All Forum Posts by: Amy Wan

I was shown a website recently that tokenized real estate; the person showing thought it was amazing that tokens could circumvent securities laws.

This is your friendly reminder that it doesn't matter what form an investment opportunity takes (crowdfunding, tokenization, syndication)--if its an investment opportunity, its a security. Tokenization is nothing more than crowdfunding with a token added to it.

#securities #tokens #tokenization #fractionalization

Warmly, your friendly neighborhood securities attorney :)

The answer is, it depends on who you work with.

AM100 firms usually charge in the range of $50K+ for an offering, but its because their clients are usually large institutions who can afford that.

If you're starting out, you likely want to go with someone who specializes in real estate syndications. There are really only a small number of firms who specialize in this. Most of us do flat fee based on raise amounts, with some variations here and there for non-standard deals, extras, etc.

Base price is $8500 for a sub-$1M raise, and it goes up from there depending on how much you're raising.

First consultation is free, different firms have different policies on subsequent conversations. Happy to chat if you'd like.

I have counseled several notes-based crowdfunding platforms--happy to chat.

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.

PSA for syndicators: The SEC has published a proposal for unlicensed capital raisers (people with no broker dealer license) to get paid transaction-based compensation. You have 30 days to submit comments to the SEC for consideration or suggest changes.

Capital raising has been a hot topic in the past few years, so this is a big deal--especially in the multifamily syndication world.

SEC Proposal announcement here 

Proposal Text here

Easy to understand chart of the proposal

Note that this is more akin to making an introduction. The proposed exemption would NOT allow the capital raiser to help structure the deal or make any sort of statements about the quality of the deal (i.e. you can't say 'its a great deal').

Thanks @John Fortes

1) What do we have to do to operate formally/legally in a 506(b) structure? You must have no more than 35 non-accredited investors, have a substantial pre-existing relationship with all of them, and have a PPM to the extent you have any non-accredited investors (though even if they're all accredited, a PPM is best practice). You also need to do federal and state filings.

2) What are the downsides of a 506(b) structure? There isn't really such a thing as a 506b structure. 506bs can be LLCs, corporations, etc. They're just a type of exemption from registering a security. You have to follow certain limitations.

3) What are the upsides of a 506(b) structure? 506b is the easiest way to raise capital. Over 95% of private placement dollars (a market larger than the public markets) raises under 506b.

4) Does a 506(b) replace an LLC or operate in-tandem to an LLC? they're two different topics--one is a securities registration exemption, the other is an entity structure.

5) Can the initial 506(b) funding serve as a down payment for a property and the remainder of the property be financed through a bank? yes, folks do that all the time.

Happy to chat on the phone as well.

@Daniel McNulty The limitation on number of investors (accredited or not) in an LLC is moreso a limited due to entity type. Corporations, for example, can have far more investors.

@John Fortes The conversation around changing the definition of accredited investor has been going on for a LONG time, so the fact that changes were actually made is significant. I dont see them adjusting the net worth for inflation. As @Mark Benson noted above, they opened up the definition to folks with significant knowledge, which will increase the number of accredited investors, and have made a note that they may more folks to this pool as time goes on. Over the years, there were proposals to allow anyone with an MBA an accredited investor, among other things, so that didn't quite make it in.

That is ridiculous. They're basically asking you for money with no agreement in place. Free money for them.

Big news, syndicators: This morning, the SEC adopted amendments that expand the definition of 'accredited investor'. This has been a LONG time coming. The changes will be effective 60 days after publication in the Federal Register:

According to the SEC, the amendments to the accredited investor definition in Rule 501(a):

• --add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials, including the Series 7, Series 65, and Series 82 licenses as qualifying natural persons. (The Commission will reevaluate or add certifications, designations or credentials in the future);
• --include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund;
• --clarify that limited liability companies with $5 million in assets may be accredited investors and add SEC- and state-registered investment advisers, exempt reporting advisers and rural business investment companies (RBICs);
• --add a new category for any entity, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries;
• --add “family offices” with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act; and
• --add the term “spousal equivalent” to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.

They did not index income/wealth thresholds to account for inflation, which would have decreased the number of individuals that qualify as an accredited investor.

Not everyone is happy with the changes ( https://www.sec.gov/news/public-statement/lee-crenshaw-accredited-investor-2020-08-26) but syndicators should be.