Investor's Corner

Q1 2026 | February Edition

Prepared by: Paramount Real Estate Properties Inc.

Market Focus: Canada

Asset Coverage: Office, Industrial, Retail, Multifamily, Senior Living

A Primer - On Investing In Canadian Commercial Real Estate Syndications

Structure, Risk, and Strategic Allocation for the Serious Investor

Commercial real estate syndications have quietly become one of the most frequently discussed private investment structures among high-net-worth investors in Canada. Yet despite the growing interest, there remains a meaningful gap between familiarity with commercial real estate itself and understanding how syndicated structures actually function.

Many investors I speak with are experienced. They understand lease covenants, market absorption, debt structuring, and capitalization rates. Some have owned investment properties for decades. Others operate businesses that lease or own commercial space. They are not new to real estate.

But syndications are different.

They involve securities law. They involve governance structures. They involve a capital stack that places you in a defined position relative to debt and management. They involve illiquidity. And they require sponsor evaluation that extends beyond asset analysis.

This paper is not promotional in nature. It is designed to clarify structure, articulate risk, and provide a framework for evaluating whether commercial real estate syndications deserve a place within a disciplined portfolio strategy.

If you are considering allocating capital into a private real estate offering in Canada, this is what you should understand before doing so.

What a Commercial Real Estate Syndication Actually Is

At its simplest, a commercial real estate syndication is a private investment structure in which multiple investors pool capital to acquire a commercial asset that would otherwise be impractical for a single investor to purchase independently.

The asset may be multifamily, industrial, retail, mixed-use, senior housing, office, or a combination thereof. The structure itself is asset-agnostic. What matters is the governance and capital alignment.

A syndication typically consists of two primary roles.

The General Partner (GP), sometimes referred to as the sponsor or syndicator, is responsible for sourcing the opportunity, conducting due diligence, negotiating the acquisition, arranging financing, implementing the business plan, managing the asset, communicating with investors, and executing the exit strategy.

The Limited Partners (LPs) provide equity capital and participate in the economic returns of the investment. LPs are passive. They are not involved in day-to-day operations. Their liability is generally limited to their invested capital, subject to the terms of the partnership agreement.

The economic arrangement between GP and LP is established in advance and documented through offering materials and subscription agreements. Returns are typically structured around a preferred return threshold and a subsequent profit-sharing split.

While the structure may appear straightforward, the underlying discipline of governance, underwriting, capital stack positioning, and sponsor capability is what ultimately determines outcome.

The Canadian Regulatory Framework: Why It Matters

Unlike purchasing a property directly, investing in a syndication involves acquiring a security. In Canada, these offerings are governed by provincial securities legislation and are commonly distributed under National Instrument 45-106 – Prospectus Exemptions.

These exemptions permit private issuers to raise capital without filing a public prospectus, provided certain criteria are met. The most common exemptions relevant to real estate syndications include the Accredited Investor exemption, the Offering Memorandum exemption, and the Minimum Amount exemption.

The Accredited Investor exemption is particularly relevant for high-net-worth individuals. In Ontario, an individual may qualify as an Accredited Investor if they meet certain financial thresholds, such as possessing net financial assets exceeding $1 million (excluding their primary residence), having net assets of at least $5 million, or earning income exceeding $200,000 individually (or $300,000 with a spouse) in each of the two most recent years with a reasonable expectation of maintaining that income.

The existence of these thresholds is not incidental. It reflects a policy assumption that investors meeting these criteria have either the financial sophistication or the financial capacity to evaluate and absorb the risks associated with private offerings.

This regulatory structure shifts responsibility. In public markets, disclosure obligations are expansive and standardized. In private markets, due diligence becomes more investor-driven. That reality should not be viewed as a deterrent, but it must be respected.

Syndications are private equity structures. They are not retail products.

Why Syndications Exist: Scale, Efficiency, and Institutional Access

The question investors often ask is straightforward: why not simply buy the property directly?

