Transcript: ‘Liquidity for Syndicators at Last’

Edited Transcript from the podcast episode ‘Liquidity for Syndicators at Last’

With Special Guest Gil Siedner of SecondRE

Originally Broadcast on July 28, 2022

Kim Lisa Taylor:

Good morning, everybody. Welcome to Syndication Attorneys’ free monthly podcast, where we talk about topics of interest to real estate syndicators, with the opportunity for live questions and answers at the end of the call.

I am attorney Kim Lisa Taylor. Before we get started, please note that all of our podcasts will be recorded and may be used for future promotion, posted on our website, or broadcast in a podcast available to the public. If you don’t wish to have your voice recorded, please schedule a one-on-one consultation instead of asking questions during the live call.

You can ask questions either by raising your hand or typing your question into the Q and A button. If you put your question in the Q and A, then we will read the question. If you want to ask the question yourself, go ahead and raise your hand and we will get to you at the end of the call.

The information discussed during this free podcast is of a general educational nature and should not be construed as legal advice. Today our topic is “Liquidity for Syndicators At Last,” with our special guest Gil Siedner. And Gil, thank you. Welcome to the program.

Gil Siedner:

Thank you very much, Kim. Happy to be here and thank you for having me.

Kim Lisa Taylor:

I am happy that you reached out to me and happy to know about your services. So I can’t wait to tell our audience. The whole purpose of this podcast is to introduce our audience who are real estate syndicators in various stages of their practice — just starting out, very seasoned or somewhere in the middle. And we want to make sure that they get introduced to all of the right services that they may have a need for as their syndication businesses grow. And your service is one of the ones that has been blatantly missing from this world for the whole time I’ve been doing this. So I’m really glad that you decided to do it. So tell us about yourself and your company, SecondRE.

Gil Siedner:

Sure. Again, I’m Gil Siedner I’m doing the business development for SecondRE here in the U.S.

SecondRE also has a development center in Israel, which is where the technology comes from. And SecondRE is actually an online platform that enables investors to sell or buy shares of existing real estate assets. What we do is really partner with sponsors or syndicators, and together, we look into their portfolio and find the right opportunities to put in our platform. And the old notion is that at the end, this sponsor will have the ability to raise equity more easily, will improve his relationship with the investor, providing the investor with liquidity. It’s a 100-plus-year of business, real estate. And the main point of real estate is really being illiquid and this is what we’re trying to change with technology.

Before I started with SecondRE, I was in another tech company called Skyline AI, which was acquired by JLL, the broker, which used our database to really find leads from the tech side. And before that, I came from a background of 15 years of private real estate investing for the two largest insurance companies in Israel. So I do know tech to some extent, in the past four years, I obviously know real estate and the hustle of raising equity, underwriting and so on and so forth. But in a nutshell, that’s what we are. This is who I am.

Kim Lisa Taylor:

Great. So what you’re really talking about is that a sponsor, somebody who has a syndicate, has an investor that needs out.

Gil Siedner:

Yes.

Kim Lisa Taylor:

Of course, all the money that the sponsor raised has been invested in maybe a multi-family property or some commercial property so there’s no real liquidity event until there’s maybe a refinance two or three years later. But all of a sudden something happens in an investor’s life, they need to get out and they then come to their sponsors, say “Help me out here.” If the sponsor doesn’t buy the interests or the other members don’t buy the interests, then this is yet another avenue where they can go and put those interests out there for sale to other people. Is that right?

Gil Siedner:

That’s right. That’s exactly right. And the process of the sponsor really dealing with this in most cases is probably a headache. Those issues are about pricing and fiduciary duty of the sponsor because he knows the exact pricing of the asset and the LP doesn’t necessarily have all the information. So pricing is one issue. The other one is the hassle of finding another LP. So we are trying to streamline all of this process. We need to get together sponsors, opportunities, buyers, and sellers into the platform, and really streamline the process. We also provide all the information a sponsor needs in order to get a new investor into their platform and into their investor base as well. But again, we are trying to do a very hassle-free process, especially for the sponsor.

Kim Lisa Taylor:

So somebody who comes to your platform and buys some interest from one of our clients say, then the sponsor is going to get all that contact information. They’re going to get a complete subscription from that person. Are they free to market to that person for future offerings?

Gil Siedner:

Yes, exactly that. At the end of the day, what the platform is doing is really swapping one LP — the old LP — with the new one. Before the sponsor approves this new one, this new LP, into his platform, he needs to have a KYC to have an AML who needs to have private accreditation, all of this information, in order to approve him as a new LP. And this we do internally and provide a sponsor with this information package, and we need to review it and obviously authorize and approve the deal. So no trade that’s being done in the platform is done without the sponsor’s blessing. The sponsor will be joining us in this process, we’ll identify the assets together. We’ll put them on the platform. Obviously we’ll do all the tech stuff on our side. And when there’s a deal to be made, the sponsor will be the only one that approves the deal at the end of the day.

