Importance of Being Represented by a Syndication and Transaction Lawyer
(as Well as by a Commercial Mortgage Broker)

ON THIS EPISODE OF PEAK MARKET WATCH...

We are very excited to have Dugan P. Kelley, Esq. as a guest speaker! CEO of Peak Financing Anton Mattli, together with this week’s co-host Feras Moussa, will dive into Dugan’s CRE law expertise. We will learn how Covid-19 affects PSAs and SEC rules and the importance of being represented by a syndication and transaction lawyer as well as by a commercial mortgage broker.

VIDEO TRANSCRIPTION

00:00
hey everybody uh my pleasure and honor
00:03
to be
00:03
here on uh market watch so like anton
00:07
uh said i’m a lawyer don’t hold that
00:09
against me uh
00:10
i’ve got i’m trying not to i’ve been
00:13
practicing law for over 20 years have
00:16
offices
00:16
in the greater los angeles area in a
00:18
small uh small city about 90 miles north
00:21
of los angeles called santa barbara
00:22
california
00:24
um wonderful place and then we are our
00:27
main offices in the dallas
00:29
fort worth area but most of my clients
00:31
like anton said
00:32
are hunting for real commercial real
00:35
estate
00:36
around the country so we’re in the hot
00:38
uh markets whether it’s
00:40
tennessee georgia texas arizona new
00:44
mexico
00:45
florida the carolinas all over the place
00:47
so anywhere you think that there might
00:49
be
00:49
uh a commercial real estate deal
00:52
that’s usually where you’ll find uh us
00:56
one of the lawyers hanging out trying to
00:59
help our clients actually get from
01:01
acceptance of their loi to the closing
01:04
table so
01:05
we’re we’re a boutique full service firm
01:08
with a national footprint that helps
01:10
clients
01:10
essentially get uh from acceptance of
01:13
their loi to the closing team
01:15
absolutely for those listening we’ve
01:16
done several deals with you in multiple
01:18
states
01:19
and so definitely very helpful there and
01:20
having you on a show like this interview
01:22
is the best way to get free legal advice
01:23
so
01:24
you know it is first questions here or
01:26
there without a
01:27
bill without a bill no bills
01:30
[Music]
01:32
yeah that’s good uh certainly i can also
01:35
vouch for
01:36
for dugan and this firm might be we work
01:40
on the financing side with a lot of
01:42
different uh
01:43
lawyers uh in the syndication space
01:46
whether it’s private placements as well
01:48
as standard trends and transaction site
01:50
too
01:51
and very often it’s a little bit of a
01:54
struggle to get
01:55
to get the legal side all lined up
01:59
uh with with lender legal and to get to
02:02
the closing table on time
02:05
we all know it takes a lot of effort to
02:08
get things done
02:09
right there are dozens if not hundreds
02:12
of items
02:13
that need to be covered on the legal
02:15
side
02:16
for a commercial real estate transaction
02:18
and having a
02:20
law firm and the lawyer who understands
02:22
what needs to be done and
02:24
is on top of things this is crucial to
02:26
get to the closing table on time so
02:29
certainly dugan is is one of them right
02:32
so
02:32
certainly appreciate that yeah
02:36
i was chatting with i was chatting with
02:38
some young operators just the other day
02:40
where they were telling me
02:41
well i was thinking maybe i don’t need a
02:43
mortgage broker i was like
02:44
no you need an order and i was like well
02:47
maybe i could do this without a lawyer
02:48
i’m like
02:49
no you need a lawyer those are those are
02:52
usually
02:52
two very indispensable kind of team
02:55
members that one handles the business
02:57
items that
02:58
the lender is going to need so remember
03:00
we’ll talk about syndication
03:02
we’re talking about pooling other
03:03
people’s money in order to get
03:05
the equity required to get the loan to
03:08
get the keys
03:09
to the apartment building and so there
03:12
are a whole host of
03:14
business items that your mortgage broker
03:17
will
03:18
help you on it’s is an essential and
03:20
then
03:21
like anton said unfortunately there are
03:24
lawyers in this space everywhere the
03:27
seller has a lawyer the buyer has a
03:29
lawyer
03:29
title and survey have lawyers the lender
03:32
has a lawyer so you’re going to see
03:34
lawyers everywhere it’s a
03:36
it’s an indispensable company you
03:37
actually make me wonder if anybody’s
03:39
never basically told
03:40
uh you know lender legal yeah i’m gonna
03:42
you know i’m gonna represent myself on
03:43
this one go ahead and send over the
03:45
