The Legalities of Real Estate Syndication with Mauricio Rauld, Esq.

On This Episode of Peak Market Watch...

The Legalities of Real Estate Syndication with Mauricio Rauld, Esq.

Mauricio Rauld, Esq., founder and CEO of Premier Law Group, and Anton Mattli will dive into Mauricio’s expertise in the legalities of real estate syndication.

 

Episode Highlights:

  • Different Securities and Exchange Commission (SEC) regulations 

  •  What investors NEED to know when it comes to structuring a real estate syndication 

  • Raising capital legally in this business

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Show Host

Guest Speaker

Connect with Mauricio Rauld, Esq.

VIDEO TRANSCRIPTION

 

00:00

and i’m honored to welcome mauricio rauld

00:02

founder and ceo of premier law group a

00:05

law firm specializing in private

00:07

placements welcome mauricio thanks anton

00:10

thanks for having me it’s uh good to see

00:11

you and looking forward to it yeah it’s

00:13

a pleasure to have you on so why don’t

00:15

you give us a brief background about

00:18

yourself and your firm

00:21

boy well uh i am an attorney uh

00:23

unfortunately or uh or maybe not

00:25

unfortunately uh i’m not your typical

00:26

lawyer though most people you know anton

00:28

most people refer to me as the

00:29

anti-lawyer and

00:31

one of the few attorneys that actually

00:33

speaks english which is kind of my

00:34

little gift uh i have the ability to

00:36

sort of make complex matters simple but

00:38

yeah i’ve been doing securities work

00:40

for what is it now 22 years now um

00:44

started off at a at a large law firm

00:46

here in southern california and decided

00:48

that

00:49

that was not what i wanted to do but uh

00:51

got really cut my teeth there

00:52

representing some of the big brokerage

00:54

firms that you know well the goldman

00:56

sachs jp morgan’s merrill lynch’s

00:58

american expresses of the world um but i

01:00

was doing litigation so i was always

01:02

involved in lawsuits and it was not not

01:03

the nicest environment uh

01:05

and then luckily for me i’ll tell you

01:07

the quick story because uh luckily for

01:08

me i i came across the little purple

01:11

book which i know you’ve read and a lot

01:12

of people changed a lot of people’s

01:14

lives by robert kiyosaki rich dad poor

01:16

dad

01:17

that changed my life really and and that

01:19

really led me to

01:21

the realistic guys which is where i kind

01:22

of transitioned from the law firm went

01:24

to work uh in-house their general

01:26

counsel to for the realistic ads which

01:27

is where i really cut my teeth on

01:28

syndication so i did all the private

01:30

offerings over there uh which were a lot

01:32

back then and then i started my own firm

01:35

in 2006 or 2007 and um you know been

01:39

doing the private placements uh since

01:41

then and today

01:42

that’s all we do man uh we just bang out

01:45

uh ppms and uh primarily reg d offerings

01:48

so 506 b 506 cs we don’t really dabble

01:50

anymore in reggaes i kind of refer those

01:53

out but um

01:55

all we do is real estate syndications

01:56

and we do you know 120 130 150 a year

02:00

and um that’s where we we’re very niche

02:03

as you can see that’s all we do is the

02:04

real estate syndication work so yeah

02:06

happy to talk to you about uh

02:08

about about any of that today and uh

02:10

looking forward to it okay very good so

02:12

you touched uh briefly on reggae

02:16

what is the reason why you decided that

02:18

you would uh kind of refer that out

02:21

rather than

02:22

doing it yourself because most lawyers

02:24

say oh we can do that too right we can

02:27

do it it’s just a lot more it’s a lot

02:29

it’s a lot more work uh we just realized

02:31

that our our little niche and and what

02:33

we could really bring the most value to

02:35

was the reg d’s uh we did you know

02:37

probably three or four reggaes and it’s

02:39

it’s getting a little bit more and more

02:40

complicated with the fed so the

02:41

difference between just really quick

02:43

between a reggae and a reg d

02:45

is the reggae you have to register it so

02:48

it’s a little bit less we have a very

02:49

specific process let me just backtrack

02:51

maybe that we have a very specific

02:52

process that allows us to do a lot of

02:54

great things in the reg d space it’s one

02:57

of the reasons we do the really fast

02:59

turnaround speed we get things done

03:01

about a week which is almost unheard of

03:02

in the syndication world but the reason

03:04

we can do that is a very specific almost

03:06

strict process that we go through and

03:08

we’ve created over the last couple years

03:10

with the reg a there’s so many unknowns

03:12

because we we start the process very

03:14

similar to right d but instead of just

03:16

saying okay we’re done let’s let’s give

03:17

it to the investors we actually have to

03:19

submit it to the sec and there’s an

03:21

approval process and there’s a lot of

03:23

back and forth um you know things they