So we approve the deal, approve the LP. And now he has a new LP and it’s his investment. He can do whatever he wants to with it. He distributes money, distributes the K1s, and obviously new offerings as well.

Kim Lisa Taylor:

So what’s your overriding goal for SecondRE? What was it that prompted you to create the service?

Gil Siedner:

So again, real estate is really an illiquid asset class. And it’s an inefficiency that we wanted to really solve. And now with technology, with our ability to really create an online platform, we thought it was a really good start to really correct this inefficiency in real estate. Again, we want to bring sponsors, transactions and LPs together. The platform is really open to most of the asset classes, most of the strategies and for all sponsors. So this is one place, very efficient. And again, as I said, we streamlined the process of liquidity.

Kim Lisa Taylor:

That’s fantastic. I’m so glad that you saw that need and have decided to fill it. So just walk us through the process. We have a sponsor who has an investor, that’s come to them and said, “I need to get out.” Nobody internally in the company is willing to step up. What’s the next step? What do they do?

Gil Siedner:

So we ask the sponsor for initial details about the investment. So the original OM, asset management, fee, historical performance of the asset. And we do our internal due diligence on this investment and see if the numbers fit at the end of the day and if it makes sense for us to really upload the asset into the platform. After we do that, the sponsor really sends an email to all of his investors in this specific asset and tells them there’s now a possibility for them to liquidate even before he decides to sell. These investors have the option or the obligation to opt in into the platform and become members of the platform.

And then it’s really similar to how you trade stocks. In the stock exchange we have an order book, people control bids or asks to sell or buy shares in assets, and they control the pricing and they control the amount of shares. If there’s a match to be made — people meeting together at the same price and the same amount of shares — we take it all manually. We’re the one doing the escrow account. We are the one doing the AML ,KYC and fair party accreditation. And we get the sponsor, the buyer and the seller to sign a transfer agreement at the end. And when this is done, obviously after the sponsor approves the deal and the new buyer, the deal is done, the exchange takes place. That’s the process.

Kim Lisa Taylor:

So the due diligence that you’re going to do, you’re going to review the documents that were originally provided to investors by that sponsor. You’re going to ask them for updated financials. Do you require an audit?

Gil Siedner:

No, we don’t require audit financials. Again, we designed this process to make it as simple as possible for sponsors. So obviously asset management reports, they send to their investors. They do have information about distribution. They do have the original OM of the investment. We do have loan information. This is the type of information we ask from sponsors in order to first, do a due diligence and internal diligence about the investment. And then we aggregate all of this information into one page in our platform. We do that. This is all we need from the sponsor. And again, it’s widely available. There’s no need for special treatment or special reporting in order to work with us.

Kim Lisa Taylor:

So what is the minimum investment that you would offer on your platform?

Gil Siedner:

So our platform is really catering to the real investors side of the investment board. The minimum would be $50,000. We only led by the way, accredited investors into the platform. So not going to do micro transactions of $500, $1000, $2,000. Each and every investor that comes into the platform is accredited. So the minimum is around $50,000. The maximum one become, I don’t know, a few million, obviously. But again, this is pretty much our focus — no small, very small investors, no very large institutional investors that trade for 20, 50 million dollars per deal. It’s really this middle market of investors.

Kim Lisa Taylor:

So does this work for both 506(b) and 506(c) offerings?

Gil Siedner:

I believe so. There’s no need to really do a primary offering in order to transact in the secondary market. And again, as I said, all we need on a regulation standpoint is the original OM of the asset, that’s all.

Kim Lisa Taylor:

And so you may not know this question, but this is a very common question that we get asked all the time. Which is, and if someone has a 506(b) offering, then they’re required to have a preexisting substantive relationship with their investors before they can allow them to invest with them. Is that satisfied by the fact that your platform has the relationship or are they going to develop this relationship before they allow someone into their 506(b) offering?

Gil Siedner:

It’s really not something that I quite know, our legal counsel obviously knows that. So I don’t want to commit on the answer right now.

Kim Lisa Taylor:

No, that’s totally fine. And that’s certainly something that we can investigate.

Gil Siedner:

Yeah. I can forward this question to our legal counsel and we’ll give you an answer.

Kim Lisa Taylor:

Yeah. And I think that when we had our initial call, your legal counsel was on the phone. And I believe that we talked about that a little bit, but it’d be good if we could get an answer for that for the people that are on our call today.

Gil Siedner:

Sure. Will do it. No problem.

Kim Lisa Taylor:

Yeah. We’ll post that in our FAQs. All right. So that’s great. So what are the benefits for both sponsors and investors?

Gil Siedner:

Sure. Obviously for investors, that’s very obvious it’s liquidity. They really didn’t have any way to liquidate before the asset was sold. That’s one advantage for the investor. The other one is, through our platform they get exposure to a lot more real estate investments. Think of an asset that is traded each and every five years or seven years on the primary market, and that’s the only time that investor could really invest in this asset. But on the secondary market it could be once a week, if people are trying to really sell their shares each and every month, they’ll have the ability to really invest in this kind of asset very frequently. So again, large exposure, more liquidity, that’s for the investor.