documents
03:46
i’ve i’ve had kids so in the last 20
03:49
years i’ve had
03:50
transactions where we’ve been hired
03:53
after the
03:54
the loan application has been signed and
03:56
the term sheets gone in
03:57
and the lender had the kickoff call and
04:01
it was just the borrower principal and
04:04
and they said time time out we’re not
04:07
gonna
04:07
we’re not doing this and the reason
04:10
simple is
04:11
that lender’s counsel don’t want to deal
04:14
directly with the borrower’s principles
04:16
because they don’t want to have
04:18
some sort of built-in legal defense in
04:20
the event that there’s a default
04:22
or something that follows further on
04:25
down the road
04:26
the lenders don’t want to have to deal
04:29
with the defensive well i didn’t know
04:31
i mean i’m not sophisticated in in this
04:33
stuff
04:34
so that’s why in part not just for the
04:37
reselling of repackaging of selling of
04:39
securities on the secondary market
04:42
why they ask for borrower legal opinion
04:46
there’s multiple purposes and one of
04:48
which is is to backstop that risk and
04:51
that exposure from the bank’s
04:52
perspective to make sure
04:54
that when a borrower goes into a
04:56
transaction that they actually are a
04:58
knowledgeable or sophisticated borrower
05:00
or they’ve had a lawyer who essentially
05:03
informs them so that the lender if they
05:06
have to foreclose or initiate legal
05:08
action against the borrower
05:10
they can say hey they don’t have the
05:13
the defense of i didn’t know what i was
05:15
signing or i didn’t read it or i just
05:17
signed it
05:18
you know they’ll say you were
05:19
represented by council and so that’s why
05:21
you’re going to see
05:22
many banks um in fact i can’t think of
05:25
any but that would actually go through
05:27
with it
05:27
uh on a large transaction where they’re
05:31
loaning
05:31
millions of dollars without the borrower
05:34
actually being represented by a lawyer
05:36
yeah there are not many lenders that are
05:38
willing to do it
05:40
and outside of the single family space
05:43
right it’s just too complicated uh
05:46
naturally just one of the items how do
05:48
you do your own background search as a
05:50
borrower
05:52
just that alone is i vetted myself i’m
05:55
good to go
05:56
all right i’ve checked i’m good let’s go
06:03
right so you know kind of what’s maybe
06:06
walk us through i think the elephant in
06:07
the room right
06:08
kind of how has covid with what’s been
06:11
going on right kind of what happened
06:12
maybe we’ll talk about what happened in
06:13
march
06:14
were you able to get all those deals
06:15
closed or not and you know what happened
06:17
to some of them right and then
06:19
from that really moving on to now right
06:21
what what’s been
06:22
you know given kind of where you are now
06:24
what are you starting to see and then
06:25
more importantly what’s your crystal
06:27
ball say
06:28
i think that’s so i think most of our
06:29
listeners are going to want to listen to
06:30
you
06:31
right so covet um just came out of
06:34
nowhere
06:34
right so we no concept from the legal
06:37
structure
06:38
side uh it was very rare when we would
06:41
have like a forced major clause when i
06:43
say a forced major clause that’s a
06:44
clause that’s an express clause in your
06:47
purchase and sale agreement that says
06:49
hey
06:50
if something happens we’re pulling the
06:52
rip cord
06:53
on the buyer’s side or the seller’s side
06:57
we’re out of here contract over earnest
06:59
money back
07:00
and the party’s going their way so
07:03
pre-covered
07:05
on the legal side we weren’t dealing
07:06
with any of that
07:08
so in january and then in february we
07:11
started to hear
07:12
this thing about koben in fact i was at
07:14
disney world with my
07:16
kids in uh february late
07:19
february uh right before they closed the
07:22
parks
07:23
uh and uh none of us even at that point
07:26
really figured out
07:27
or even had any concept that it was
07:29
going to hurt the capital markets as
07:31
much as it did
07:32
and so deals in january and february and
07:35
even march we were still closing deals
07:38
but they were deals that had already
07:40
been committed and they were further
07:41
along
07:42
in the funnel and the lender’s funnel so
07:44
it wasn’t like the lenders that
07:45
currently had
07:46
uh position their funding and gone
07:49
either to
07:50
credit or committee or whatever and they
07:51
had approved it those deals still happen
07:54
they still got funded but uh
07:57
