What is a Syndicated Mortgage?

by Joseph White

A syndicated mortgage is a single mortgage with multiple investors.  In other words,one mortgage is registered on the title of the property being used as collateral for the loan, however there are more than one lender or investor in that mortgage.  For example, a developer requires $3 million dollars to begin construction on a new sub division.  Because of lending constraints the developer can no longer get this initial money from a bank.  To fund this project thirty people come together to combine their funds to lend to this developer. 

In this example no one person has the full $3 million dollars to lend the developer.  However, combined they do have $3 million.  Instead of each person lending the developer his or her smaller amount through a separate mortgage, they get together, combine their money and lend the developer the $3 million dollars in one mortgage.

Each investor will have his or her investment or loan collateralized or secured by the mortgage.  So, if the developer can't pay the mortgage payment the investor/lender can take the same steps to enforce the mortgage as a bank that lends a single person a mortgage to buy a house could do. 

Most syndicated mortgages being sold in today's market offer rates of return from 8-9% per year with many offering the potential for bonuses on completion of the project.

Syndicated mortgages come in all shapes and sizes.

Syndicated mortgages can be as small as two investors/lenders who are lending money to a borrower, although this is not the most common type.

The most common type of syndicated mortgage is one for a commercial office or professional building, an apartment building, condominium tower, subdivision, etc. wherby the developer requires a substantial loan to begin the process of developing the project.  This type of mortgage will typically fund soft costs (costs not directly involved with building) as well as some construction costs.  The goal in many developments is to increase the value of the property by obtaining zoning and permits to develop the property. 

Risks associated with the project depend on the stage of development, the purpose of the funds, the likelihood of completion and the current and anticipated loan to value as well as any conflicts of interest or other issues specific to that project.  Investors/lenders should always speak to a qualified mortgage agent/broker with regards to these specifics.  In addition the potential investor/lender should always get independent legal advice before investing in a syndicated mortgage.

Investing in a Syndicated Mortgage

When investigating investing in a syndicated mortgage it's important to speak to a qualified person.  AMIPROS offers certification of mortgage agents/brokers in both syndicated and private mortgages.  We suggest that you speak to an AMIPROS certified professional to ensure that you are receiving advice from a practicioner who has met minimum educational standards and abides by the AMIPROS Code of Conduct and Best Practices.  For more information on AMIPROS please visit us here.

Your investment choice is always a personal one, based on your knowledge of the investment, risk tolerance, objectives and overall investment portfolio.  Ultimately making an informed investment decision is up to you, but we strongly suggest that you use an AMIPROS certified professional as part of your decision making process.