Sponsor really has the ability to do a lot of stuff with our platform. First of all, he is exposed to more investors. When we put his investment, we do share obviously the performance of this investment. We share information about the sponsor and he gets more exposure with investors that we didn’t reach out to yet. That’s one, the other thing is really streamlining this process of liquidity. There’s a lot of tension between LPs that really want out and the sponsor, and we take all the asset out and put it in the platform. Again, I talked about the pricing issue, I talked about the mechanics of really facilitating the deal and getting new investors to replace an old one. So all of that, we put in one basket and present it to the sponsors. And obviously we are not charging anything on that from the sponsor. So it’s all free of charge.

Kim Lisa Taylor:

Well, that’s a really good question. So how do you get paid?

Gil Siedner:

We get paid similarly to a broker dealer. We get a small percentage from the equity that trades hands, both from the buyer and the seller. And that’s how we make our money. And again, sponsors are not paying anything.

Kim Lisa Taylor:

That’s attractive.

Gil Siedner:

Yes.

Kim Lisa Taylor:

And so are you a broker dealer?

Gil Siedner:

Not yet. We are in the process of registering with FINRA and the SEC, hopefully it will be done in the next few weeks. But it was very important for us to really take this path and first of all create a platform that is secure, efficient, and transparent. So adding this layer of regulation is really, I think, important both for sponsors and investors. And that’s why we are taking this path. Again, we are at the final stages, we’re not approved yet, but hopefully when we will, we’ll be a broker dealer and the platform will be an APS and free trading system.

Kim Lisa Taylor:

Okay. So on just a side note, I occasionally get people asking me, well, why don’t I just become a broker dealer? This is no small feat, is it?

Gil Siedner:

No, it’s a long process. It’s been almost six months till now.

Kim Lisa Taylor:

Wow. That’s short.

Gil Siedner:

And it’s not over yet. Hopefully it will be in a few weeks. But again, it’s dealing with the regulator on one hand. On the other hand, we think it’s very important.

Kim Lisa Taylor:

It’s going to give you a lot more exposure and credibility and no fear of being, I guess, raided by regulators, which is going to be a really great thing. And it’s also going to give the sponsors confidence that you have the ability and the correct licensing to be able to do this.

Gil Siedner:

Both sponsors and investors, yes.

Kim Lisa Taylor:

Yes. All right. So let’s see. What vetting do you look for? So you’re vetting the deal, but you’re also vetting the sponsor, right?

Gil Siedner:

That’s right?

Kim Lisa Taylor:

So a typical crowdfunding platform like CrowdStreet or RealCrowd, or some of these bigger real estate crowdfunding platforms, they’re looking for a lot of experience on behalf of the sponsor before they would ever put their deal up on their platforms. What are your requirements?

Gil Siedner:

So first of all, we do our own vetting on three things. As you said, the sponsor, the transaction itself and the new buyer. So we discussed the new buyer already. The KYC, the AML, the third party publication, we do this or in house and then provide a sponsor with this information. So that’s one vetting we do. The other one is the transaction itself. As I mentioned, we do ask for historic information. We do compare it to the original underwriting. We do look into other very key features in real estate, like the location, the market condition, rent comms, sale comms, everything we do internally, we have a team of real estate experts that is doing that. So we do our own underwriting. And if the numbers add up on our side, we feel comfortable to really put this transaction in the platform.

And the same thing with sponsors, what I did in the past 15 years for the large institutions in Israel is really vetting sponsors. Because at the end of the day, if you do have a good sponsor, the deal could really happen and could be very successful. So anything between asking for the track record, pretty understanding their operation, if they self-manage, do not self-manage and how do they syndicate their equity? What is the typical legal structure? What is the typical tax structure they use? Everything that really helps us understand the sponsor, the way it operates. And obviously speaking with the key personnel over there, because there’s a lot to be learned with this personal relationship with a sponsor.

Kim Lisa Taylor:

You also do background checks?

Gil Siedner:

We could do background checks.

Kim Lisa Taylor:

Yeah. We, as a general rule, our clients, we are now requiring all of our clients and anybody in their management team to undergo a bad actor and a background check. And we do this both for our protection, but also for theirs, because a lot of times three or four people will meet at a conference and decide they want to do a deal together, but they don’t really know anything about each other’s background. So it’s easier for us to be the bad guy on behalf of your management team and require it. And then we can let everybody know in the management if there’s a problem with one person or something. So they know before they get to the closing table that this is going to hold up the closing, we’ve seen that happen before. So that’s important.

But I like that you are doing the KYC. So for people that don’t know that terminology, when you’re vetting investors, when a broker dealer vets investors, they do something that’s called KYC, which is “know your customer.” And so they have a prescribed set of questions and information that they need to learn about that person before they can even do business with them to make sure that they’re legitimate. And I think you said you do the identity verification and balso anti-money laundering searches, which is something that all of you should be doing anyway. Even when you’re bringing in investors into your deals, you need to be checking to make sure that they’re not trying to use your syndicate to launder money, because if they are, the person that’s left holding the bag is going to be the one that ends up paying for it and that could be you. And there are people that are in jail for that.

