syndication - paperwork

[Rob Soete]

What are some of the documents needed to organize a syndicated real estate deal? I've got a list of investors that have asked me to spearhead their investments in my area, and I'd like some advice on where to start. Thanks ! 

[Mark Mosch]

Wow - this is where it's essential to have an attorney to make sure you are compliant with SEC rules and also just don't get yourself in trouble with investors.  I've done several syndicates, and there are 3 key documents you need:

1.  Private Placement Memorandum (PPM) - which is a writeup of the reason why you think this investment is a good idea.  If it's a fund, it's all the background info as to where you want to look for investments, your strategy...etc....  If it's for a single building, then you will put in there all the due diligence information about the property - neighborhood info, property details, pro-forma cash flows...etc...  Lots of pictures, graphs, and charts.  Also - about 50% of the PPM is just disclaimers about how this is super risky, only accredited investors should invest, they could lose all their money...all that stuff to scare people off that is required in all these type of documents.  Here you also propose your split and how the payout will go.

2. Operating Agreement. This is the actual legal operating agreement for the proposed entity and it puts the more descriptive information in the PPM into legalese. Every LLC must have one - and the one for a syndicate is a little more complicated than a basic one for a simple LLC.

3. Subscription agreement. This is what the investor actually signs. They first start with something that says how much the investor will invest, then asks how the investor will hold title. There usually are different signature pages for an Individual vs an LLC, vs a self-directed IRA.vs a Trust..etc...etc... Another wrinkle that's useful is to have the subscription agreement have something on it called a joinder - which means that by signing the Subscription Agreement they agree to it and also the operating agreement, so you don't need to keep track of all these signatures for both documents - and helps keep it simple.

All that being said - I'm not an attorney - so this is absolutely something you have to run by an attorney.  The good news is you can google sample agreements and get a template which you then can adapt to your situation - then present it to your attorney and ask them to edit what you have.  You should save a ton of money vs. asking the attorney to create the whole thing themselves.

Good luck!