SEC Advisory

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Syndication Attorney, Amy Wan warns about some of the issues that have been going on with other deals out there that investors should be aware of. 

This is why I only work with people with: 
1) proven track record 
2) people I Like & Trust

In order to avoid the below issues I have avoided larger deals with partners I don’t know.

People in the Passive Investor Accelerator & Mastermind always bring over deals and this is the reason I always as “who the heck is this person? Do you know them?”

This is why you see me doing smaller deals that although they are not spectacular 300+ unit deals it is something that I and a small tight-knitted group can qualify for the debt ourselves and organically raise the money ourselves which… 

1) eliminates the need for artificial dead weight and liability in our GP and deal (risk for even LPs) and 

2) we don’t have to give a celebrity GP a large portion of the deal which allows us to be fairly compensated as GP’s and do generous 85/15 LP/GP splits and under 1-2% acquisition fee deals

If this is totally foreign to you do not hesitate to contact me or setup a call if you are currently a Hui Deal Pipeline Club Live investor.

 

Advisory from Syndication Attorney, Amy Wan.

“What I’m about to say, I say with no judgment. I write not with the intent to point fingers, but because I know many of you have families that you love and cherish. I want you all to be able to be present with your families and be able to fall asleep at night, instead of putting your families through several years of expensive, anxiety-inducing lawsuits, SEC proceedings, and financial stress.

Something odd has been happening in the real estate syndication industry over the past few years. There is a new breed of sponsors that call themselves “capital raisers”–many of whom are violating securities laws because they’re being paid transaction-based compensation, despite not having a broker-dealer license from FINRA. Capital raisers seem to be coming up with all kinds of creative “loopholes” around broker-dealer laws that just don’t hold up.

Over the past few months, I’ve seen or heard about the following suspect practices

  • Capital raisers getting paid from acquisition or asset management fees
  • Deals with over a dozen individuals in the sponsor team
  • “Deferred equity structures” where a capital raiser is rewarded with a slice of the management or sponsor entity depending on how much is raised
  • Capital raisers claiming to be “part of the General Partnership” when they’re not mentioned anywhere in the PPM or Investor Summary/Deck
  • Investors being presented with the same deal from multiple different people claiming to be part of the Sponsor

If you are considering any of the above, or considering bringing in a ‘capital raiser’ to be a part of the sponsor team, I recommend you reconsider.

If you want to know more about why many capital raisers are raising funds illegally, I explain the legal basis in more detail in this article.”

 

Advisory from Mauricio Rauld
Premier Law Group
www.premierlawgroup.net

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Its Official…THIS has become an Epidemic.

Earlier this week, I did an interview with James Eng, Senior Director of Old Capital Lending. James and I were doing a little promotion for his Old Capital’s national convention next month in Dallas, where I will be speaking about an epidemic that has hit the syndication community.

More than any other issue out there, this one issue is the one I believe will really bring some Syndicators down whenever they start having problems with their deals, most likely caused by the next correction, whenever that happens.

The epidemic is simply this: bringing in people into the syndication as pure “equity raisers.”

In the old days (and by old days, I mean 2-3 years ago) it was common to see single syndicators or at most 2 syndicators. After all, most syndications can easily be done by 2 people and when you add more and more, you are watering down your returns as a sponsor.

Even when more than 2, these syndicators had been business partners for many years and had done multiple deals together.

However, over the past few years, we have seen the emergence of “money raisers” who’s sole or primary role is to simply raise money. They go from deal to deal, offering to raise money in exchange for a “piece of the pie.”

Well…. Here are the 5 things you must remember when you are thinking of bringing someone into your syndication team who has the ability to raise a lot of money for your deal.

1. You CAN NOT compensate someone for raising money, unless that person is an SEC licensed Broker/Dealer. Compensation is not just cash. It includes ANY type of compensation whether shares in the GP, sharing of fees or profits or old fashion cash.

2. If you are paying someone based on how much money they are bringing into the deal (ie: transaction-based compensation), you are dead in the water. Game over. End of story. Period!

3. Even if you are not paying someone transaction based compensation, this doesn’t mean you are good. It simply means you are allowed to proceed to the next level of analysis and look at the ‘Facts and Circumstances’ of your particular case.

4. You still can’t directly compensate people for raising money (even if not tied to the amount they raise). So giving Johnny 10% of the GP in exchange for simply bringing in money is still a no-no.

5. They must be legitimate co-sponsors in the deal so they can rely on what we call the “Issuer exemption” and rules that revolve around it. In order to comply here, the co-Sponsor must be doing “substantial” work and the “primary” responsibility must be something OTHER than raising money.

If a regulator were to ask you “What did Johnny do in exchange for their 10% GP interest”, you answer can not be “He helped me raise money”. You must prove to the regulator (and it is YOUR burden) that Johnny was compensated for something else and that needs to make sense.

If you want to see the video I did this a few months ago (which has been viewed over 1,000 times), then check it out here. https://bit.ly/2lHLlxOHope this email provided value for you. If you have ideas of what type of content you would like for me to address (in an article or video), please let me know. You can click here. Mauricio PS. I will be speaking on this very subject at Rod Khleif’s Multifamily Bootcamp in Baltimore. Come meet me in person September 27-29. Here is the link to the event and if you use Promo Code “Mauricio” at checkout, Rod will give you $100 off (I have NO affiliate relationship with Rod). PS2. I will also be speaking at the Old Capital Annual Conference October 24th-25th in Dallas Texas. Again, no affiliate relation, but if you want $50 off, use promo code “Premier” www.oldcapitalconference.com

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