So you’ve got to know that your investors are legitimate. And there’s OFAC — the Department of Treasury Office of Foreign Assets Control — maintains a database of over 500 pages long of people that you’re not allowed to do business with as a U.S. citizen or legal resident. And also there’s a list of sanctioned countries — depending on who we’re in conflict with at certain periods of time, that list changes — that you’re not allowed to do business with. So you have to be aware of that. You need to be checking those lists to make sure that your people don’t appear on those lists. And the way to do that is to make sure that you’re always getting a copy of their actual identification passport or driver’s license or something like that, and then running their names through those lists.

Is there anything else you guys do for AML that you have a more rigorous process than that?

Gil Siedner:

No, that’s pretty much it. As of right now, we are doing a third party. We’re not doing it fully internally, but it’s just a matter of scale at the end of the day.

Kim Lisa Taylor:

Right. And if you’re dealing with international people, then you may want to even go further. There’s some wider worldwide databases that can be searched to find out. And mainly you’re trying to determine what the rules are, is that you’re not allowed to do business with people that are drug kingpins, known drug kingpins, the weapons of mass destruction proliferators. I always say that wrong. And people who are involved in Mafia or bad dealings in other countries or this country.

Gil Siedner:

This is not our target audience.

Kim Lisa Taylor:

So you have to know who your people are so that you’re not being used for an illicit purpose. So that’s always important. So what kind of assets won’t you list?

Gil Siedner:

As I mentioned, we are pretty much open to all asset classes. So office, retail, residential, industrial, hospitality, these are all acceptable. And we do look into the most common strategies as well. So core, core plus, and value add … The main issue is with cash, we do want the asset to be providing the investor with strong stable cash flow. So the only thing that would probably not do to begin with is pure development.

Kim Lisa Taylor:

Okay.

Gil Siedner:

It’s not generating cash from day one. It’s more risky for the average investors. You need to be a little bit more sophisticated. But as we go, we might do that as well. But as of right now, it’s really cash producing stable assets with moderate or low risk profile.

Kim Lisa Taylor:

Okay. So most of our clients are doing value add. We do have a fair amount of development clients who I’m sure are very sad right now to hear that.

Gil Siedner:

Well, and it really depends. Ground-up development, this is probably a no for us. But think of a multifamily asset that’s been developed and is now really reaching the phase of being stabilized. So we do have like 70% occupancy, but we do see the horizon to go into 90%. And then to get a fixed rate loan on that investment. So this is something we’ll do because the horizon of being stable is very obvious and clear to us, but really going through the initial phases of development, that’s probably something that we will not do as of right now.

Kim Lisa Taylor:

So I know that there are a whole bunch of people sitting here thinking, “Well, why don’t I just list my entire offering on your platform and let you raise the money for me?” Is that something you do?

Gil Siedner:

It’s something that we can think about. But again, for us, the focus is really secondary trading. So if we are going to do any primary in the future, it will be involved with listing these LPs, these initial LPs as somebody that rcan eally trade shares going forward. So think of the fund right now, if somebody is raising a 10-year fund. And I mentioned that time horizon that is not really parallel between the sponsor and the investor. Not all investors are happy to park their money with a 10-year fund, they do want the ability to liquidate. So if we will provide them with this liquidation option from secondary, they’ll have the ability to reinvest thinking it will be a long-term goal. But if they do want to really sell after three years or five years, whatever the reason is, they’ll have the ability to do that with SecondRE. So both for existing assets and new offerings as well.

Kim Lisa Taylor:

And then this may be another follow-up question for your general counsel, which is fine. What about the one-year holding period? So when we sell primary, when our clients sell their primary interests, they are subject to the one-year holding period for private offerings or private interest or interest in a private offering. So do investors have to hold their interest for a year before they could trade them on SecondRE?

Gil Siedner:

I think there’s a few ways to answer this question. And again, as you said, I’m not that familiar with this specific subject, so it will be a follow-up question for our legal counsel.

Kim Lisa Taylor:

Yeah. And I believe we also discussed that earlier on when your counsel was on the call as well. So I believe there is a way that can be handled, but we will do a follow-up for everybody … We’ll post this when we send out our replay, we’ll post the follow-up questions. So make sure you look for our next newsletter for that information, for those of you that are on the call. All right.

So when we write offering documents right now without having had your service available in the past, we’ve always written right-of-first-refusal clauses in our document saying that first the sponsor, the management team has the right to purchase the interest if anybody wants to sell them. And then secondly, if they don’t want to purchase it, then they can offer it to the other members. How does that work within your system?

Gil Siedner:

So, first of all, as I said, we are first approaching sponsors. So no sponsor will wake up one morning and really know that one of his OPs wants to sell his share without consulting with them first. So the sponsor will have the ability to really stop the process and say, “Well, I have a right of first refusal regarding other first offers from other LPs,” this is actually something we can provide using technology. Think of the platform, let’s create another silo inside the platform, which encloses all the relevant LPs within this investment. And they could trade on this piece and this share of asset inside our platform. If they come to an agreement between this group, that’s fine. If not, we can take it outside and let other people really bid for this investment.