The answer lies in scale and efficiency.

As asset size increases, so do capital requirements, operational complexity, lender scrutiny, and management sophistication. A $25 million multifamily acquisition requires an equity contribution that may exceed $7 million to $9 million depending on leverage. Debt underwriting becomes more rigorous. Asset management requires formal reporting systems. Lease-up strategies must be executed at scale. Exit timing requires coordination with capital markets conditions.

For many investors, even those with substantial net worth, direct ownership of assets at this scale becomes inefficient from both a capital concentration and operational standpoint.

Syndication allows investors to participate in larger, professionally managed assets without assuming direct operational control. It enables capital diversification across multiple assets, markets, and operators. It introduces defined governance structures and formalized reporting obligations.

When executed with discipline, syndication can be a rational extension of a broader real estate strategy rather than a departure from it.

Return Structure: Preferred Return, Profit Split, IRR, and Equity Multiple

One of the most misunderstood aspects of syndication investing is return structure.

The preferred return is a distribution threshold that establishes priority. For example, an 8 percent preferred return indicates that limited partners are entitled to receive distributions up to that level before the general partner participates in profit sharing. It does not constitute a guarantee. It establishes economic priority.

After the preferred return threshold is met, profits are typically shared according to a pre-determined split, such as 70 percent to LPs and 30 percent to the GP. In some structures, the profit split may be tiered, increasing the GP’s participation after investors achieve certain performance hurdles. This is commonly referred to as a waterfall structure.

Internal Rate of Return (IRR) measures the annualized return on invested capital, incorporating both interim cash flow and final disposition proceeds. It reflects the time value of money. An IRR of 16 percent over five years does not imply that 16 percent is distributed annually in cash. Rather, it represents the compounded annualized performance across the full hold period.

Equity multiple measures total capital returned relative to capital invested. An equity multiple of 1.8x means that $100,000 invested returned $180,000 over the hold period, inclusive of all distributions and sale proceeds.

To illustrate, consider a hypothetical Canadian multifamily acquisition structured as follows:

• Purchase price: $28 million
  

• Debt financing: $20 million (approximately 71 percent loan-to-value)
  

• Equity raise: $8 million
  

• Hold period: 5 years
  

• Preferred return: 8 percent
  

• Profit split after preferred return: 70/30 (LP/GP)
  

• Target IRR: 15–17 percent
  

• Target equity multiple: approximately 1.8x
  

Early years may generate cash distributions below the preferred return while renovations, lease adjustments, or operational improvements are implemented. As net operating income increases and the asset stabilizes, distributions may rise. Final returns are realized at refinance or sale.

This structure is illustrative only. What matters is not the projected return, but the underwriting discipline supporting it.

The Capital Stack: Risk Begins with Positioning

Every syndication sits within a capital stack. Understanding where your equity sits relative to debt is foundational.

Senior debt occupies first position. It is repaid before equity. If leverage is excessive or refinancing risk is underestimated, equity becomes vulnerable.

Loan-to-value ratio, debt service coverage ratio, interest rate type (fixed versus variable), term length, and extension options all influence risk profile. A conservative capital structure prioritizes long-term stability and manageable debt service obligations. Aggressive leverage may amplify returns in favourable conditions but increases fragility in adverse ones.

Serious investors evaluate capital stack discipline before evaluating projected IRR.

Sponsor Underwriting: The Often Overlooked Variable

The most sophisticated financial model cannot compensate for poor sponsor discipline.

Commercial real estate underperforms not because spreadsheets are inaccurate, but because assumptions are optimistic, contingency planning is absent, or execution discipline erodes.

Sponsor evaluation requires more than reviewing a glossy offering memorandum. It involves assessing track record in similar asset classes, performance during downturns, communication transparency, governance framework, alignment of economic interests, and personal capital participation.

A sponsor who has operated through tightening credit markets, rising interest rate environments, and shifting tenant demand cycles possesses a different risk perspective than one whose experience has been limited to expansionary periods.