03:25

don’t like that we have to fix or they

03:27

want us to add and so it’s about a

03:28

six-month process where you’re

03:30

negotiating and going back with the

03:32

lawyers back and forth uh and so it’s

03:34

very difficult to build a very efficient

03:36

process around that because you’re at

03:37

the mercy of the attorney at the sec you

03:39

know government lawyers uh who may turn

03:41

around things really quickly or they may

03:42

take forever so it’s just hard for us to

03:44

get that process um and then you know

03:46

with the cost being so high as well you

03:48

know our clientele you know they don’t

03:50

want to spend 75 000 or whatever it is

03:52

going to be to do the legal work and all

03:54

the compliance work

03:56

um you know so so most people

03:58

most people do reg d’s anyway because

04:01

not many of us have the luxury of

04:02

waiting six to nine months to get uh you

04:04

know an offering done that you’ve got a

04:06

closing date in 60 or 90 days you don’t

04:08

have time to wait for the sec to approve

04:10

it so we made it’s just a recent

04:12

decision we made this decision uh i

04:13

think at the end of last year that we

04:15

weren’t doing a ton of them anyway and

04:17

so we just decided hey let’s just focus

04:18

on what we do best and can really serve

04:20

the clients the best which is reg d

04:22

and then you know we’ve got several

04:24

people that we can refer reggaes and and

04:27

i’m happy to do that yeah that’s great

04:29

right so again it’s all about expertise

04:32

in your niche right and uh

04:34

with your expertise again as you said to

04:37

turn around in one week that’s really

04:39

extremely fast right it’s not easy but

04:42

which we

04:44

but that’s what you know what

04:45

that’s there’s two things that people

04:47

always complain about you know when they

04:49

come to me from somewhere else it’s

04:51

number one is turnaround speed you know

04:53

you know some people just take two three

04:55

four and i’ve heard stories where it

04:56

just drags on for months and months and

04:58

you as a as a syndicator you don’t have

05:01

that time you know you’ve got a time is

05:02

money and you’ve got a closing and

05:04

you’ve got to get investors in the door

05:05

and you know you run the risk investors

05:07

have a lot of options these days and if

05:08

you don’t get them in quickly they might

05:10

go to the next guy or next the gal next

05:12

indication uh so that was a big thing

05:14

for me i noticed the turnaround speed

05:16

was a really something very important to

05:18

syndicators and then the other one was

05:19

just access to lawyers you know and i

05:21

experienced this with other lawyers and

05:23

cpas and other professionals where

05:24

you’re trying to get a hold of them and

05:26

it takes two or three days to even get a

05:28

response or you know you’re trying to

05:29

get a quick meeting and they’re just

05:30

busy for a week or whatever and so we

05:32

also turn that that around on its head

05:34

you know most clients you know text me

05:36

or my managing partner bethany we’re

05:38

texting constantly and we’re hopping on

05:40

calls uh but but i hate having to have

05:42

somebody shoot us an email with a

05:44

question enough for us to take two or

05:46

three days to respond or trying to get a

05:47

hold of us so access to lawyers and

05:49

turnaround speeds are big things for us

05:51

and uh and again it’s just based on

05:53

market feedback that’s just what i

05:54

recognize what what syndicators want um

05:58

and and we’ve kind of provided that for

05:59

them and it’s been working great because

06:01

of that yeah that’s that’s great to hear

06:04

and we see that right we we work with

06:06

with a lot of syndicators that

06:09

we use different type of lawyers and uh

06:12

that’s very often a challenge might get

06:14

get a

06:15

prompt turnaround and also once you are

06:18

in the process

06:20

to close that deal if you do not get

06:22

quick feedback even on just a lending

06:24

side right it can be

06:26

very problematic right so it’s

06:30

it’s good to hear that you you have the

06:32

process really

06:33

under control right and obviously the

06:35

more you do it the more comfortable you

06:38

are to speed up that process

06:40

what would you say between 506 bs and

06:43

c’s

06:44

what do you see have you seen a change

06:47

in trend

06:48

i know that a lot of people decided

06:50

initially it was mostly five or six ps

06:53

right and then the it moved kind of

06:55

towards five or six seas but we have

06:57

seen now more people going back to the

06:59

506 ps is that something but similar

07:02

what you see or do you see a different

07:04

trend

07:05

yeah i mean

07:06

nationally if you look at the statistics

07:08

that the sec puts out every couple years

07:10

or whatever um it’s it’s always been

07:13

pretty surprising to me that not many

07:15

people are doing 506 c’s i think

07:17

originally at some point

07:19