Kim Lisa Taylor:

So if I understand this right, then this is the service you can provide to the sponsor. So instead of them having to send out an email to other people, and then they have to handle the transaction between whoever needs to buy it or not, then you can handle that for a small fee, which might be a great benefit to the sponsor. They just say, “Well, we’ll just pay the fee.” And the buyer pays the fee and the whole transaction takes place. The correct paperwork is done. So it’s a done-for-you process, I think.

Gil Siedner:

Yeah. As I said, the main purpose is for sponsors really facilitating this secondary transaction. So, yeah.

Kim Lisa Taylor:

And what if somebody wanted to do a capital call; would you be able to facilitate a capital call through your platform?

Gil Siedner:

Yes. If other LPs don’t contribute on the capital call and they need to put in new equity into the deal. Yeah, that would be an option as well. Very easy.

Kim Lisa Taylor:

So when we write our documents, we always make the capital calls optional, they’re not mandatory. So there’s two types of documents you might see when I first started writing securities offerings, the clauses were mandatory. So if there was a need for an extra $200,000, a sponsor sent out an email to all of the investors and said, here, you contribute your share of this $200,000. Whatever percentage interest that investor owned, they had to contribute. And if they didn’t contribute, then they were held in default. And there were all kinds of penalties that it got associated with them. And then they were charged 15% interest. They’d lose their voting rights. Their interest could be reduced, all kinds of things could happen to them. And what we learned is that a lot of investors decided, “I’m not going to invest in anything that has that a clause because I’m willing to make my initial investment, but I’m not going to be obligated to a future investment that I don’t know anything about. And if I don’t think that the sponsor’s doing the right thing, or I just don’t have the cash available at that time, I don’t want to be forced to contribute more.” So we made our capital calls optional. And the reason that we did is because what we found was happening in practice was that some people were raising their hand and saying, “I’ll take it.” Or two or three people would raise their hand and say, “I’ll put in that money.” And the rest of the people weren’t interested. So we just made it more flexible for the sponsor to be able to work directly with those people that were interested in doing it. And I think that kind of a provision would work well with being able to offer the capital call through your platform.

So now again, instead of the sponsor having to go out and try to call every investor and talk to them about, “Are you interested? Are you not? And how much do you want?” And carving it all up and figuring out and getting all the correct paperwork in place, that would be something that your platform could facilitate for them just amongst their own closed group of investors initially. And then if that didn’t work, then you could go out to a wider group.

Gil Siedner:

That’s right.

Kim Lisa Taylor:

So I think this is a tremendous service, and so back to the benefits for investors is, number one, you have liquidity for your investment. And two, you have insurance against capital call because if there is a capital call, you’re going to be forced to contribute because there’s a secondary means for the sponsor to be able to try to raise that money from other people, whether it’s investors in our group or outside investors. So I think that it also is a tremendous benefit to be able to offer investors.

Is a new offering required for secondary trading? Like do we have to create a new PPM or a new set of subscription documents every single time? And filings with the SEC and blue sky filings?

Gil Siedner:

So as far as we understand, no. …

Kim Lisa Taylor:

Great. Just kind taking some notes here. And I hope every is taking notes on this call because there’s a tremendous amount of material here that will be helpful to you in the future. We’re going to go to Q and A here live, and I see we have a ton of questions. So before we go, let’s just make sure everybody knows how to reach you and us. So how do people reach you first, Gil?

Gil Siedner:

Sure. So my email is Gil, G-I-L @SecondRE, which is second, S-E-C-O-N-D-R-E, as in real estate .com. So gil@secondre.com. And our website is live, you have the ability to log into the website, secondare.com and really opt in into the platform even now. So these are the two main ways you can get in touch with me.

Kim Lisa Taylor:

Here’s a question: “You guys are fairly new, right? You haven’t been out there for years yet.”

Gil Siedner:

Yeah. We have a very new shop, around six months. And we launched the platform actually a month ago.

Kim Lisa Taylor:

And so what do you anticipate? … So an investor wants to put their interest on your platform and they’re going to offer it, probably they want back their original principal plus maybe some additional return so they’re going to have a price in mind. Do you anticipate that there’s going to be a lot of bidding and underbidding going on?

Gil Siedner:

As, as much as the platform will get bigger, obviously there’ll be more liquidity. So you’ll see a lot of offers and lot of asks. And regards to pricing, depends on the deal and really depends on the LP itself. Maybe someone that is super-distressed and needs the money tomorrow morning, who will be able to sell his share at a, I don’t know, 20% discount or 50% discount. And obviously people buy into it very, very quickly. If it’s not a super-distressed LP and just want to refresh his portfolio or focus on other asset classes, he could really share to buy his share at a premium. So people will need to make a decision if they do want to buy into that price or not.

