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Syndication Basics
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Should You Really Start a Fund?
We get potential clients who reach out to us every week who want to start a fund. While we could simply take their money and set them up with fund offering documents, we actually talk a lot of people out of doing a fund. Why? Because they don’t...
How do I Create a Substantive Relationship?
Question: If I am doing a 506(b) offering, do I still need a pre-existing substantive relationship before I can solicit from an Accredited Investor (AI)? If “yes,” is there still any waiting period after I get that Accredited Investor to sign a...
What is Real Estate Syndication?
If you have a self-directed IRA or substantial investment funds, you probably have considered investing in real estate. But perhaps you have concluded that you lack the funds to invest on your own. Or maybe you simply don’t want to deal with...
What’s in a Securities Offering?
A Private Placement Securities Offering includes a number of documents, which collectively comprise the Offering Package. Each document has the specific purpose described below: The Private Placement Memorandum The Private Placement Memorandum...
How to Structure a Real Estate Syndicate
Although there are numerous ways to structure a commercial income-producing property, the following model describes a typical 2 Class syndicate with equity Investors and a separate management entity. How to Structure a Real Estate Syndicate In the...
Joint Ventures or Securities – What’s the Difference?
Are you selling securities or joint ventures? If you are using other people’s money for your real estate investments, you need to know the difference between a joint venture and a security. The questions you need to ask are: Will investors invest...
506(b) or 506(c) – That is the Question
First there was Rule 506, under which investors could claim exemption to the requirement of registering securities. Subsequently, in its July 10, 2013, meeting, the U.S. Securities and Exchange Commission (SEC) adopted the new Regulation D,...
10 Steps to Becoming a Successful Real Estate Syndicator
Here’s a 10-step checklist on how to start a Real Estate Syndication: 1 - Select an asset class Figure out what asset class you want to buy (multifamily, shopping centers, hospitality, self-storage, development projects, single family residential,...
Soliciting Investors for a Rule 506(b) Private Placement Offering
QUESTION: How can I solicit investors for a group real estate investment? A securities offering claiming the “private placement” exemption from registration under Regulation D, Rule 506(b)—“Rule 506(b)”—per Section 4(2) of the Securities Act of...
Splitting Money With Investors in a Real Estate Syndication
There are a number of ways to split money with investors in a syndication. Real estate syndicators commonly use a couple: a straight-split scenario, or a preferred return scenario. There Are Many Ways to Split Money With Investors Let’s take a...
12 Ways You Can Earn Money as a Real Estate Syndicator
A question I often encounter is how one can make money at real estate syndication. Let’s start by addressing what we mean by real estate “syndication.” A real estate syndication is a means for a group of passive investors, organized by a...
Dangers of DIY Real Estate Syndication
Suppose you’ve found a smoking-hot real estate investment opportunity but you don’t have the necessary funds outright? Don’t procrastinate; syndicate! But by all means, make sure you use professional help – because do-it-yourself (DIY) syndication...
Advanced Basics
What Can Happen if You Don’t Comply with Securities Laws?
The importance of complying with Securities Laws can never be emphasized enough. Securities regulators, including both the Securities and Exchange Commission (SEC) and state securities agencies, routinely conduct securities investigations into...
How to Name the Entities in Your Syndicate
If you are a syndicator, you should pick a naming convention for all of the entities in all of your syndicates and stick to it. You can have as many as five entities in a syndicate, but most commonly, you will only have two. If you can figure...
Class B Catchup Distributions Explained
When you are syndicating a cash-flowing property, you must determine how you will distribute cash to your investors at various stages of your company. This is called a “waterfall”. At a minimum, you will need to determine the waterfall for cash...
Can I Use a Consulting Agreement to Raise Money for Someone Else’s Syndicate?
We get this question all the time, and our answer is always the same. Only a licensed securities broker-dealer can raise money for a third party and earn a commission. As such, you cannot enter into an agreement to be an outside consultant or...
Real Estate Attorney v. Securities Attorney: What’s the Difference?
If you are using other people’s money to buy real estate, you will need two different types of attorneys to help you get your deal to the closing table. A real estate attorney to help you with your purchase and sale agreement, to help with your...
Paying Finders Fees in a Real Estate Syndication
Question: What are the rules regarding paying unlicensed “finders” to refer investors to a real estate syndication? The Issuer Exemption Under Regulation D, Rule 506 Since passage of the National Securities Markets Improvement Act of 1996 (NSMIA),...
10 Things to do When You Can’t Find Deals That Make Sense
Market cycles are just that – cyclical. The current market cycle is making it hard to find deals. Prices are high; cap rates are low; interest rates are on the rise; and the good deals seem to be drying up. If you have chosen the path of a...
Specified, Blind Pool, Fund of Funds, or Segregated Offerings— Which Type is Right for You?
NOTE: This article pertains to Private Placement Securities Offerings. The information provided is for educational purposes only and is not to be relied upon as specific legal advice. You should consult a securities attorney before deciding which...
