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

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and i’m honored to welcome mauricio rauld

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founder and ceo of premier law group a

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law firm specializing in private

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placements welcome mauricio thanks anton

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thanks for having me it’s uh good to see

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you and looking forward to it yeah it’s

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a pleasure to have you on so why don’t

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you give us a brief background about

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yourself and your firm

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boy well uh i am an attorney uh

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unfortunately or uh or maybe not

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unfortunately uh i’m not your typical

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lawyer though most people you know anton

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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

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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

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for what is it now 22 years now um

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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

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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

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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

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about a week which is almost unheard of

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in the syndication world but the reason

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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

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know government lawyers uh who may turn

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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

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most people do reg d’s anyway because

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not many of us have the luxury of

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waiting six to nine months to get uh you

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know an offering done that you’ve got a

04:06

closing date in 60 or 90 days you don’t

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have time to wait for the sec to approve

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it so we made it’s just a recent

04:12

decision we made this decision uh i

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think at the end of last year that we

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weren’t doing a ton of them anyway and

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so we just decided hey let’s just focus

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on what we do best and can really serve

04:20

the clients the best which is reg d

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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

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always complain about you know when they

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come to me from somewhere else it’s

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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

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just drags on for months and months and

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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

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you’ve got to get investors in the door

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and you know you run the risk investors

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have a lot of options these days and if

05:08

you don’t get them in quickly they might

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go to the next guy or next the gal next

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indication uh so that was a big thing

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for me i noticed the turnaround speed

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was a really something very important to

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syndicators and then the other one was

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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

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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

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somebody shoot us an email with a

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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

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turnaround speeds are big things for us

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and uh and again it’s just based on

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market feedback that’s just what i

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recognize what what syndicators want um

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and and we’ve kind of provided that for

05:59

them and it’s been working great because

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

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and we see that right we we work with

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with a lot of syndicators that

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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

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in the process

06:20

to close that deal if you do not get

06:22

quick feedback even on just a lending

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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

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c’s

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what do you see have you seen a change

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in trend

06:48

i know that a lot of people decided

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initially it was mostly five or six ps

06:53

right and then the it moved kind of

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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

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what you see or do you see a different

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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

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split nationally 90 were doing 506 b’s

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and 10 we’re doing 506 between those two

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and then recently i saw that number even

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get more skewed it was like i think 93

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to 7 or something like that it seems

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like less and less people are doing 506

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

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very niche practice i represent small

07:42

mom and pop investors indicators you

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know the average raise that i do is

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probably

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two three four million dollars you know

07:48

every so often we’ll get a big raise of

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eight

07:52

uh unlike a lot of these institutions

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that are obviously raising hundreds of

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millions if not billions of dollars um

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and so i see a little bit more

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willingness to do the 506 c’s um

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

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have actual knowledge i keep telling

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myself i should pull the actual numbers

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but i’m going to say probably a third

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of my deals are 506 c’s and then the

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

08:13

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

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and i think i would say that i’ve seen

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as people got more comfortable with it

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more and more 506c especially as and i

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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

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trying not to and then it gets into that

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little gray area and then i think people

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just realize hey look i’ve already run

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out of all of my 506b investors they’re

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kind of already in my deals and so let’s

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let’s let’s try the advertising route

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which you know these days with

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with what you’re doing with podcasting

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with social media whether it’s youtube

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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

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um traffic that you can you can tap into

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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

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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

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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

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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

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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

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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

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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