We are providing investors with ways to really translate the share price into real estate terms. So we do provide them with the implied cash rate. We do provide them with the implied cash return and for each and every pricing, we do have a sensitivity table in the platform. So it makes it very easy for investors to really focus in on the pricing they want as a seller or as a buyer. And yeah, but it depends on the specific preference of the LP. Again, the platform is not suggesting a price for the asset, we’re just providing historical information about valuation. So it could be the original acquisition price … It could be an appraisal based on a recent refinance. It’s all historical information we give the investor in order to really determine the price. We’re not suggesting any pricing.

Kim Lisa Taylor:

All right. Very good. Well, so just in case anybody wants to get ahold of us. You can go to our website  at syndicationattorneys.com. If you haven’t already read my book, the one that you see behind me called “How To Legally Raise Private Money.” It is an Amazon No. 1 best seller. You can get a free digital copy at the website. So if you just go to syndicationattorneys.com and click  “Free Book,” you can get a digital copy sent to you, or you can buy it on Amazon.

Also, we have a ton of educational material on our website. If you go into our library and in the articles, there’s over 50 different articles, they are all one or two pages, very easy to read. Every one is on a single subject related to syndication. Also, I encourage you to read our frequently asked questions. And if you want to listen to our previous podcasts, you can also do that either at our website, or you can subscribe to this podcast, which is an actual live podcast on 20 different podcast platforms called “Raise Private Money Legally.”

So we’re happy to have you follow us any way you like. We also do have low-cost ways for you to become a client. Even if you don’t have a deal right now, we have something we call a pre-syndication retainer that gives you some access to us and invitations to our weekly mastermind that I host. And we’re happy to have you all consider doing that as well. So if you’re interested in any of that stuff, go to syndicationattorneys.com and schedule a call with one of our staff and we can get you some information about that.

So, Gil, I think we better get to these questions. We’ve got a whole lot, so we’ve got a whole bunch of people in the Q and A.

Gil Siedner:

Fire away.

Kim Lisa Taylor:

All right. So let’s see, “If the sponsor has multiple syndications with the liquid assets function like ETFs or individual stocks…”

Gil Siedner:

I’m not sure I’m following.

Kim Lisa Taylor:

It says, “If the sponsor has multiple syndications with the liquid….” — yeah, I’m not sure I understand that question either.

So Kevin asks, “For LPs that want liquidity, but don’t want to sell their investment, does your platform offere a way to take a loan against an investor’s stake, like a margin loan?”

Gil Siedner:

Good question. But the answer is no.

Kim Lisa Taylor:

OK. Let’s see. Steven asks, “Are you a registered alternative trading system, ATS?”

Gil Siedner:

Not yet, but hopefully in a few weeks’ time, yes. We’ll be registered as a broker dealer. And the platform will be an ATS, an alternative trading system.

Kim Lisa Taylor:

Okay. Ken asks, “As an investor, how would I become comfortable with the sponsor and the property?”

Gil Siedner:

So this is exactly why we have the asset page. And this is why we ask the sponsor to provide us with all the information needed in order to make a good decision. And obviously as we said earlier, we vet each and every sponsor and we vet each and every investment. So it goes through different layers of vetting until the investor has ability to see the asset.

Kim Lisa Taylor:

Okay. Let’s see. Brandon asks, “Curious to know how this process helps or hurts the ability to do 1031 exchange. “Well, I’m going to answer that one. This has nothing to do with the 1031 exchange.

Gil Siedner:

I agree. I think it is possible. It’s super-complicated. So as of right now, this is not something we are involved in.

Kim Lisa Taylor:

The problem we have, Brandon, with trying to insert a 1031 exchange into this process is that if any of these properties have a loan against them, the 1031 investor cannot invest into a syndicate because they’re not buying like-kind interest. They’re trying to exchange real estate interests for direct real estate that they own for a personal property interest, which is an interest in an LLC. And those are not like-kind exchanges; they don’t qualify for 1031 exchange. So the only way that 1031 investor can insert themselves is to actually get direct deeded title to the real estate, which is not going to be possible if there’s a loan on that property, because the lender’s never going to allow you to carve off a piece of the real estate and give it to somebody else. So that has to happen at the point of acquisition, if it’s going to happen at all.

And the way that it happens is through a tenant in common agreement that the lender has agreed to. And the lender both vets, underwrites, and gets loan guarantees from every 1031 investor in the deal. So the syndicate being 1031 investor, and then this other person who wants the 1031 exchange into the deal. If you want to know more about that, you can go to our website. There is an article there in the library called “The 1031 Dilemma.” So you could look at that.

The other thing is that when you bring in a 1031 exchange investor into a syndicate, or to invest side by side along with a syndicate, you are giving away that portion of the property to that 1031 investor. Because according to IRS rules, all of the profit splits have to occur at the property level. So if that investor comes in and buys 25% of a property, then you just carved off 25% of that property. You do not get an acquisition fee. You do not get a promote or any share of profits based on that percent of the property, you’ve just given it away to somebody else. So I hope that answers your question, but we’re happy to have you read our article and then schedule a call if you still have questions about that beyond that.

