path of passive investing like many of us did, after he picked up a little purple book called Rich Dad, Poor Dad. The problem was that he did that in college and didn’t take action to start investing passively until many years later when that itch to invest passively crept back up.

Ryan became an accidental landlord after moving from Phoenix back to Montana in 2007, a rental he kept until 2016 when he started investing more intentionally. Since 2016, Ryan has focused (or should we say lack thereof) on all different kinds of investing, always returning to real estate and business as his mainstay. Ryan has a small portfolio of one-to-three-unit rentals across four different markets in the US. He has also invested in over fifty real estate syndication investments individually or with an investment group or tribe. Working to diversify in multiple asset classes, Ryan invests in multi-family, note funds, NNN industrial, retail, office, self-storage, online businesses, start-ups, and several other asset classes that further cement his self-diagnosis of “shiny object syndrome”.

However, with all of those reaches over the years, Ryan still believes in the long-term success and tenets of passive, cash-flow-focused investing with proven syndicators and shared knowledge in investing.

When he’s not working with LFI or on his personal passive investments, he recently opened a new Club Pilates franchise studio after an insurance career. Outside of that, he can be found with his wife watching whatever sport one of their two boys is involved in during that particular season.

Steve Suh

Chief Content Officer, Founder

Steve Suh, one of the founders of Left Field Investors and its Chief Content Officer, has been involved with real estate and alternative assets since 2005. Like many, he saw his net worth plummet during the two major stock market crashes in the early 2000s. Since then, he vowed to find other ways to invest his money. Reading Rich Dad, Poor Dad gave Steve the impetus to learn about real estate investing. He first became a landlord after purchasing his office condo. He then invested passively as a limited partner in oil and gas drilling syndications but quickly learned the importance of scrutinizing sponsors when he stopped getting returns after only a few months. Steve came back to real estate by buying a few small residential rentals. Seeing that this was not easily scalable, he searched for alternative ideas. After listening to hundreds of podcasts and attending numerous real estate investing meetings, he determined that passively investing in real estate syndications was the best avenue to get great, risk-adjusted returns. He has invested in dozens of syndications involving apartment buildings, self-storage facilities, resort properties, ATMs, Bitcoin mining funds, car washes, a coffee farm, and even a Broadway show.

When Steve is not vetting commercial real estate syndications in the evenings, he is stomping out eye diseases and improving vision during the day as an ophthalmologist. He enjoys playing in his tennis and pickleball leagues and rooting for his Buckeyes and Steelers football teams. In the past several years, he took up running and has completed three full marathons, including the New York City Marathon. He is always on a quest to find great pizza, BBQ brisket, and bourbon. He enjoys traveling with his wife and their three adult kids. They usually go on a medical mission trip once a year to southern Mexico to provide eye surgeries and glasses to the residents. Steve has enjoyed being a part of Left Field Investors to help others learn about the merits of passive, real asset investments.

Sean Donnelly

Chief Culture Officer, Founder

Sean holds a W2 job in the finance sector and began his real estate investing journey shortly after earning his MBA. Unfortunately, it could not have begun at a worse time … anyone remember 2007 … but even the recession provided worthy lessons. Sean stayed in the game continuing to find his place, progressing from flipping to owning single and multi-family rentals to now funding opportunities through syndications. While Sean is still heavily invested in the equities market and holds a small portfolio of rentals, he strongly believes passive investing is the best way to offset the cyclical nature of traditional investment vehicles as well as avoid the headaches of direct property ownership. Through consistent cash flow, long term yield and available tax benefits, the diversification offered with passive investing brings a welcomed balance to an otherwise turbulent investing scheme. What Sean likes most about the syndication space is that the investment opportunities are not “one size fits all” and the community of investors genuinely want to help.

He earned a B.S. in Finance from Iowa State University in 1995 and a MBA from Otterbein University in 2007. Sean has lived in eight states but has called Ohio home for the last 20+.  When not attending his children’s various school/sporting events, Sean can be found running, golfing, shooting or fly-fishing.

Patrick Wills

Chief Information Officer, Advisory Partner

An active real estate investor since 2017, Patrick Wills’ investing journey began like many others – after reading the “purple book” by Robert Kiyosaki. Patrick started with single family rentals, and while they performed well, he quickly realized their inability to scale efficiently while remaining passive. He discovered syndications via podcasts and local meetups and never looked back. He joined Left Field Investors in 2022 as a member and has quickly become an integral part of the team as Vice President of Technology.

An I.T. Systems Engineer by trade, he experienced the limitations of traditional Wall Street investing firsthand in his career and knew there had to be a better way to truly have financial freedom.

Unfortunately, that better way is inaccessible to those who need it most. His mission is to make alternative investments accessible to everyone who seeks to take control of their financial future and to pursue their passions in life.

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