ADVERTISING FOR INVESTORS - THE RULES?

Question

Do we have anyone on BP that actually understands the rules in regard to advertising for Financial partners, (JV Partners, Accredited Investors that would invest in a property, Direct Private Lenders) etc. Can you tell me if in fact the rules were lightened in reference to the Jobs Act changes? http://nreionline.com/blog/jobs-act-bonanza-real-estate-syndicators-and-condo-sponsors  I know there are many on BP that are interested.

Bryan Hancock · Answer

We used to have a syndication group, but all of the groups were disabled.  There was a ton of great information in there and it may still be available somehow.

I have in excess of 10 JVs going right now Karen.  They're really not all that hard to put together among people that are sophisticated investors.  We have a formula we use to determine equity splits that values debt dollars at 70% of equity dollars based on the project's overall capitalization.  Some rounding is used based on who contributes what and that works pretty well for active partners that participate in these deals.

HOWEVER , if you start taking in money from solely passive investors it is a whole new ball of wax.  If you ask 10 different attorneys you're likely to get 10 different opinions about when you cross the threshold to necessitate a private placement.  If you have one big investor there are pretty standard ways to take in this dough if you consult with a securities attorney.

Keep in mind that the private placement is there to protect THE PROMOTER and not the investors.  Thus if you're taking money from people that are really JUST money in the transaction then investing in some legal advice is probably well worth it.  This is generally not a do-it-yourself project and I'd be extremely cautious about taking money from anyone that is unsophisticated or non-accredited.

I can't recall a single instance where I have heard about investors stroking larger checks to promoters because they advertised to them.  Private placements are private and you should position your deal as something that people are invited into.  If you are making the money work hard word will get around pretty quickly and you'll have plenty of funding.  I'd worry more about finding a few solid investors and making them happy.  Once that happens they'll be begging to tell their friends about how much money they made at the next party they attend and you can grow your investor base from there.

Bryan Hancock · Answer

The circus with the rules is still going.  Some head folks at the SEC resigned in protest from what I have heard.

Honestly the best advertising is word of mouth.  What is it that you're trying to do?

Bill Gulley · Answer

Totally agree Bryan, find a few good investors and make them happy.

Karen Margrave · Answer

James Hiddle  I was just trying to get a conversation going on the subject, and get feedback on others strategies. There have been several posts lately dealing with some of the issues - Accredited Investors, Joint Venture Partners, advertising, etc. and I know there are some on here that have considerable experience they can share... that's why.

James Hiddle · Answer

Why not contact someone from the SEC(or maybe a SEC lawyer)and see what your options are?

Karen Margrave · Answer

Jeff  S. Actually for our projects we usually use HMLs. We are considering Joint Venturing this project though, something we have never done before; and I've been getting feedback privately on that, but thought it would be good to address on BP.  In reality we will probably have buyers for our project lined up before we ever break ground, which will help with financing.

However; recently people that have advertised for Accredited Investors have had posts that have been removed, therefore; I thought starting a conversation so that more people would understand financing options, advertising allowed etc. would be a good thread.

I know many on here use Accredited Investors and Joint Venture Partners, such as Brian Burke and Bryan Hancock, and that Bill Gulley is very financial savvy, so thought it's a good way to educate all of us.

Financing is one of the hottest topics on BP, so.... hope everyone weighs in!

Jeff S. · Answer

Karen Margrave wouldn't it be best to advertise a "build to suit" deal or find a property owner that wants something built?

Am assuming you are looking at a spec build here. Finding funding when everything is planned out would be easier, would it not?

Bill Gulley · Answer

I'd say it's always best to error on the side of caution with prudence.
Translated that means in this area, do not advertise at all for money!

I have met people, called people and I've spoken to representatives of principles. If I ever put anything in writing, I avoid certian words; investment, share, contribution, earnings, distribution or dividend.

I speak as a company "we" or better, "the company" do(es) this and I don't say  "you do" or "we" as the investor and I.

If you're speaking to an unqualified investor, you might dumb it down and ensure you have disclosed the facts plainly. But with a qualified investor, words matter!

Sorry, I have not read this proposed Bill, and, frankly, I suggest unless you are an attorney well versed in finance, you don't attempt to read one Bill or law and take off with any new found opinion. Get legal assistance, especially with new laws.

Financing laws are intangled, inter-related and when one issue seems to address a matter, there is usually another law or regulation that may apply under some other compliance area.

If you need more than 6 or 7 funding sources you have the wrong people involved IMO. A 3 person LLC that admits another 3 member LLC is 6 sources of funding, yes, one is a financing conduit, but you can avoid SEC nightmares. You can also have members withdraw and admit others keeping the company small. Just because one member gets out doesn't mean they can't receive some parachute when they bail out, it's the number of members, not obligations.

Anyway, getting off topic, advertising through the mail opens issues of mail fraud, I never use the mail, not because I'm defrauding someone but because if a claim for any loss should arise, it opens the door to such charges.

You need to think tactically, position yourself so that you avoid claims of any wrong doing, advertising in writing for money, on the internet or other public media has many pitfalls and opens doors to many compliance issues.

Slicing and dicing a mortgage or a loan to a company can become an unregistered bond. I understand that some law may provide an exemption, but if any part of that law becomes ineffective then you may already be in violation as laws are tiered at the state and federal levels. I would not want to be the first company to test newly enacted exemptions to pool money for real estate.

See an attorney.....  :)

Brian Burke · Answer

Bryan is right, the changes ordered by the JOBS act have yet to be implemented.  A former director of the SEC didn't want her legacy to be the person responsible for a ton of fraud that is certain to arise from the new rules.  Not my words, apparently hers from a leaked email.

All you can do is raise awareness of your company in general, no direct advertising of your offering.  My best ROI has been press coverage (investors seek you out if they read about you in the paper), followed by meeting people by attending conferences, participating on expert panels, and giving keynote speeches.

Advertising...maybe someday...I hope!

Jon Klaus · Answer

Bryan Hancock has done a lot of research on this and he sometimes refers to Joel Block who is also a BP member.

ADVERTISING FOR INVESTORS - THE RULES?

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