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All Forum Posts by: Jillian Sidoti

Jillian Sidoti has started 13 posts and replied 324 times.

Post: Syndication Classes for Beginners

Jillian SidotiPosted
  • Professional
  • Murrieta, CA
  • Posts 405
  • Votes 458

If you guys just search YouTube for "how to do a real estate syndication" I have a video there that is free. Then you can search the channel for other free videos. Also check out site, as I believe Gene Trowbridge will be hosting an event in Nashville and San Diego. 

Post: Business Structure of LLC and partners

Jillian SidotiPosted
  • Professional
  • Murrieta, CA
  • Posts 405
  • Votes 458

Hey Paul, it sounds to me like the responsibility of the legal agreement should fall on the GP and then you should be sure that it protects you sufficiently. Do you have any voting rights at all? Demand for money? Tag along/drag along? Distribution preferences? Return of capital rights? Is the fee structure equitable?

Post: Fine Line between Syndication and pooling capital?

Jillian SidotiPosted
  • Professional
  • Murrieta, CA
  • Posts 405
  • Votes 458

Hi @BJ Everson I am sorry I missed your message. 

I am so happy to help you work through this.  

I hope this helps. Email me if you need anything.

How do I know it is a security in the first place?

The Securities Act of 1933 was established as part of FDR’s new deal, post-Great Depression to require either a registration of securities or exemption therefrom. However, in 1946, the WJ Howey case gave guidance on what a security actually is by establishing an easy to use test:

  • 1.There is an investment of money.
  • 2.In a common enterprise (more than one investor).
  • 3.With the expectations of profits.
  • 4.Through the efforts of a promoter. (In other words, the investor is passive.)

If you fit all of these points, then you are a selling a security and go to the next step.

Syndication….?

“What is a real estate syndication?” is a question our firm is asked often. Maybe you’re a developer, a real estate investor, or someone looking to expand your business by taking in outside investors to fund a larger project that you wouldn’t be able to do by yourself. Or maybe a friend or acquaintance has approached you about investing passively in his real estate deal that he’s organizing with other investors.

Whatever your role is in the above transaction, you would be taking part in a real estate syndication. In the simplest terms, a syndication is the structure or relationship between multiple investors who pool money together to fund a project, real estate or otherwise. Investing in a real estate syndication is essentially investing in a real estate enterprise as a passive investor alongside multiple other investors.

What kinds of projects can be syndicated?

Theoretically, one can syndicate any type of real estate project, be it debt, equity, raw land, or even single-family residential property. Most projects that are syndicated, however, tend to be larger commercial projects, such as multi-family apartment complexes, office space, retail, or industrial buildings. Syndication allows a person to acquire properties that are often worth more than what that single person would otherwise be able to afford.

Who can invest in a syndication?

Federal and state securities laws typically apply to real estate syndication transactions. Normally, securities may only be sold if the securities are registered with the SEC or otherwise exempt. Traditionally, most real estate syndications offerings have taken the form of a private placement exemption under Regulation D (Reg D). In 2014, there were 33,429 Reg D offerings that raised some $1.3 trillion. 99% of those offerings were raised under Regulation D’s Rule 506 exemption.

Reg D has 3 exemptions, each of which requires the investors to be either an accredited investor or a sophisticated investor. The most commonly used Reg D exemption is Rule 506(b)—formerly known simply as Rule 506 prior to 2013. Reg D allows a company to raise unlimited funds from an unlimited number of accredited investors and up to 35 non-accredited but sophisticated investors.

An accredited investor is someone with an annual income of at least $200,000 (or $300,000 if filing taxes jointly) for the last 2 calendar years, or someone with a net worth over $1 Million, excluding their primary residence. A sophisticated investor is someone the issuer/sponsor (the person organizing the syndication) believes is knowledgeable and experienced with financial and business matters, but is not accredited.

With the passage of the JOBS Act in 2012 and the creation of several new “crowdfunding” exemptions, non-accredited investors (i.e. everyone else) can now invest in certain syndications. However, many of the “crowdfunding” exemptions have restrictions that do not make them appealing to real estate syndications (e.g. a lower cap on the total amount you can raise, limitations on how much a single person can invest, etc.) which is why there are not as many real estate syndications open to the general public.

If you’re an accredited investor you can invest in any real estate syndication. If you are experienced with financial/business matters and have a prior relationship with a sponsor, then you can invest in real estate syndications organized by that sponsor with which you have a prior relationship or real estate syndications open to the public. If you’re neither an accredited investor nor a sophisticated investor, then you can only invest in syndications open to the public.