because like i talked about this at my

07:20

presentations it was about a 90 10

07:23

split nationally 90 were doing 506 b’s

07:26

and 10 we’re doing 506 between those two

07:29

and then recently i saw that number even

07:31

get more skewed it was like i think 93

07:34

to 7 or something like that it seems

07:35

like less and less people are doing 506

07:37

e’s now in my practice again i’ve got a

07:39

very niche practice i represent small

07:42

mom and pop investors indicators you

07:44

know the average raise that i do is

07:46

probably

07:47

two three four million dollars you know

07:48

every so often we’ll get a big raise of

07:50

eight

07:52

uh unlike a lot of these institutions

07:53

that are obviously raising hundreds of

07:55

millions if not billions of dollars um

07:57

and so i see a little bit more

07:58

willingness to do the 506 c’s um

08:01

i’m it’s going to be an estimate i don’t

08:03

have actual knowledge i keep telling

08:04

myself i should pull the actual numbers

08:06

but i’m going to say probably a third

08:08

of my deals are 506 c’s and then the

08:11

other two thirds are reg d’s i’m sorry

08:13

506 b’s um so we’re we’re getting there

08:16

and i think i would say that i’ve seen

08:18

as people got more comfortable with it

08:20

more and more 506c especially as and i

08:22

think it’s a natural progression you

08:24

know as you run out of your friends and

08:26

family and people in your circle

08:28

um the next

08:29

what i typically the next thing that

08:30

happens is you start trying to hit that

08:32

gray area of using advertising but

08:35

trying not to and then it gets into that

08:37

little gray area and then i think people

08:39

just realize hey look i’ve already run

08:41

out of all of my 506b investors they’re

08:43

kind of already in my deals and so let’s

08:45

let’s let’s try the advertising route

08:48

which you know these days with

08:50

with what you’re doing with podcasting

08:51

with social media whether it’s youtube

08:54

or facebook or instagram um and then

08:56

obviously the live you know meetups and

08:58

all that stuff

08:59

there really is an almost an unlimited

09:02

um traffic that you can you can tap into

09:04

and it’s just a question of being you

09:06

know good at it but um so i think 506 c

09:09

you know it’s definitely becoming more

09:11

and more relevant but but not again

09:12

mine’s a niche it’s not as as extensive

09:14

or as limited as it is in the national

09:17

where it’s right at 97 i think was the

09:19

last statistic i saw yeah yeah

09:22

i think also the 5060 provides kind of a

09:25

safety net right so you you know that

09:28

when you talk to someone that you’re

09:30

allowed to talk to them

09:33

and a lot of people i think

09:35

underestimate the the risk that you have

09:38

with the 506p right

09:41

yes you have your relationships yes you

09:43

think that you only tell

09:46

your pre-existing relationships about

09:49

that deal but it doesn’t take much until

09:52

you talk to someone you shouldn’t talk

09:53

about it yeah and that happens a lot i

09:55

mean you know you and i obviously we’re

09:56

in the in well before covet anyway we

09:58

were part of the sort of the circuit we

10:00

we always run into each other and it’s

10:02

amazing how many emails i will get from

10:05

you know attendees at those seminars

10:07

that i that i

10:08

i’m sure i met but i’m sure we just

10:10

exchanged cards i gave them my card as a

10:13

you know as an attorney looking looking

10:14

to make relationships there and then

10:16

they gave me their card as they’re

10:17

looking for passive investors

10:19

and then within a couple of weeks i’ll

10:20

get an email from them and just pitching

10:22

me their next deal and i’m like i don’t

10:23

know i don’t know this person from

10:25

anyone i don’t even remember them you

10:26

know you meet so many people and yet

10:28

they’re emailing already so they’re not

10:29

going through that process uh which is

10:32

you know time consuming and it’s it’s

10:34

not fun to go

10:35

you know somebody that you meet a

10:36

complete stranger at one of these events

10:38

or even on a facebook zoom or whatever

10:40

that you don’t really know

10:41

and put them through the six to seven

10:43

eight steps that are out there that the

10:45

sec has said you’ve got to take these

10:46

steps to then take them from a complete

10:48

stranger to somebody that you have a

10:50

substantive relationship with

10:52

um and most people don’t really do that

10:55

very well and they certainly don’t

10:57

document it so i think if any of these

10:59

not have any but a lot of these

11:00

syndicators you know something were to

11:02

go wrong in the future and an sec or a

11:05

state regulator were to ask them hey you

11:08

know

11:09

prove to me that you had a substantive

11:11

relationship because it is going to be

11:12

your burden to prove that they’re going

11:15

to have a hard time pulling up records

11:16

because most people don’t keep records

 

