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The Real Estate Syndication Subsections of ASC 970-605 provide guidance on real estate syndication activities and income. Syndicators expect to earn fees and commissions from a variety of sources (both up-front fees such as lease-up fees, construction supervision fees, financing fees and fees for selling debt or equity interests, and fees for future services such as incentive, property management or participation in future profits or appreciation).At the time of syndication, partnerships usually pay cash to the syndicator for portions of their up-front fees. These fees are usually paid from investor contributions or the proceeds of borrowings. Subsequent fees are expected to be paid from operations, refinancings, sale of property, or remaining investor payments.
ASC 970-605-25-5 states that real estate syndication income should be accounted for in accordance with ASC 360-20, even if the syndicator never had ownership interests in the properties acquired by the real estate partnerships. ASC 970-605-30-1 concludes that ASC 360-20 applies to the recognition of profit on the sale of real estate by syndicators to partnerships but does not apply to the recognition of certain fees, which are required to be excluded from the sales value. Fees charged by syndicators (except for syndication fees and fees for future services) should be included in the determination of sales value in conformity with ASC 360-20-40-8. Fees for future services should be recognized when the service is performed, and syndication fees should be recognized when the earnings process is complete and collection of the fee is reasonably assured.
If the syndicator retains a partnership interest as compensation for a portion of the syndication fee, the profit recognized on that portion of the fee should not exceed the amount that would be recognized by applying partial sale accounting to the underlying partnership interest.
If syndicators are exposed to future losses or costs from (1) material involvement with the properties, partnerships, or partners or (2) uncertainties regarding the collectability of partnership notes, they should defer income recognition on syndication fees and fees for future services until the losses or costs can be reasonably estimated.
Regardless of contractual provisions, for the purpose of determining whether buyers' initial and continuing investments satisfy the requirements for recognizing profit in full in conformity with ASC 360-20, cash received by syndicators should be allocated to unpaid syndication fees before being allocated to sales value. After the syndication fee is fully paid, additional cash received should first be allocated to unpaid fees for future services, to the extent those services have been performed by the time the cash is received, before being allocated to sales value.
ASC 970-323-30-6 requires the investor's costs of services or intangibles contributed to a partnership or venture to be allocated to the cost of the investment.
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