In real estate investing, a sidecar investment is a form of co-investment in which an investor provides additional capital to a real estate developer or sponsor in exchange for a share of the profits from a specific project. The sidecar investor typically has no control over the project but simply provides capital in exchange for a return on investment.
Real estate developers often use sidecar investments to raise additional capital for a project without giving up control or equity in the overall venture. They are also attractive to investors because they offer the opportunity to participate in a real estate investment without committing a large amount of capital or taking on a significant level of risk.
Sidecar investments can take many forms, such as providing capital for a specific property acquisition or development project or investing in a real estate-focused private equity fund. They may also be structured as a joint venture or other type of partnership. It is important for investors to carefully consider the terms of the sidecar investment and understand their rights and obligations before committing any capital.
A sidecar investment is typically used in syndication, where a group of investors come together to pool their resources and purchase a property. The sidecar is used to hold the investment funds of the individual investors, allowing them to participate in the investment without actually owning the property themselves.
Sidecars can be structured in various ways, depending on the specific needs and goals of the investors. They may be set up as a limited liability company (LLC), a limited partnership (LP), or a legal entity. The sidecar can hold a variety of assets, including cash, securities, or other investments.
One common use of sidecars in real estate investing is to allow individual investors to participate in larger deals that they might not have the resources to invest in on their own. By pooling their funds in a sidecar, investors can take advantage of economies of scale and potentially achieve higher investment returns. Sidecars can also provide a level of flexibility and control for investors, as they can specify the terms of their investment, such as the level of risk they are comfortable with and the expected return on their investment.