The Legal Aspects of Raising Money from Private Investors-Rule 506(b)
QUESTION: What Securities Laws Apply to Raising Money from Private Investors? Securities Laws The Securities Act of 1933 was enacted in the wake of the stock market crash in the 1930s after many investors lost money to investment “Promoters” (aka...
Don’t Blow Your Rule 506(b) Exemption Before You Raise a Dime
Recently, I received an email inviting Accredited and Non-Accredited Investors to attend a free webinar regarding a property that was being syndicated. Presumably, this was for a Rule 506(b) exempt offering that allows unlimited accredited...
You Can’t Afford to be in Denial About Securities Laws
If you are raising money from private investors in the United States (other than from hard money lenders who are in the business of lending money), then you need to qualify your “offering” for an exemption from securities registration (by following...
Do I Need A PPM Lawyer To Draft A PPM?
"Do I need a PPM attorney to draft my securities offering documents? And when do I need a PPM?" The first question is akin to asking whether you need a surgeon to perform brain surgery. After all, everyone has a knife in his or her kitchen and...
Other articles
The Perils of Drafting Your Own Real Estate Syndication Documents
What are the perils of drafting your own real estate syndication documents? Improper Structure/Loss of Syndicator Compensation A competent securities attorney will help you structure your offering with respect to how you and your investors get...
Don’t Blow Your Securities Exemption!
Federal and State Notice Filing Requirements NOTE: This article specifically pertains federal and state-required filings for exempt securities offerings under Regulation D, Rule 506. This information is not applicable securities offerings under...
Want to Help Your Friends Invest? Consider Opening an Investment Club
You know the benefits of wise investing, but what about your friends? One way to introduce them to investing and help educate them is through an investment club. What exactly is involved in overseeing an investment club? As the foundation, you...
Why Your Single-Member LLC Should be Formed in Wyoming
Need to form a single-member LLC and also want liability protection? Wyoming may be your best choice. Here’s why: A Charging Order is the sole remedy that a creditor has against a Wyoming LLC. This means a creditor can attach the distributions of...
Fund of Funds Checklist
Have investors but don’t have a deal? This structure is useful for people who know investors but either don’t have deals or want to invest in others’ deals. Here’s a checklist for a “Fund of Funds.” Sponsor Sets up Their Own Fund: Uses U.S. or...
What Can Happen if You Don’t Comply with Securities Laws?
The importance of complying with Securities Laws can never be emphasized enough. Securities regulators, including both the Securities and Exchange Commission (SEC) and state securities agencies, routinely conduct securities investigations into...
Should You Really Start a Fund?
We get potential clients who reach out to us every week who want to start a fund. While we could simply take their money and set them up with fund offering documents, we actually talk a lot of people out of doing a fund. Why? Because they don’t...
What to do When Disaster Strikes Your Syndicated Property
Disasters at income properties come in many forms. Over our years of practice, our clients have had fires, major wind damage, hurricane flooding, COVID, partner embezzlement, and even murder. When disaster strikes, you need a plan for dealing with...
SEC Proposes Harmonization Amendments to Exempt Offerings
While everyone else has been hunkered down over the past few months, the SEC staff has been busy proposing and adopting new regulations, some of which may have a significant positive impact on raising private money. Among them are Harmonization...
Debt vs. Equity Offerings
Finding it difficult or confusing to understand the difference between debt and equity financing? Simply stated, debt securities are loans that pay out interest over time, while equity securities confer ownership in a company (think about this in...
Court Ruling Spotlights ‘Cryptocurrency as Securities’ Question
A recent court ruling is providing more clarity to the question of when digital assets are subject to securities laws and serves as notice to issuers and investors alike of increased enforcement efforts by the SEC in cryptocurrency cases. U.S....
SEC Issues Final Amendments to Definition of Accredited Investor — But Will it Help You?
The expanded definition of an Accredited Investor[1] finalized by the Securities & Exchange Commission on Aug. 26, 2020, may sound encouraging, but will it really be all that helpful for Syndicators raising money from private individuals...
What to Know About Preferred Equity
What is Preferred Equity? In the context of this article, Preferred Equity simply means a particular investor who will receive different or priority returns than other investors. Preferred Equity typically comes from Family Offices, Insurance...
Avoiding Fraud in Syndication
Syndicators Beware — Your Livelihood and Reputation are On the Line if Fraud Occurs in Your Syndicate Fraud is a constant risk in any kind of transaction but even more so in a real estate syndication, which involves pooling funds from multiple...
Which Fund Structure is Right for You?
There are multiple ways to set up a private equity fund. The most common types are described here. FUND STRUCTURES Whole Fund Model Under the “Whole Fund” or “Blind Pool” model, investors purchase interests in a pooled investment fund (the Fund),...
3 Reasons NOT to Do a Joint Venture with Investors When Raising Capital
The following question was recently asked of our firm: “If I’m raising less than $1 million, do I still have to follow securities laws? Can’t I just do a joint venture?” The amount of money you are raising doesn’t matter. What determines whether...
How and Where a Syndicator Can Network for Investors
Meeting—and then developing meaningful relationships with—investors is key to your success in real estate syndication. Here is insight on how to accomplish that. Regularly Attend Local Events Sam Freshman, author of the book, “Principles of Real...