11:18

you know they don’t keep uh you know a

11:20

copy of the questionnaire for example

11:21

that they should be sending out they

11:22

don’t keep detailed notes of whatever

11:24

phone calls or meetings they had they

11:26

don’t have the you know they don’t have

11:27

the file built up so they can show to a

11:29

regulator hey here are all the things i

11:31

did back in you know five years ago that

11:34

that i felt was good enough for me to

11:36

establish that substantive relation to

11:37

get to know my

11:38

investor and then that’s why i offered

11:40

him a future deal so 506c i think is

11:42

safer

11:44

but you know you’re limited you can only

11:46

as you know you can only accept a credit

11:47

investor so that’s the first limitation

11:49

and

11:50

for some reason you know there’s a

11:52

verification requirement and for some

11:54

reason which i’m still not sure why but

11:55

a lot of a lot of investors passing

11:58

investors especially the high net worth

11:59

individuals are a little bit hesitant to

12:02

provide them with their financial

12:04

information even though they’re not

12:04

really giving it to them they’re using

12:06

third party verification companies so

12:08

the syndicator actually never sees their

12:09

financials

12:11

they still don’t quite understand and

12:12

and i guess if they’re looking at ten

12:14

different deals and

12:15

the other deals don’t require them to

12:17

submit financials then they’re they

12:18

might as well that’s kind of an edge

12:19

that you lose by doing a 506 c but yeah

12:23

i like it

12:26

yeah

12:27

so have you uh

12:29

have you seen some some new changes that

12:32

uh

12:32

that have come on the horizon obviously

12:34

last year it was quite a flurry of of

12:37

some of some new activity of changes of

12:41

rules that were proposed and

12:43

uh some of them are still in the

12:45

pipeline can you

12:46

tell us a little bit of what what has

12:49

passed what is still in the pipeline and

12:51

what you see might come or might not

12:54

come to fruition yeah i think that

12:56

there’s a lot as you mentioned there’s a

12:57

there was a lot of sec activity last

13:00

year and i don’t i don’t know if it was

13:01

because you know sort of the the

13:03

commissioner was on his last year and he

13:05

just wanted to kind of get stuff done or

13:07

you know with the potential change of

13:09

administration a lot of activity came

13:10

down the pipeline last year and probably

13:12

the most well-known

13:14

although maybe a little misunderstood

13:16

was the they finally got to at least

13:18

start the process of expanding

13:21

the definition of what an accredited

13:22

investor looks like ever since uh i

13:25

think since 1982 that this has come out

13:27

they’ve always tied accreditation with

13:30

financials right you have to be a high

13:32

net worth individual you know either a

13:34

million dollars a net worth you know

13:35

excluding your primary residence or

13:37

you’ve been earning a couple hundred

13:39

thousand dollars a year and expect to

13:40

earn you know reasonable expectations of

13:42

running that this year so it’s always

13:43

been financial and as you and i know

13:45

anton there’s plenty of people who have

13:47

gobs and gobs of money and are the

13:49

dumbest people in the world right we all

13:50

know those and there’s also on the flip

13:52

side people who are modest means or

13:54

maybe not modest maybe they’ve got three

13:55

four five hundred grand

13:57

and they’re super smart way smarter than

13:58

you and me and so there’s always been

14:00

this debate is is that really the right

14:01

way to do it and um you know there’s

14:03

always been this discussion of having

14:05

some kind of a

14:06

you know an examination or some kind of

14:07

test that you might be able to take to

14:09

show that you’re actually sophisticated

14:11

and that finally happened so last year

14:14

um i think back in november it became

14:16

official um that they expanded

14:19

let me put let me make sure i phrased

14:20

this right they did technically they did

14:22

expand the definition of an accredited

14:23

investor but what what they said is like

14:25

look there’s gonna be

14:26

some you’re gonna be able to get

14:28

certified as an accredited investor

14:30

meaning you’re going to be able to go to

14:32

a course

14:33

a seminar you know whatever and then

14:36

that’s going to certify you’re going to

14:37

pass an exam you take an exam pass an

14:39

exam and they’re going to give you a

14:40

certification that says hey anton you

14:42

passed the exam you’re going to fight

14:44

pass it in flying colors anton and so

14:46

you’re going to get certified as an

14:47

accredited investor and now you’re going

14:49