as you know the capital markets
08:00
froze up and not just the bridge space
08:03
where where a predominantly a large
08:06
segment of my clients around the
08:08
country were looking for leverage in the
08:10
bridge space it was also
08:12
in the agency space and it was like one
08:15
night
08:16
you know they somebody shut off the
08:18
lights and it was like boom
08:20
and so deals that were caught midstream
08:23
due diligence maybe the loan application
08:25
had already been
08:26
paid um they were over and so the only
08:29
deals that we were seeing
08:31
really cranked through the system at
08:33
that time were creative deals like
08:35
assumptions or um
08:38
seller carryback where seller financing
08:41
those sorts of deals were still getting
08:43
taken place in march april may
08:47
um but the capital markets didn’t start
08:49
to loosen up and
08:50
as you know and for most of our deals
08:53
until
08:54
june i would say june and july and now
08:57
it’s red hot
08:58
right but but before for
09:01
in the agency space while the bridge
09:03
space is still choked off
09:04
so for several months there was really
09:08
very little to no activity
09:11
people were changing underwriting
09:13
criteria like crazy
09:15
i mean it was like a dumpster fire when
09:17
you started to think about well what are
09:19
the
09:19
reserve hold backs that you’re going to
09:21
require 18 months 12 months
09:24
i mean it was like a moving target for
09:25
many of my clients that were trying to
09:27
get leverage to close deals
09:29
and so what we saw from the legal side
09:33
were a couple things
09:34
one people that were astute sellers
09:37
seasoned sellers started to understand
09:40
that they needed to loosen up
09:42
meaning the restrictions on hard earnest
09:45
money
09:46
on day one a lot of those things went
09:48
away
09:49
sellers started to realize that maybe
09:51
we’re going to go back to
09:53
the era of here’s the earnest money but
09:55
there’s going to be some amount of due
09:57
diligence or 30 days of financing
09:59
contingency
10:00
baked into the process and sellers were
10:03
more willing to give
10:05
to meet occupancy criteria so that we
10:08
could actually get
10:09
funding at the agency level that does
10:12
not happening
10:13
pretty uh pre-covered because the market
10:17
was so hot we were in
10:19
we were in a significant period of
10:21
growth
10:22
in the capital markets and we were doing
10:24
deals like nobody’s business
10:26
and so that that changed and then from
10:29
the legal perspective
10:31
we also started to put in um
10:35
express provisions and for clients that
10:37
got caught
10:38
in the middle of of covid
10:41
they’re not without recourse there are
10:43
what we call equitable doctrines in the
10:45
law
10:46
equitable means when you don’t have a
10:48
legal statute
10:50
or a case that’s directly on point you
10:53
fall back on what we call equitable
10:55
theories
10:56
and there are doctrines of frustration
10:58
of purpose
11:00
impracticability or impossibility
11:02
all of those legal theories are what we
11:05
call
11:06
equitable theories that allow judges
11:08
juries
11:09
arbitrators the ability to
11:12
do the right thing right to do the right
11:15
thing
11:16
and and not force uh somebody uh to lose
11:19
out because
11:20
through no fault of either the buyers or
11:22
the sellers
11:23
covet uh popped up so i i’m
11:26
thankful that um at least what
11:30
many of my clients have reported to me
11:32
and what i’ve seen in the
11:34
in the markets that people continue to
11:36
pay their rent
11:37
right so one of the biggest fears that i
11:39
think all of us that are in the industry
11:41
started to
11:42
think about were that tenants were going
11:44
to do the most dishonorable thing that
11:46
they possibly could
11:48
right they were going to basically squat
11:51
they were going to sit
11:52
in the their unit the apartment unit
11:54
they weren’t going to pay any rent
11:56
thankfully we didn’t see that people did
11:58
the right thing they were
11:59
they acted with integrity in most cases
12:02
they were honorable
12:03
and so we didn’t see the massive fears
12:07
that
12:07
some people were stoking in the market
12:09
to foment
12:10
like we’re gonna see massive amounts of
12:13
properties go
12:14
under not be able to meet their debt
12:16
service because
12:17
economic vacancy at the properties would
12:19
go sky high
12:21
we didn’t we didn’t see that um now i
12:24
think it did help that
12:25
um that several of the the lenders there