Steven asks, “Will you accept tokenized real estate equity?”

Gil Siedner:

No, it’s a brand new thing. We have looked into it. I believe it’s not regulated as of right now. So we are, as I said, we are going to be a broker dealer. Regulation, super-important for us. So the old fashioned title is probably the path we’ll take.

Kim Lisa Taylor:

All right. Kit asks — and I know we answered this before, but we’ll just cover it again — “If I’m raising money for a new project that hasn’t closed yet, does this service allow me to raise capital from new investors?”

Gil Siedner:

It could, yeah. We are considering it, yes.

Kim Lisa Taylor:

But not at this time. So don’t rely on this. And I’m imagining that there’s going to be a pretty strict vetting process on who, what sponsors you’re going to allow to put their primary interest on your platform. And all of a sudden, Kit, you’re going to have to provide a very strong track record from the members of your team before you’re going to be eligible to be able to be on that platform with a primary offering. And the reason for that, and my understanding of the reason for that, is because the broker dealer takes on a very strict fiduciary responsibility for making sure that those are sound investments. And so the only way they can really assure themselves of that is to make sure that you’ve done it enough times before, that they’re comfortable that you’re not going to make a big blunder on this one. And so that’s what you would have to do.

Okay. So Richard asks, “Do you accept a PM tool like AppFolio data room for your vetting and due diligence on our syndicated property?” Well, that AppFolio data room is really just an investor management platform where you’re going to post information about your deal. And certainly they would look at all of your information that you’ve posted about your deal, but they’re going to conduct their own questioning and underwriting. And so, certainly whatever you’ve provided to investors, you’re going to have to provide to Gil and his team. But you may have to provide even more than that to Gil and his team, they may even want to see some financial statements from some of the sponsors. Is that true?

Gil Siedner:

Yes. And regarding these platforms, actually as a technology company, we can use them because you can use a process that really takes all the information and nothing to be needed to really transfer it through email so we can solve this problem as well. But as you said, whatever the sponsor is providing his investors we’ll need to have and look into and probably a bit more.

Kim Lisa Taylor:

Okay. Peter asks, “How do you find the investors? If a sponsor brings its own investors, do those investors get solicited and see other ads? “Well, that’s a good question.

Gil Siedner:

Yes, they do. Each and every investor that is into the platform has a wide visibility on other investments as well. We’re not collecting the information and soliciting directly to these investors, but they do have the ability to see other investments in the platform.

Kim Lisa Taylor:

What if someone wanted to do just a closed offering to their own group of investors, would there be a way for your platform to not have them eligible to see all these other offerings?

Gil Siedner:

Technically yes. It really resembles the right-of-first-refusal scenario we discussed. So technically, yes  … At the end of the day, what we’re providing with the platform is getting more exposure to new investors, not only the existing ones. So we could provide this technical service, but I don’t think it will be that advantageous for the sponsor.

Kim Lisa Taylor:

Well, I know that it’s a concern always for someone who has gone out and cultivated their own database of prospective investors to then have investors start to get exposed to other offerings. So I do know that is a concern. So I’m sure you’re going to get some questions about that from any clients .

Gil Siedner:

It is a concern. Look at the world today, people are exposed to real estate investments all around the web, they have a lot of information. So if you have an investor that invested with you in the past 10 years, they probably know of other sponsors that provide the same service of investing in real estate. So it will not be … that will be the one that will open this investment pool to the investor. It is possible already.

Kim Lisa Taylor:

Ken asks, “As a CrowdStreet investor, I would consider secondary buying one of their deals. They review deals thoroughly to make a commission on the whole property.” Well, actually they don’t make a commission on the whole property so much as they earn a marketing fee. Incidentally, well, CrowdStreet has a $25,000 minimum. And he’s saying, I can’t imagine SecondRE can do as thorough an analysis for a $50,000 investment and make a proper commission. Can you address this issue?

Gil Siedner:

We can. Again, that’s my background, that’s the background of the team. We’ve been doing real estate investments so we are doing pure in-depth due diligence on each and every investment. And our business model will pay for that at the end of the day. We do not see any problems with that.

Kim Lisa Taylor:

All right. And Deepak asks, “Would you accept a non-operating hotel being converted to short-term rental or apartments?”

Gil Siedner:

Really depends on the phase of the investment. Again, if it’s very close to being stabilized, if there’s a true horizon, very clear horizon of this asset producing cash flow in the next few months and there’s financing in place as well. Yes, we can promote it. If it’s really the start of this process, it’ll be much harder.

Kim Lisa Taylor:

Okay. Let’s see. What is your email address again, please? Gil.

Gil Siedner:

So it’s Gil, G-I-L @ SecondRE, S-E-C-O-N-D-R-E .com.

Kim Lisa Taylor:

And Oded asks, “Can you give us an example of a sponsor you work with and the assets they list?”