to be eligible for things the challenge

14:51

was when the rule came out the sec still

14:53

hasn’t gotten around to identifying

14:56

who’s going to be you know who’s going

14:58

to be certified to give these

14:59

certifications right right now we don’t

15:01

have you know what institution we have

15:03

no idea what it’s going to look like is

15:05

this going to be a three-day weekend

15:08

seminar is it a self-study is it a

15:10

one-day thing is it just an exam like we

15:12

don’t we have no idea what any of that

15:14

looks like so that’s what we’re waiting

15:15

on and that’s going to trickle in there

15:17

you’re going to get an announcement a

15:19

press release suddenly that’s going to

15:20

say hey this institution has been

15:22

certified so if you go take their course

15:24

pass their exam you can get certified

15:26

the only thing that for now they brought

15:28

in immediately

15:30

was um if you were in a registered

15:32

investment advisor so if you’re an

15:34

investment advisor you will be now as of

15:37

right now you are an accredited investor

15:39

irrespective of your financials and then

15:41

if you pass certain certain exams a

15:43

series specifically a series seven a

15:45

series 65 and a series 82 i believe

15:47

those are the three then again that’s

15:49

kind of the exam that you’ve already

15:50

taken so if you have those those exams

15:52

and pass then you’re also an accredited

15:54

investor but other than that it didn’t

15:56

really change a ton other than it set in

15:58

motion it laid the ground and the

16:00

foundation for to come this although

16:02

it’s already it’s already kind of

16:04

halfway through the year here but uh you

16:06

know we’re expecting something down the

16:08

pipeline that that tells us what

16:10

institutions we can go to to take an

16:11

exam on what that looks like

16:13

okay so so you never hear anything from

16:15

them until they announce it so it’s not

16:17

like kind of behind the scenes uh

16:21

wine that uh

16:22

trickles some information through no i

16:25

mean you know it always gets done with a

16:27

press release or or some kind of a a

16:29

release that the sec does and um you

16:31

know you kind of think about it they’ve

16:32

got

16:33

they probably are in the process of

16:34

coming putting together what what the

16:36

you know what the requirements need to

16:38

be that are going to be taught in this

16:39

course what are the topics that need to

16:41

be it’s almost like you’re putting

16:42

together an approved curriculum that you

16:44

can then say hey look if you go and

16:46

prepare this curriculum then we’re going

16:47

to certify you just like if you really

16:49

if you’re going to a school right you

16:50

want to be certified particular

16:52

curriculums i’m sure that’s what they’re

16:53

doing number one and then going out to

16:55

you know whatever

16:57

you know i’d imagine something like i

16:58

don’t know if you guys those of you guys

16:59

who have taken those sort of sats or

17:01

maybe lsats or mcats i mean there’s i

17:04

think the company’s called kaplan or

17:05

something i mean any of those it’s going

17:07

to be something like that where kaplan

17:08

might come out and have and become

17:10

certified because that’s what they’re in

17:11

the business of teaching and helping you

17:14

pass examples it’s going to be those

17:15

types of institutions that will get that

17:18

certification process done but i’m sure

17:20

that’s what they’re in the middle of but

17:21

we’ll get it through a press release i’m

17:22

sure

17:23

yeah okay so that’s certainly that’s

17:26

positive news

17:28

once once it’s being

17:30

uh finalized that that’s definitely will

17:32

help and it it’s not only will helps

17:34

indicators right so now

17:36

the access to accredited investors only

17:40

uh will increase

17:42

the the question then is okay so now the

17:44

financial information sharing does that

17:47

still have to take place or is that

17:49

completely out the window if you have

17:51

that

17:52

accreditation for my kaplan or whatever

17:54

it is yeah

17:56

and you wouldn’t you wouldn’t have to

17:57

rely on any you could be you could be

17:59

broke you could be

18:00

millions of dollars and you could have

18:02

negative net worth you could be

18:04

unemployed but if you’ve passed your you

18:06

know series 65 or got a you know got a

18:08

certification from kaplan or whoever’s

18:10

going to get certified then that’s all

18:12

you need so i’m sure from a verification

18:14

standpoint all you’re going to have to

18:15

request if you’re going to be verifying

18:16

is just look you know get a copy uh

18:18

maybe it’s a certified copy of that

18:20

certificate and then you’re good to go

18:22