12:29
was an eviction moratorium
12:31
there was the fed kept rates uh
12:33
artificially low
12:35
all of that helped from my perspective
12:39
um on the on the legal side making sure
12:41
that our clients were able to continue
12:43
to
12:44
get through that process and the
12:46
stimulus that got passed
12:48
uh that was able to be helpful both for
12:51
ppp money as well as
12:53
eidl money uh for some clients that were
12:56
lucky enough to be able to get that
12:58
that was helpful because that helped
13:00
kind of uh
13:02
bolster up the the markets during this
13:04
interim uh period
13:06
so i don’t know what’s going to happen
13:08
with the current
13:09
uh election i don’t not nostradamus i
13:13
don’t have a crystal ball
13:14
but i think whoever sits in the white
13:16
house are not going to be in the middle
13:18
of raising rates
13:20
so i think that the fed’s gonna allow to
13:22
a certain extent maybe inflation to run
13:24
wild for a while
13:26
but if you’re gonna see price compaction
13:28
which
13:29
which you know some people are saying is
13:32
potential
13:32
for the next quarter or the next couple
13:34
of quarters i think in large part that’s
13:36
going to be
13:37
in the single family uh residential
13:40
space and not
13:41
as much in the multi-family space so i’m
13:44
still
13:45
very if you couldn’t tell i’m still very
13:48
bullish
13:49
on multi-family acquisitions
13:53
i love non-recourse debt i
13:56
love multi-family it’s one of the
14:00
one of the rare asset classes that have
14:03
helped
14:04
um investors for historically
14:07
if you track returns and you track
14:10
returns according to the market as well
14:12
there’s nothing like commercial real
14:14
estate and there’s nothing in particular
14:16
like
14:17
commercial real estate that’s secured by
14:18
non-recourse debt
14:20
to be able to provide those types of
14:22
historical returns for investors so
14:24
we’ve seen a lot from covet but
14:27
i don’t i mean covent hasn’t taken us
14:31
out hasn’t taken any of our clients out
14:33
and
14:34
i think uh i think it’s going to be a
14:36
little bit of a hurdle but
14:37
we’re going to be fine and what kuba did
14:39
is remind people of uh
14:41
that’s lost pyramids of needs right
14:43
people need to try
14:44
food water and shelter third right and
14:46
they go right
14:47
yeah yeah but but it certainly has
14:51
driven their
14:54
occupancy has improved where rent growth
14:57
has
14:58
has gone up uh and where it came down
15:01
right so when we obviously a lot of
15:04
your clients and our clients they’re
15:06
active in the
15:09
more suburban markets rather than in in
15:11
the
15:12
the the main urban markets
15:16
but we also have some clients that are
15:18
active in urban markets they actually
15:20
suffer much more
15:21
right whether it’s new york city san
15:23
francisco chicago
15:25
and while they have a massive drop in
15:29
in in rents that they can charge they
15:31
have a lot of problems with economic
15:33
vacancy
15:37
we see the opposite when it comes to
15:39
some of the
15:40
the typical markets that everyone has
15:43
been talking about
15:44
like that texas like dallas fort worth
15:47
atlanta
15:48
uh in nevada right where the multifamily
15:52
market just has been
15:55
on fire also from a rank growth
15:57
perspective
15:59
so it’s really a tale of two cities in a
16:02
way
16:02
right so you have one side that is
16:04
really suffering and then you have
16:06
other markets that have been doing
16:09
really well
16:10
so one question i have for you whether
16:12
you still see that because we
16:14
we still have clients coming in with
16:16
psas that they have
16:19
i do know whom they use to draft these
16:21
psas
16:22
but they still have we still see psas
16:25
where they don’t have any force measure
16:28
in general nor do they have in a limited
16:31
force measure that is
16:32
very specific over 19. they have nothing
16:35
right so they still have have these
16:38
these psas that are they have no way out
16:41
if kobe 19 somehow uh tosses a stick
16:45
into the wheel for them
16:47
i’ll tell you
16:50
[Laughter]
16:52
it’s not good so the reality is if you
16:55
have
16:56
if you’re somebody that’s looking to
16:57
sign a commercial real estate
16:59
transaction and obligate yourself to buy
17:01
a piece of property
17:02
for several million or more million
17:04
dollars
17:05
you’re going to want some amount of
17:08
protection for yourself as the buyer
17:10
or even as the seller you want some sort
17:13
