When is a 506b worth the costs?

[Suzanne Player]

Can anyone who's done at least one 506b syndication share the dollar amount raised along with dollar amount of attorney/marketing/ other fees (ex, incorporation fees) raised?  

I've Googled this & waded through many articles on the topic but almost no one gives any specific number examples.  The most I can get is a range of attorney fees (for the syndication itself, probably doesn't include incorporating the entities), but the range is wide, and doesn't include other costs.  I'm more interested in the lower dollar value offering examples, but any info is helpful.  I realize the state where the property is located can have an impact.

How much capital do you need to obtain in order to make raising money in a 506b syndication offering worthwhile?  

[Jonathan Barr]

I would you would need to raise at least 500k to make it worth having an attorney draft a PPM.

On my last 506(b) we ended raising less then that. We paid about 12k or so for attorneys fees just for syndication side things. There were additional attorneys fees for the transaction and drafting our PSA. In this we would just been better off drafting JV agreement.

I think also to note it also depends if how many partners. If you have one person giving you 500k then a JV agreement could work. If you have 10 people giving 50k each then the syndication route is the way to go. Hope that helps.

[Arn Cenedella]

@Suzanne Player

You can’t “market” 506b offerings to people you don’t have a prior relationship with. I present 506b offerings to my established investor client base only.

If you have a smaller core group of investors who each can bring some value to the entire investment team, a JV structure might work better on a smaller deal.

I don’t have all the answers to your question but maybe this will help a little.

Let’s see what others in the BP community suggest.

[Brian Adams]

@Suzanne Player my last 506b I raised $10 million in 2 weeks and the legal fees to prepare the investor documents such as the PPM (Private Placement Memorandum), subscription and operating agreement was about $15k. Depending on where the investors are located, there are state filings so that was about $3k.

The syndication offering documents are to protect the sponsor and the investors. I know you aren't suggesting this, but there is no need to DIY or shortcut the process.

Locate a good securities attorney and build the costs into your capital stack.

[Suzanne Player]

@Brian Adams Thank you so much for sharing specifics - it really helps a lot.  I've been reading up on the syndications options, and as licensed attorney myself, would not even prepare the documents myself - securities offerings are a "specialized" area with a lot of pitfalls.  

[Suzanne Player]

@Jonathan Barr Good to know - thank you for sharing the specifics with me, it is extremely helpful.  

[Amy Wan]

I'm a syndication attorney. It depends on a few things: 1) is your deal relatively standard/vanilla (as opposed to something more exotic that will require negotiation?). If so, costs can start at $8500. 2) Depends also on who you use. Big firms will obviously charge more (25K+). When I worked at a more traditional firm, we also never handled syndication clients with sub-$1M raises. Nowaday (because we use some internal tech to save on time), the absolute lowest I recommend is $250K-300K. Lower than that, I recommend folks use a fund or semi-specified fund model to spread the transactional cost across more than a few deals.

[Suzanne Player]

@Amy Wan Thank you so much Amy.  Specific info really helps a lot.  I was also looking at your website.  It looks like clients work from fill-in-the-blank forms that you review?