yeah right now just to kind of give you

18:24

a little bit practice that was very

18:25

vague obviously because that’s where

18:26

we’re at i think i’m actually going to

18:28

write a blog on this or maybe do a video

18:30

but i think the fastest path if you’re

18:31

not an accredited investor and want to

18:33

be an accredited investor is the series

18:34

65 exam i think that’s the easiest of

18:37

all of them um so you just take that you

18:39

study for that probably on your own you

18:40

take the series 65 you pass that

18:43

then you register with whatever state

18:44

you’re in and then you’re going to be

18:46

you know you’re going to be in good

18:47

standing and all that stuff and then

18:48

you’d become an accredited so if you’re

18:49

a passive investor who’s kind of really

18:51

desperate to to invest in some of these

18:53

um you know accredited only offerings i

18:55

would look at the series 65 exam as your

18:57

route as it stands right now yeah okay

19:00

very good so

19:02

uh that’s probably going beyond of what

19:04

you already know but does that mean that

19:06

you have to be also registered with a

19:08

firm right because with this 65

19:11

obviously it’s not just that you are on

19:13

your own but you

19:14

in order to practice you would have to

19:17

register with a with a firm right

19:19

similar with on the real estate side

19:21

whereas a real estate agent you need to

19:24

register with a brokerage firm is that

19:26

the same thing with the 65 or the seven

19:29

no the all you need to do is be in good

19:30

standing in your state so i do believe

19:32

there’s a registration requirement with

19:34

the state but as long as you have a you

19:36

know license in good standing then

19:37

that’s that’s what i’ve seen at least on

19:39

the sec website specifically a series

19:41

65. i don’t know why you know this more

19:43

than i do what you know why that they

19:44

would specifically single out series 65

19:46

versus the 82 or the 7 but

19:49

there is on their website they do

19:50

specifically as an example say hey if

19:52

you’ve got a 65 it’s got to be in good

19:53

standing and you’re going to have it

19:55

registered in your particular state okay

19:57

very interesting yeah uh

20:01

i think one one of the order items that

20:03

was uh was quite a big topic amongst

20:07

indicators and whoever wanted to be also

20:10

part of the fundraising activity was

20:14

changes to the fundraiser raising yeah

20:16

yeah

20:17

i have any news on that yeah i don’t

20:20

have any news on that and actually we

20:21

were just talking about this before we

20:22

went off i i may stop stop talking about

20:25

it a little bit because it’s been a

20:26

while now and you know although i did

20:27

say you know second quarter so i guess

20:29

we haven’t run out of the second quarter

20:30

yet but this was a rule that came about

20:33

a proposed rule back i think in october

20:36

of last year or maybe november but i

20:37

think it was october and again i want to

20:39

emphasize the word proposed and so there

20:41

was again a press release and uh you

20:42

know i can’t remember how many pages the

20:45

actual proposed rule was but essentially

20:47

you know as you know i’ve been

20:50

me and many other lawyers have been

20:51

hammering the the social media um

20:54

stratosphere about this this issue of

20:56

money raisers right there are people

20:57

that are actually out there raising

20:59

money for syndicators and getting

21:00

compensated for raising that money most

21:03

most likely in the form of a share of

21:04

the gp and so we’ve gone through this

21:06

whole analysis that you generally have

21:08

to be a broker dealer which obviously

21:09

nobody is or you’ve got to follow these

21:11

strict rules

21:13

the challenge is and i think this is

21:14

what the sec not i think they

21:15

specifically recognize this is that

21:17

brokered dealers and you know this

21:18

better than i do they typically don’t

21:21

like to get out of bed unless they’re

21:22

raising a lot of money right so they

21:24

don’t want to use it’s the same amount

21:25

of work for them so they don’t want to

21:26

raise a million dollars for you or five

21:28

or maybe even 10 they want to be raising

21:30

20 30 50 100 you know 500 million

21:33

dollars because they get paid on a

21:34

percentage basis so it’s very difficult

21:36

for a small time syndicate who’s raising

21:38

one two three five million to get a

21:39

broker dealer and so there’s a gap that

21:42

exists right now in that world that’s

21:43

why i think a lot of people are kind of

21:45

getting into that gray area or maybe

21:47

overstepping the boundaries so the way

21:49

they’ve addressed this is they made this

21:51

proposed rule which would then allow

 