of protection
17:14
for yourself you don’t want to be tied
17:16
up in a transaction for
17:18
forever you want to be able to have your
17:20
property free and clear if you can’t
17:22
sell it to this particular buyer
17:24
you find you want to be able to sell it
17:26
to somebody else
17:27
so the force measure clause is not just
17:30
pro
17:30
buyer it’s pro parties so often
17:34
you know remember force measure means
17:36
it’s an unexpected event
17:38
really this is latin for unexpected
17:40
event
17:41
the reality is we all know about coven
17:43
right now right so unless you’ve been
17:45
living under a rock for the last
17:47
several months you know that covet
17:49
exists
17:50
uh so you can’t use covid as a force
17:53
measure event but let’s say
17:55
there was a as one of the candidates
17:58
said there’s a dark
18:00
winter coming let’s say there is a dark
18:02
winter
18:03
okay uh like game of throne of thrones
18:07
if if that were to happen right and
18:10
um then the reality is in the capital
18:12
markets were somehow
18:14
frozen either by government fiat or
18:16
executive order from the white house or
18:19
something like that right
18:20
or the mother of all dragons swooped
18:22
down in wall street
18:24
and snatched up the the stock market
18:27
then the reality is that’s a new event
18:29
yes it’s
18:30
tangentially or if not causally related
18:33
to covet
18:34
but that’s a new event that would
18:36
thereby
18:37
trigger the ability both on the seller
18:40
side as well as the buyer’s side
18:42
to potentially pull the rip cord through
18:44
that force measure clause
18:46
and get out of that contract and you say
18:48
why is that helpful for the seller
18:51
well the practical reality is let’s say
18:53
the
18:54
the buyer says i want out and this and
18:57
the
18:57
seller says i’m not letting you out or
18:59
the seller says
19:01
fine but i’m not going to authorize the
19:02
release of your earnest money
19:04
and then there’s a lawsuit that ensues
19:07
that’s what we call a cloud on the title
19:09
a cloud just meaning that there’s when
19:12
the title company goes to pull the
19:14
abstract or the historical record of
19:16
what
19:17
occurs at the property they’re going to
19:19
see that there’s potentially a lawsuit
19:21
attached to that particular property and
19:24
the seller’s not going to be able to
19:25
sell it
19:26
to anybody else so even if you’re an
19:30
unsophisticated or non-seasoned seller
19:33
and you think to yourself you’re doing
19:35
you’re going to help yourself
19:36
because by holding a buyer essentially
19:40
into a property if there’s a lawsuit
19:43
that is impacting
19:44
even tangentially related to a property
19:47
a lender
19:48
who is the biggest investor in all of
19:51
these transactions
19:52
many people forget that the lender is
19:54
the biggest investor
19:55
they’re not going to give you their loan
19:57
proceeds they are not going to fund
20:00
that loan and so the reality is these
20:03
clauses
20:04
whether you call the force measure
20:06
clause or an escape clause or whatever
20:08
is helpful for both buyers and sellers
20:11
so you
20:12
do need to even to try to have it now
20:15
that doesn’t mean there’s not going to
20:16
be
20:16
negotiation in what that clause looks
20:19
like
20:20
what are the triggers for the notice
20:22
period
20:23
is there a notice period that you have
20:25
to exercise your rights or you’re
20:26
waiving your rights
20:28
all of those things have to be taken
20:30
into consideration when you’re
20:31
negotiating your purchase and sale
20:33
agreement
20:34
but it’s important it’s important for
20:35
lenders it’s important for sellers
20:38
and it’s mostly important for buyers
20:40
yeah
20:41
so that’s the reason why you need a
20:42
lawyer to negotiate it
20:44
right don’t attempt to do it yourself
20:49
well maybe shifting gears a little bit
20:50
more right kind of have
20:52
you started seeing questions from your
20:55
clients right because you can have a
20:56
unique perspective right
20:57
you’re not brought in before a deal
20:59
happens you’re brought in deals that are
21:00
actually happening right you’re seeing
21:02
what’s going on
21:03
and that’s kind of i guess the
21:05
benefactor that you’re probably the
21:06
first person most clients go to
21:08
even afterwards right with questions
21:09
about hey here’s what’s going on
21:11
maybe my question is have you seen
21:13
clients ask more questions about the cdc
21:15
moratorium
21:16
and you know things that can be done
21:18