Navigating Private Lending Laws
Question: What laws apply if you are raising funds from private lenders to: a) fund your real estate investing or private lending business, or b) if you are loaning their funds to others? When Securities Laws Apply If you are borrowing or pooling...
Allocating Compensation Among Members of Your Asset Management Company
Who Shouldn’t be in Your Asset Management Company? People who are already providing services for a fee and aren’t providing any of the additional services described below should not be included in your asset management company. If you are already...
How Should a Syndicate Manager Take Title to its Carried Interest?
Q. My syndicate is structured with 2 classes of Members. Class A is for cash-paying investors. Class B is reserved for management. If I am participating in management and earning Class B interests, how should I take title to them? A. There are tax...
Opportunity Zones for Syndicators
By now many taxpayers have heard about Opportunity Zones enacted under the Tax Cuts and Jobs Act 2017. As a quick recap, the objective of Opportunity Zones is to spur economic growth in underserved areas by providing tax incentives to investors in...
What is a Sources and Uses Statement in a Private Placement Memorandum?
One of the essential elements for any Private Placement Memorandum (PPM) is the Sources and Uses Statement. This is required PPM content by the Securities and Exchange Commission and is good business practice for any startup or ongoing business....
What is a Fund of Funds?
A fund of funds is an investment vehicle that allows a syndicator to pool funds from a group of investors into a single company that invests in other companies. In order to pool other people’s money, you need two things: A company that can accept...
How to Get More Investors for Your Syndicate
Deciding on an idea for your startup company or real estate deal is just the first step of many on your way to success. In this white paper, we’ll focus on one of the most important steps: Identifying and using the tools you need to market yourself...
Crowdfunding: A Guide to the Basics
CROWDFUNDING YOUR OFFERING What is Crowdfunding? Crowdfunding is simply a method of legally advertising a securities offering via the Internet or other means. The JOBS Act included provisions (Titles II, III and IV) that allow direct advertising of...
Qualified Opportunity Funds – Coming to a Community Near You
This Will Change the Way You Think About Exchanging Property! On Oct. 19, 2018, the U.S. Department of Treasury and the Internal Revenue Service (IRS) jointly issued proposed guidance related to a new Opportunity Zone tax incentive to be applied...
The 1031 Dilemma – Tenants in Common, Delaware Statutory Trusts & Syndicates
We often get calls from clients who ask the question: “Can I include a 1031 investor in a syndicate?” The sad truth is that syndication and 1031 investors don’t mix well. Before we begin our discussion, just what is a 1031 Exchange? According to...
Don’t Blow Your Exemption! SEC Form D Filings and Blue Sky Filing Requirements for Reg D Offerings
QUESTION: What notices must be filed with securities agencies for an exempt real estate syndication under Regulation D, Rule 506? The following answer is involved, but well worth your time and attention to keep you out of trouble where the sales of...
What You Should Know Before Investing in a Syndication
Before accepting any investor funds, the sponsor of a syndication is required by securities laws to provide a set of offering documents that explains the terms and discloses the risks of the offering to prospective investors. Here are 10 things to...
How to Write an Investment Summary for a Blind Pool Securities Offering
Sending an investment summary to investors will be considered the first step in making an offer, so if you are doing a Regulation D, Rule 506(b) offering, you should only send it to people with whom you have established a pre-existing relationship....
Regulation S Real Estate Syndication Offerings Solely to Foreign Investors
QUESTION: What are the rules regarding using foreign investors in a real estate syndication that is buying property in the United States? A. Applicable Securities Laws Regulation S and Rule 144—The applicable laws are found in U.S. Securities and...
10 Things Investors Should Know Before Investing in a Real Estate Syndication
If you have a self-directed IRA or substantial investment funds, you no doubt have considered investing in real estate. However, you may lack the funds to invest on your own or the desire to deal with the hassles of property management. A viable...
HUD Loans For Construction, Rehab & Refinancing
Little-known to most real estate investors, the Federal Housing Association (FHA), in conjunction with the U.S. Department of Housing and Urban Development (HUD), collectively offer mortgage insurance programs for both apartments and health care...
To Be Accredited, or Not to Be Accredited
Why Does it Matter and How Does One Get Verified as Accredited? When must investors in a syndication deal be Accredited, and when can Non-Accredited Investors participate in the opportunity? Sometimes the answer is not clear-cut, which is why it’s...
What is the Right Entity for You?
As an owner or potential owner of investment real estate, you may have been warned not to take title to real estate in your own name. The reason is to protect your personal assets outside the entity from liability in the event of a lawsuit against...
Fiduciary Duties & Other Obligations to Investors in a Securities Offering
If you are selling securities via a private placement or public offering of securities to private investors, you have certain obligations and duties to your investors. Failure to heed them could result in lawsuits, civil fines and, in the worst...
Is Your Corporate Veil Puncture-Proof?
If you own a corporation, you no doubt formed it because you wanted to protect your personal assets from any liability arising from your business activities. In other words, you wanted to take advantage of the infamous “corporate veil.” What is the...