21:53

people to actually make referrals make

21:55

introductions of people they already

21:57

know

21:58

two syndicators um and get paid a

22:01

commission transaction based

22:02

compensation which historically

22:04

traditionally that’s the hallmark of

22:05

broker dealer stuff but essentially just

22:07

to give you the really high-end

22:08

high-level summary

22:11

you’re going to be if this were to pass

22:12

in its current form you could

22:15

you could refer people that’s already in

22:17

your network you can’t go out and

22:18

advertise and use social media to

22:20

attract those people but if people are

22:21

already in your network and they’re

22:23

accredited

22:24

so it’s only applicable to accredited i

22:26

can then refer that person to a

22:28

syndicator i can actually participate

22:30

somewhat in the process i can be part of

22:32

that meeting i can show the you know my

22:35

my client or whoever i have you know i

22:37

can show them the offering documents i

22:38

can walk them through them i can’t make

22:40

any recommendations obviously but i can

22:42

i can help explain it to them i can be

22:44

fairly involved in that process and then

22:46

if that person were to invest in your

22:48

deal

22:49

then i can i can take a commission from

22:51

that right a five percent two percent

22:53

whatever we negotiate

22:54

now that has to be in writing that has

22:56

to be you know there has to be a written

22:57

referral arrangement or whatever some

22:59

agreement between me and the syndicator

23:01

and of course that needs to be disclosed

23:03

to the investor that’s coming in that

23:05

there’s this relationship because as you

23:06

can imagine it is it does affect

23:08

somebody’s thoughts on a particular

23:10

investment if they know that the person

23:11

making the referral is going to get it

23:13

get paid for that referral so um but but

23:15

the nice thing is you’ll you’ll be able

23:17

to get transaction-based compensation

23:19

and so this was really exciting when the

23:21

proposal came out in november or

23:23

whenever it came out

23:25

the challenge is

23:27

that because of the transition with the

23:28

new administration

23:30

the sec commissioner actually resigned a

23:32

little bit earlier his term wasn’t up

23:33

until june of this year we ended up

23:35

resigning announces his

23:37

his resignation last year there was a

23:39

new sec commissioner that just got sworn

23:41

in a couple months ago i believe it was

23:43

and he’s known to be a little bit more

23:44

although it’s mostly on the wall street

23:46

side but he’s known to be a little bit

23:47

more of a regulator and so

23:49

we just don’t know whether there’s any

23:50

appetite now at the sec that’s under new

23:52

leadership for for this kind of stuff to

23:54

loosening up these rules or if the new

23:56

commissioner is going to take a little

23:57

bit more heart stance so this might get

23:59

tabled until a new commissioner shows up

24:01

or maybe we’ll hear something um you

24:04

know soon now typically it takes

24:06

six months between you know six to nine

24:09

that’s why i say two to three quarters

24:11

between a proposed rule because what

24:13

happens is a proposal comes out and they

24:14

request comments so they they go out to

24:16

the community they say hey please give

24:18

us your feedback give me your comments

24:19

here are some questions we have that

24:21

we’re not quite sure and then they take

24:23

all those submissions after about a

24:24

60-day period and then they formulate a

24:26

final rule taking into account all those

24:28

submissions so that usually takes six to

24:31

nine months

24:32

in fact the the new rules that we talked

24:34

about that came effective last november

24:36

those that can have been proposed back

24:37

in march as you can see it’s a good you

24:39

know six to that was what six yeah six

24:41

to nine months

24:42

so i’m ex i was kind of expecting if

24:44

something were to happen it would be

24:45

happening right around now honestly it’s

24:47

sort of the the end of middle to end of

24:49

the second quarter which is kind of

24:50

where we’re at

24:51

and uh who knows i think you know it’s

24:53

still it’s still there i don’t know any

24:55

i don’t have any you know any any

24:57

updates that nobody’s telling nobody i

24:59

don’t have a direct line to the uh so

25:01

the brains over there the sec but uh you

25:03

you can you can be assured that as soon

25:05

as it comes out then uh we’ll all be on

25:07

social media on youtube oh sure

25:10

yeah absolutely yeah

25:14

so

25:15

obviously that topic of money raising is

25:17

a is always a

25:19

very tricky subject right and we have

25:22

seen

25:23

uh

25:24

i would say both of us we have seen

25:26

deals where uh

25:29

some of the syndicators and uh gp

25:31

partners probably were a little bit in

25:34

the gray zone

25:36

they do to call it they call it lightly

25:38

right

25:40

and uh so

25:42

i think what we also have heard then

25:44

well why don’t we

25:45

uh just do a jv and we don’t have any

25:48

issues right

25:51

which brings up uh

25:53

an order element why that i think a lot

25:56

of uh

25:57

people do not really understand that you

25:59

have to follow very specific rules to to

26:03

truly be a joint venture

26:06

and i think you you wrote

26:09

a book about it or an article about it

26:12

like how to stay out of jail so maybe

26:15

you can touch on that a little bit uh

26:18

yeah i wrote a book it was an e-book

26:20

last year called the five things every

26:21

syndicator must know to stay out of jail

26:23

and the number one thing

26:25

was just understanding what is a

26:27

security and what is not a security and

26:29

that’s probably the biggest mistake most

26:31

people make they don’t realize they’re

26:32

selling securities or maybe even worse

26:34

they realize it but they’re trying to

26:35

get around it by creating some kind of a

26:37

structure and what’s really important to

26:39

understand is that what you call

26:41

something is completely irrelevant you

26:43

can call something a joint venture you

26:44

can call something a syndication you can

26:46

call something alone or whatever you

26:47

want to call it it doesn’t matter

26:49

the sec is going to actually look at the

26:51

actual transaction and so

26:53

anytime you take money from a passive

26:55

investor where the returns are being

26:57

generated by your efforts

27:00

that is a securities offering you are

27:01

issuing securities and it doesn’t matter

27:03

if it’s in an llc or an lp or if it’s a

27:06

joint venture or if it’s uh you know a

27:08

profit sharing agreement or a tick

27:09

agreement or it doesn’t matter how you

27:11

structure it that’s the test are you

27:14

taking money from passive folks where

27:16

the returns are being generated by your

27:18

efforts or the efforts of the other

27:19