with that and maybe you know what are
21:19
your thoughts or positions on that
21:22
yeah so i don’t think i don’t think an
21:24
eviction moratorium is a good thing
21:26
uh in in my opinion i think it
21:29
reinforces
21:31
this idea that people are
21:34
um it’s it serves as a backstop
21:37
to uh behavior bad behavior the reality
21:41
is
21:41
not the commercial real estate market
21:44
we’re talking office retail
21:45
hospitality is is under
21:49
suffering huge massive losses right
21:51
because the reality is
21:52
we don’t all have to work somewhere we
21:54
don’t all have to go somewhere and work
21:56
somewhere
21:57
but we all have to live somewhere they
22:00
don’t need it in my opinion
22:02
to to backstop uh
22:06
uh provide protection if you will for
22:09
consumers or the idea that landlords
22:11
would
22:12
immediately wholesale kick people out of
22:14
their properties one
22:16
there’s not massive uh shifts in people
22:19
wanting to move during the middle of a
22:21
pandemic
22:21
right so many when we’re when we’re
22:24
talking about our tenants they’re not
22:26
out there on the weekends going to open
22:28
houses or walking through the mall
22:31
or looking over saying hey i’m gonna
22:33
move from this property to this property
22:36
so i i think um in general it’s not a
22:39
it’s not a great thing let mark the
22:41
market decide
22:43
um uh what’s good whether property is
22:46
going to be successful or not
22:48
um but to the people that to
22:51
owners that have availed themselves on
22:54
the agency side of forbearance meaning
22:56
they have decided that they want to for
22:59
a time push pause
23:00
on their obligation to pay uncle sam
23:04
back the mortgage i think it’s
23:08
fair that the trade-off is hey you can’t
23:10
you can’t kick people out
23:11
and you can’t be in the process of
23:14
raising rents
23:15
so at some point and i’ve talked to a
23:17
number of clients that didn’t have
23:19
agency debt
23:20
that had not uh gone into
23:23
um uh loans with any of the federal
23:26
agencies or
23:27
uh were in states that uh didn’t have
23:31
kind of this this moratorium in place
23:33
imposed by bridge lenders or whatever
23:36
and i’ve said be sensitive
23:39
communicate clearly to your tenants
23:42
and if your tenants need a little bit of
23:44
grace
23:45
extend grace to your tenants
23:48
so to the extent that you have tenants
23:51
um
23:52
that that need some assistance or they
23:54
need a little bit of
23:55
help um for the most part client my
23:58
clients that are in the b and c’s place
24:00
the value add place
24:02
those type the types of rents that we’re
24:04
talking about
24:05
um they can tolerate for a certain
24:08
amount of time to to be able to extend
24:11
grace without evicting people
24:13
so i would say it’s the the costs
24:17
if by you if you’re the landlord the
24:19
operator and you decide well i’m not
24:20
going to negotiate i don’t need to
24:22
negotiate i don’t need to extend grace
24:24
and there’s no moratorium let’s kick
24:26
these people out i think what you’re
24:27
going to find
24:28
is that may be a bad business decision
24:30
because the
24:31
cost to get somebody back in there to
24:34
turn that unit
24:36
and then downtime as opposed to
24:39
taking a partial rent not waiving
24:42
or whatever but taking partial rent the
24:45
economics
24:46
in some cases don’t don’t bear out so i
24:49
would say
24:50
be intelligent act act with integrity
24:53
but also extend grace whenever possible
24:56
to your tenants and i think in the long
24:58
run you’re gonna be happier
25:00
yeah no it’s all the grand thing is
25:02
landlords right we
25:03
landowners don’t want to kick people out
25:05
right right
25:06
they need communication and kind of
25:07
figuring out a path for that everything
25:09
it’s a win-win situation so
25:11
i totally agree with that one yeah yeah
25:15
okay a lot of the chatter obviously
25:18
uh out there is uh some of the new sec
25:22
rules that may come in one form or
25:25
another
25:26
yeah they have been in under discussion
25:29
now for a while
25:30
uh so can you give us a little bit of a
25:32
flavor of where we stand with all those
25:35
yeah so i’m excited that the sec for
25:40
uh for the longest time has not decided
25:44
to
25:46
deal with this this tension that exists
25:48
between
25:49
uh having to be a registered broker
25:51
dealer when you’re raising when you’re
25:53
raising money when you’re selling
25:54
securities
25:56
um versus people that fill
25:59
the gaps often for sponsors of the deal