Gil Siedner:

Sure. So, as I mentioned, we did launch a month ago. And we launched with a sponsor called Reef Buildings from Dallas, Texas. They do multi-family and hospitality, and currently have $3.4 billion of AUM. And we identified together six assets currently in this platform and two will be added in the next few months. And we onboarded a lot of their investors during this process. So again, the platform is currently live, people can log in to offer bids and people are offering also to sell key assets, LPs.

Kim Lisa Taylor:

So Erin asks, “Can both seller and buyer make money on the same transaction?”

Gil Siedner:

Yes, of course, it really depends on the basis. Think of primary offering, did the value add business plan in a multifamily asset, for example, increase the NOI and then somebody else buys this stabilized asset with the expectation to really make more money. So as the economy grows as real estate grows, and we saw that a lot since 2008, obviously in real estate. Yeah, people could make money both on the sell and the buy. This is just a market.

Kim Lisa Taylor:

All right. And somebody asks, “I was tied up in a meeting and missed the first part, and I really wanted to be able to absorb this info. Is it available for download or stream?” We are not live streaming. We probably should be. I’m not that technologically savvy yet, but we are recording. And so we will be sending this out as a replay in our next newsletter so look for that next month. And then we’ll also be posting it on our website. So we’ll let you know when that’s available. So yes, you will get a chance to re-listen to this later on.

Alf asks, “Is there a book that you guys recommend on how to underwrite a deal for syndication?”

Gil Siedner:

I believe that’s a question for you because I don’t have a good answer for that.

Kim Lisa Taylor:

Yeah. I don’t know about that. I’m not sure if any of the … maybe look at Joe Fairless’s book, Hunter Thompson’s book, I think a couple of those guys, if you look on real estate, these syndication books on Amazon, and maybe look at some of the books that are written by the real estate training guys, the same guys that are out there teaching people how to syndicate the real estate side of it, then some of their books may have some sections and stuff on that. Yeah, I might also dig around on their websites. So Jake and Geno’s website, RE Mentor’s website and some of the books that they’ve written. See who else? Joe Fairless’s book, like I mentioned, and Michael Blank, look around on their websites too. They may also have some underwriting templates that they sell as well as maybe having that in some of their books. So that’s where I would look for that information.

Calvin asks, “I’m curious if this all works in a similar manner in Canada; is it the same process?”

Gil Siedner:

Again, we’re going to be registered in the U.S. We are catering to real estate assets in the U.S. only. Not necessarily only open for U.S. investors, there could be investors from outside the U.S. as long as they meet the qualifications and the tech structure of the original investment, if that’s good for them. Because we’re not changing the tech structure or the legal structure when we are doing the swipe between the old LP today to the new one. But hopefully when we’ll grow, we’ll look into other markets as well. And Canada will probably be the first one.

Kim Lisa Taylor:

Okay. Well, let’s so hope that you’re very successful in the U.S. ,which I think you will be. And then we’ll see you grow into other markets as well. Shante asks, “Can you also do a loan on a business that includes real estate with a high amount of revenue to support the debt?”

Gil Siedner:

Well, if it’s a corporate loan on a real estate business, probably not. We are focused on real estate assets.

Kim Lisa Taylor:

Okay. So that’s a question that I would ask just to clarify it for everybody that you’re not going to be investing in startups through this platform. That’s not the purpose of this?

Gil Siedner:

That’s right. There are similar platforms that really do secondary transactions for employees options or startups and things like that. But we are only on focusing real estate. …

Kim Lisa Taylor:

And one last question. No, that was the only question there. Okay, here’s one last, “Do you think liquidity will be common or will stay a niche?” I’m not sure exactly what that means. Do you think that people looking for liquidity will be common, I guess you do, or you wouldn’t…

Gil Siedner:

Obviously I’m biased.

Kim Lisa Taylor:

… for your platform, right?

Gil Siedner:

Exactly. If we thought it would stay a niche, we wouldn’t attend this issue. We do think that eventually this will become very, very common. Yes. People need this flexibility, need the liquidity and its technology. It’s been doing a lot of crazy stuff in a very old business structures. So we think that providing liquidity will do the same for real estate. Yes.

Kim Lisa Taylor:

All right. Well, we have made it through our questions and we’re at the end of our call on top of the hour. So I just want to thank everybody for joining us today; we had a tremendous crowd. And Gil, I want to thank you for providing the service and also for joining us today. It’s been a very great learning experience. I’ll send you a couple follow-up questions and then we include those when we send out the replay. So thank you all, everybody have a great weekend and we’ll look forward to seeing you on our next podcast.

Gil Siedner:

Thank you very much. Thank you for having me.

Kim Lisa Taylor:

Thank you.

Gil Siedner:

Bye-bye.

Kim Lisa Taylor:

Bye-bye.

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Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

About Syndication Attorneys

We are NOT your stereotypical law firm. We don’t believe in simply taking your money, handing you a stack of technical, often-incomprehensible legal documents and then bidding you good luck and good-bye. At Syndication Attorneys PLLC, we are committed to your success – not just with the project at hand, but your continuing success in business and investing. We are your long-term legal team.

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