Hedge Fund - Real Estate Investment Trusts

[Trenton Parks]

Has anyone ever tried to set up a REIT or a Real Estate Hedge Fund before? I am looking for someone who has experience setting this up and who can give me guidelines as to what the SEC will regulations are and good recommendations for accountants/attorneys/financial planners who can assist in the process.

Thanks for your help BP community!

[Bryan Hancock]

There are a ton of new securities law items to consider with this question. I could literally write a small book with my response so it would be helpful to know what you're trying to do. A "fund" generally means that your intention is to do a blind pool investment where investors will pool money and you'll control it. This is materially different from a single-purpose syndication for a particular deal and the complexity is an order of magnitude more complicated.

Financial planners will add zero (dare I say negative) value in the process. What you need is a good securities attorney that knows tax law. I have a few recommendations that I am happy to share, but it will be easier to steer you in the right direction if I know what you're trying to do. With the new laws setting up a fund with a 506(c) exemption will allow you to generally solicit for accredited investors provided you take "reasonable steps" to verify they're accredited. This gets quite technical quickly and the decision of what exemption to select will depend on a number of factors:

1. Who you can attract capital from

2. Where the folks you attract capital from reside (their state, whether they're domestic or international, etc.)

3. If your investors will be accredited, non-accredited, or some combination of these two

4. If your investors will all be in your home state or they'll be in multiple states

5. The level of sophistication of your investors (Know thy customer)

6. How you intend to attract investors (privately via a PPM or publicly via an offering circular under the new laws)

Also, a "hedge fund" implies that you have a strategy that is counterbalanced in some fashion. If you don't intend to blend strategies to hedge risk then you're probably considering a private equity fund with a stated purpose/goal.

Operating agreements in funds that take in dollars from passive investors are much more complicated than agreements for single-purpose transactions and they need to be crafted by a securities attorney who specializes in this type of law. There are literally hundreds of forks in the road from setting it up properly and even some slight issues can cause you problems for years to come in your agreements. This is not a do-it-yourself type project and you need specialists. I'll stop typing for now though so you can provide feedback about what your'e trying to do.