26:02
they’re often
26:03
they’re often um you’re forced into
26:07
making two choices either when i’m
26:09
raising capital
26:10
i can i can raise my own capital
26:14
and i’m exempt from having to register
26:17
as a broker dealer because
26:18
i am considered either the issuer or an
26:21
associated person of the issuer meaning
26:24
we’re selling our own securities this is
26:26
my deal i don’t have to go register as a
26:28
broker dealer for my deal
26:30
well um the challenge is what if i want
26:33
to partner
26:33
with other people right because this is
26:35
a large project
26:37
an acquisition there might be additional
26:39
underwriting or due diligence or at-risk
26:41
capital that’s needed
26:43
or asset managing all of that i know
26:46
this is a team sport
26:47
i can’t do this by myself so i’ve
26:50
invited two or three buddies
26:52
to come alongside and co-sponsor uh
26:55
this with me well um
26:58
the the question is are these people
27:00
legitimate co-sponsors of the deal
27:03
or are they essentially raising capital
27:05
meaning they’re selling securities and
27:07
getting paid for
27:08
it and it’s not their deal which is not
27:10
compliant we’re not advising anybody to
27:12
do that
27:13
well the sec started even though for
27:16
this this tension has existed for 15
27:20
years
27:20
potentially or even longer
27:24
they’ve started to wake up to the notion
27:26
that it’s a good
27:27
thing to be able to help people
27:30
raise capital it’s a good thing this the
27:33
fuel
27:34
of of the economy for america
27:37
is small business small business growth
27:40
private capital is needed
27:42
oftentimes to fuel small business growth
27:45
in the united states
27:46
and so how do you fuel business growth
27:49
with private capital
27:50
if you’re only uh capped
27:54
at being able to use registered broker
27:56
dealers on this side
27:57
or do it yourself and so the sec has
28:01
come out
28:02
with they’re asking for right now uh
28:04
comments
28:06
about what they’re calling a conditional
28:08
exemption for
28:09
finders finders would be somebody
28:12
and a person uh who
28:15
is essentially the serving as the
28:17
middleman between
28:19
the person looking to raise private
28:21
equity
28:22
uh and the end investor the potential
28:26
investor
28:26
right so um and and be able to provide a
28:30
legal
28:30
compliant framework to deliver
28:33
compensation to the person that actually
28:35
delivered the potential investor
28:37
who invests in your deal um that has
28:40
been a long time coming i
28:42
hope that it is instituted
28:45
um and what they’re they’re showing at
28:47
least the four
28:49
the foretaste of what they’re showing
28:51
right now that’s out
28:52
are essentially two tiers we’ll have a
28:55
tier one and a tier two
28:58
finder tier 1’s is what i call the
29:00
historical
29:01
rule and that is there are people that
29:05
would introduce you
29:06
as an operator to potential investors
29:09
and nothing more they don’t advocate
29:12
they don’t present your offering they
29:13
don’t have anything to do with it their
29:15
exit stage right
29:16
anton meet ferris anton’s looking to
29:20
potentially invest
29:21
ferris you’re looking for investors i’m
29:23
out
29:24
and ferris says here dugan here’s a flat
29:27
a flat fee for essentially making that
29:30
introduction
29:31
that that’s the historical rule okay
29:34
very hard uh from uh from a compliance
29:38
perspective to
29:39
manage that because um you know
29:43
what if dugan decides to tell anton hey
29:46
anton ferris is awesome
29:48
here’s this offering i’ve already looked
29:50
at it you don’t need to read it at all
29:52
just give them your money right fair one
29:54
ferris doesn’t know that dugan’s telling
29:56
anton that
29:57
so uh yet whatever dugan is doing is
30:01
imputed to ferris
30:02
so if there’s ever a an issue uh
30:05
that’s gonna come potentially under
30:07
scrutiny so the reality is that tier 1
30:10
that historical rule a lot of people did
30:12
not take advantage of
30:13
of that and for understandable reasons
30:16
because it was hard to manage and
30:18
and the exposure the potential risk
30:20
associated with that was so great
30:22
right disgorgement potential bad boy
30:26
being put on a bad boy list suspended
30:28
from being able to do
30:29
any further offerings rescission having
30:31
to give all the money back or even sell
30:33
the asset
30:35
fines associated with that all of those
30:37
things the remedies the full remedies
30:38