Syndication investing is fundamentally an exercise in trust architecture. The asset matters. The sponsor matters more.

Asset-Agnostic Discipline: Multifamily, Industrial, Retail, Senior Housing

Syndication structures apply across asset classes. Multifamily remains popular due to demographic stability and income durability. Industrial assets have benefited from e-commerce growth and supply chain restructuring. Retail and mixed-use assets can perform well when anchored by strong tenancy and location fundamentals.

Senior housing, in particular, merits mention given Canada’s aging demographic profile. As population cohorts shift upward in age, demand for needs-based housing increases. However, operational complexity in senior housing is higher than traditional multifamily. Management expertise and regulatory compliance become critical.

Regardless of asset class, evaluation discipline remains consistent. Market fundamentals, demand drivers, lease structures, capital expenditure planning, debt prudence, and exit assumptions determine resilience.

Asset category does not substitute for underwriting rigor.

Risk Recognition: Illiquidity and Time Horizon

Syndications are illiquid investments. Capital is typically committed for three to seven years, sometimes longer. There is no public market for resale. Early redemption is rarely available without penalty, if at all.

Illiquidity is not inherently negative. It can serve as a behavioural advantage, reducing reactionary selling. However, it requires that capital allocated to syndications be surplus to short-term liquidity needs.

Risks include market softening, tenant turnover, cost overruns, refinancing challenges, interest rate volatility, and sponsor execution error. Conservative underwriting acknowledges these risks explicitly rather than assuming continuous growth.

Private equity real estate rewards patience and discipline. It penalizes overconfidence.

Portfolio Context: Where Syndications Fit

For experienced investors, syndications are rarely a standalone strategy. They function as a component within a broader allocation framework.

They may serve as an income-producing alternative to fixed income, particularly in inflationary environments. They may offer diversification relative to public equity markets. They may provide exposure to asset classes that would otherwise require substantial capital concentration.

Allocation discipline remains paramount. Concentration risk, liquidity needs, and overall exposure to real estate must be considered holistically. Strategic allocation exceeds opportunistic enthusiasm in long-term importance.

Tax Considerations: A General Overview

Canadian real estate partnerships may provide certain tax efficiencies, including the allocation of income and expenses to partners and the ability to claim Capital Cost Allowance (CCA). However, tax treatment varies significantly based on individual circumstances, holding period, and asset class.

Tax considerations should complement, not drive, investment decisions. Professional accounting advice is essential before allocating capital.

The Central Question

Before investing in any commercial real estate syndication, ask a simple but consequential question:

Is this structure designed to protect capital first, and pursue return second?

Aggressive projections may be appealing. Conservative underwriting builds credibility. In private markets, discipline compounds quietly over time.

Real estate syndications are not speculative instruments. They are structured partnerships. When properly executed, they can form a rational and productive component of a serious investor’s strategy.

But they require clarity, alignment, and patience.

Conclusion

Commercial real estate syndications in Canada offer access to scale, professional management, and institutional-grade assets. They operate within a defined regulatory framework and require investor diligence commensurate with their private nature.

For investors already familiar with commercial real estate, the transition to syndications is less about learning asset fundamentals and more about understanding structure, governance, and capital positioning.

Education precedes allocation. Discipline precedes performance.

If you are evaluating whether syndications align with your objectives, risk tolerance, and portfolio strategy, I encourage you to continue the conversation.

You may reply directly with your questions. You may request access to the forthcoming Commercial Real Estate Syndications E-Book. Or you may schedule a structured Syndication Readiness Conversation to determine whether this approach aligns with your broader wealth strategy.

You need an advocate.
Your real estate investments should feel simple and strategic.
Let’s ensure you’re not overpaying — or overexposing — in pursuit of yield.

Go on entrepreneur, be great!!!

—
Mel Giannone
Paramount Real Estate Properties Inc.