co-sponsors

27:20

um and so the same applies to a joint

27:22

venture just because you call something

27:24

a joint venture doesn’t make it so a lot

27:26

of people’s like well i have the choice

27:27

do i make this a securities offering or

27:29

maybe to some extent you have a choice

27:31

if you change the structure a little bit

27:33

but if you have passive investors if

27:34

somebody’s writing a check

27:36

and you’re doing the work even if you’ve

27:38

got 10 people

27:40

and only three of them aren’t really

27:41

doing anything and the other seven are

27:43

those three people are being offered

27:45

securities because they’re passive and

27:46

so in order for a joint venture to be a

27:48

true

27:49

legitimate joint venture where it’s not

27:51

a securities offering or it’s outside

27:53

the regulations of securities

27:55

everyone has to be actively involved

27:57

everybody needs to be

28:00

doing work so that the returns are not

28:02

being generated by one or two or three

28:03

people the returns are being generally

28:05

generated collectively by everyone’s

28:07

work

28:07

and so as long as that’s the case that’s

28:09

fine but keep in mind you can’t go crazy

28:12

i mean typically you want to keep those

28:13

two to five people or less i mean once

28:16

you it’s very difficult to show that you

28:18

have a a joint venture if you have 10

28:20

people in there right or eight people

28:21

because inevitably somebody’s not

28:23

carrying their weight um and then you

28:25

also want to be careful about you know

28:27

you not putting any capital yourself but

28:29

somehow getting you know 20 or 30

28:30

percent of the deal when you haven’t put

28:32

any money in that makes a little bit

28:34

tricky too so in general you want to

28:36

keep it to five people or less

28:38

um you don’t all have to be co-managing

28:40

it’s okay to have one person sort of do

28:41

the day-to-day activity sort of be the

28:43

you know the president or the chief

28:45

operating officer whatever but any major

28:47

decisions you want to make sure every

28:48

single person is involved you know

28:50

obviously

28:51

acquiring or selling or hiring a

28:53

property manager or getting the

28:54

financing or deciding to refinance or

28:56

doing some major remodel you just want

28:58

to make sure everybody’s there

28:59

if it’s only two or three of you it’s

29:01

probably best to have all three of you

29:03

be co-managers or co-runnings and have

29:05

everybody sign

29:06

um

29:07

and obviously to the extent everybody

29:08

can be on the loan as well that helps a

29:10

ton but it’s very tricky i know a lot of

29:13

i don’t do another thing i don’t do any

29:14

i don’t really do joint ventures anymore

29:16

so i kind of i refer those out but i

29:17

refer it out to people who kind of know

29:19

a little bit about securities work so

29:21

i’ll typically get a call they’ll

29:22

describe this as a joint venture i’m

29:23

like oh great let me refer you to uh to

29:26

so and so and then inevitably a lot of

29:28

times i’ll get a call from that person

29:29

and be like hey this is really a

29:30

securities offering because there’s one

29:32

person doing all the work they’re taking

29:34

i mean there would never be an

29:35

acquisition fee or an asset man i mean

29:37

you wouldn’t have that kind of language

29:38

in a joint venture a joint venture would

29:39

just be there’s five of us get it’s like

29:41

you’re starting a business there’s five

29:42

of us starting a business and we’re all

29:44

contributing capital we’re all

29:45

contributing

29:46

something and then we’re splitting the

29:48

profits you know kind of proportionally

29:50

um but uh you know when you when i start

29:52

seeing acquisition fees and you know i’m

29:55

putting in ten percent of the capital or

29:56

two percent of the capital but getting

29:57

50 of the deal that starts to look a lot

30:00

more like a securities offering and not

30:02

not a joint venture

30:03

yeah a very good point right so i i’ve

30:06

had that discussion a number of times

30:09

also right though uh

30:11

we’re

30:12

only five right

30:14

and because it’s such a small group it’s

30:17

a joint venture no it’s not

30:19

so

30:20

just because it’s only three or four or

30:22

five investors still doesn’t make it a

30:25

joint venture unless

30:27

it is truly a joint venture

30:29

you could have one person

30:31

you could have one person be you and one

30:32

other person and you you could call it a

30:35

joint venture but if that person is just

30:36

writing a check and you’re doing all the

30:38

work and going home that’s going to be a

30:39

securities offering unless you can

30:41

structure it a certain way like look

30:42

with one person it’s very easy to get

30:44

around that uh either structure it as a

30:46

as a loan you know secured by you know a

30:48

first position lean on a lot of flippers

30:50

do that uh or just make everybody a

30:52

co-manager there’s two and there’s only

30:54

two people but

30:56

when you get to like i’ve got seven

30:57

people but only four of us are really

30:59

three of us are doing the work and the

31:00

other three or four are writing checks

31:02

and going home

31:03

that’s going to be again you can call it

31:05

whatever you want but the sec and the

31:06

right will see that as a securities

31:08

offering yeah very good point

31:11

uh so

31:12

thank you very much uh mauricio

31:15

if how are our listeners able to uh to

31:19

get that that ebook and uh maybe that

31:21

also brings us to the question how can

31:23

they reach you in general right email

31:27

uh social media whatever whatever it

31:30

might be

31:31

yeah appreciate if they copy the ebook

31:32

you can find that at the website of stay

31:34

out of jail dot com so if you go to stay

31:36

out of jail.com you’ll you’ll you’ll get

31:37

the be able to download that and uh you

31:40

know as you know i’m pretty active on

31:41

youtube so i’ve got a youtube channel

31:43

that i try and provide as much value as

31:45

i can and then the website

31:46

premierelawgroup.net

31:48

you can always reach out to me if you

31:50

guys want to have a consultation always

31:52

happy to i do those myself and so if

31:53

you’ve got questions about a securities

31:55

offering or just the talk in general you

31:57

can swing by the website there’s a

31:58

little you know contact us and that’ll

32:00

get to me and we’ll put something on the

32:02

calendar yeah that’s that’s great uh

32:05

thanks for all the input mauricio and

32:08

the update does your wealth of knowledge

32:11

in in that

32:12

niche as you call it right so it’s

32:14

always great uh

32:16

hearing from

32:17

from someone who is doing it day in day

32:19

out so really appreciate uh

32:22

that you have had time to come on today

32:24

oh my pleasure anton it’s good to see

32:25

you as always my friend yeah same here