that the us government has at their
30:40
disposal
30:42
they they still hack so tier two that’s
30:45
tier one
30:46
potentially uh tier two which i’m more i
30:49
am excited about
30:51
is this prospect once we see essentially
30:54
what the conditions are
30:55
are somebody that would be able to
30:57
essentially uh
30:59
assist in soliciting uh potential
31:02
investors uh
31:04
for um operators and actually be paid a
31:08
commission
31:09
uh or compensation associated with that
31:12
now these people would not be a
31:13
co-sponsor
31:14
and not be doing due diligence and
31:16
they’re not going to be signing on the
31:17
loan and they’re not going to be a part
31:18
of
31:19
what we call in the industry the general
31:21
partnership or the managers
31:23
uh side of it but they would essentially
31:25
be right that’s right they’re not going
31:27
to be allowed
31:28
from what we’ve seen under the potential
31:30
rules
31:31
they wouldn’t be allowed to do that but
31:33
being able to advocate or at least
31:36
present the offering to somebody and
31:40
do something more than just make that
31:41
introduction i think is going to be
31:45
essentially very helpful for a lot of
31:48
operators out there
31:49
and so that is a legal framework
31:52
that potentially could solve both the
31:55
tension that exists
31:57
in the capital raising side of it and
32:00
the sec has recognized that there’s a
32:02
need
32:03
in fact in some of the the comments or
32:05
the discourse that they came out with
32:07
their rationale
32:08
for as to why they want to make this
32:10
change um
32:11
providing capital uh often helps
32:15
minorities women people without voices
32:18
without the ability
32:20
to access capital uh in the in the
32:23
in the space i’ll uh putting a legal
32:26
framework but at the same time
32:28
balancing investor protectionism is a
32:30
good thing and i agree
32:32
and i applaud um the effort uh
32:36
at frankly trying to do a legal
32:38
framework to build out a legal framework
32:40
that would be helpful for the industry
32:42
as a whole yeah
32:44
i think that’ll just help give clarity
32:45
it’s just kind of an opaque thing and
32:47
people have a lot of questions about it
32:48
because
32:49
there’s just no definition of it right
32:50
so kind of getting clarity i think will
32:52
help people
32:53
yeah definitely and also it will bring
32:55
the
32:56
uh the cost down right so the
32:58
alternative is
33:00
uh other than just being part of the gp
33:02
team
33:03
right that you invite someone in and
33:05
they do due diligence as a management on
33:07
top of
33:08
money raising to be compliant the
33:10
alternative is obviously to use a
33:12
registered broker dealer
33:15
it’s extremely expensive right
33:17
particularly
33:18
i mean for a five million dollar race
33:21
right which is which seemed to be a
33:24
pretty
33:25
check for from a certain real estate
33:27
syndication perspective
33:29
for a richest broker dealer that’s
33:32
nothing
33:33
so a five million dollar in 10 million
33:35
dollar
33:36
raise the fees associated with that or
33:39
just cost prohibitive
33:40
right so it’s not really realistic to do
33:43
that
33:44
so i think that’s only opening the
33:46
opportunity
33:47
to to to to raise money without having
33:52
to invite someone into to the gp team
33:55
and then find a way for them also to be
33:59
active in your business right so it’s
34:02
only
34:02
a very positive development question is
34:06
how long is it going to take until they
34:08
come up with a with a decision
34:11
come on please bring it now
34:15
uh well they they published they put out
34:17
their press release october 6th
34:19
so and they said we’re gonna have a
34:21
30-day comment period
34:23
typically you’re going to see so we’re
34:25
we’re up
34:26
almost this week will be the end
34:28
theoretically of the comment period
34:30
and then we should see something in the
34:32
next month or so i would think a
34:34
solidification maybe
34:36
a crystallization of what the various
34:38
components or
34:40
criteria is going to be and then
34:43
a publication in the public register
34:47
which is will essentially signify yay
34:50
we’re open okay very good don’t forget
34:52
your business
34:53
so you don’t think it will go back to
34:55
another round of
34:57
a common period it could
35:00
i mean it could you know the the sad
35:02
thing is the sec moves at a very glacial
35:05
pace
35:06
understandably this is a massive
35:08
regulatory body
35:09
they’re they’re vested with amazing
35:13