How does the sponsor/syndicator make money?

The sponsor (or syndicator) is the person who forms and organizes the group of investors and manages the investment. The sponsor typically charges investors certain fees during the initial set-up process and throughout the lifetime of the deal. These fees may include:

  • an acquisition/organization or due diligence fee, often a flat percentage of the funds raised;
  • asset management fees, for overseeing the project from beginning to end, which can take the form of a percent of gross revenue;
  • disposition fees which are paid from the proceeds of the eventual sale of the property;
  • refinance fees;
  • property management fees (if the sponsor is managing the property too); and
  • a share of profits if they take an ownership interest in the investment.

Post: Syndication and SEC guidelines

Jillian SidotiPosted
  • Professional
  • Murrieta, CA
  • Posts 405
  • Votes 458

Put this in the wrong thread! Sorry!

Post: Syndication and SEC guidelines

Jillian SidotiPosted
  • Professional
  • Murrieta, CA
  • Posts 405
  • Votes 458

Here are some statistics I pulled myself. Since the JOBS Act, of the FORM D's filed with the SEC between 506(b) and (c) (this is the form that says "hey, I am using this exemption for my deal) only 7% of them were for 506(c) while the remaining 93% were for 506(b). 

What does this tell us? This says that pre-existing relationships, education based marketing, and investment decisions based on trust are what rule the day. 

Therefore, my suggestion would be as follows: 

1. Talk about what you know (like here, on BiggerPockets). 

2. Talk about and give examples of your triumphs. 

3. Ask thoughtful questions and have meaningful discussions. 

4. Share, Share, Share - especially with those who are OUTSIDE of the real estate industry. There are only two types of people: those in RE and those that want to be. Find those people. Educate and enlighten - those are your future investors. 

5. Read "How to Win Friends and Influence People."

6. Be true to your word. 

I hope this helps. I am a securities attorney and you are always welcome to check out my website for articles and videos or to schedule an appointment.

Post: Syndication Classes Recommendations for New Students

Jillian SidotiPosted
  • Professional
  • Murrieta, CA
  • Posts 405
  • Votes 458

Hi everyone! Our webinar "How to Structure a Real Estate Syndication" is now available on both YouTube and Facebook! You can search for that. We do events from time to time on the subject. You can check out website for updates. Thanks. 

Post: First Commercial Deal - Structuring a Fund

Jillian SidotiPosted
  • Professional
  • Murrieta, CA
  • Posts 405
  • Votes 458
I can help. See answers below. I am a securities attorney.

Originally posted by @Jeremy Kuchenbecker:

I've had numerous friends and colleagues offer me substantial amounts of money to invest (in one case $1M) and have finally decided to take a serious look at combining some of my funds with my friends and colleagues to purchase an apartment complex. 

Initially I do NOT plan on syndicating, and will rely solely on using friends/colleagues funds for the purchase of 1 property. I'm looking at forming an SPE to hold the funds and secure the loan. Funds raised should be around $200k and will most likely be the only 'fund' set up for the year. 

Most of my questions revolve around SEC rules, protecting myself, and giving full disclosure to any investor. Would this be considered a Private Placement? 

Kind of. Even with a small amount of capital, please provide your investors proper disclosure. 

Then subject to any Reg D rule 504/505/506? 

Rule 506 rules the day. It is a federally covered securities. I used to do a lot of 504 and 505 offerings. I do not anymore because the clients invariably break the rules. The state rules for 504 and 505 can be pretty rough and easy to violate. Stick with Rule 506

Would a private placement be different then setting up a JV LLC, with a GP/LP structure?

This is a question with a lot of parts. First, you would not use an LP with a JV. A JV implies two entities coming together to enter in a deal. Please feel free to call me with questions.

A PPM is the document that tells the story of how the deal is going to work. It is not mutually exclusive from LLC/LP. The LLC/LP is the entity.

Again, this question has multiple parts and this is a short, rough answer. 

 Would this allow me maintain all financial decisions regarding the asset, without risk of getting sued or removed from the entity?

You make this happen. For our clients, we usually don't allow any voting except to remove the manager (you) with 75% of the vote for cause.

Sorry for shotgunning questions, any suggestions are greatly appreciated!

Post: Real Estate Lover Turned Digital Marketer Here!

Jillian SidotiPosted
  • Professional
  • Murrieta, CA
  • Posts 405
  • Votes 458

Hey @Ash Ogunleye - I would love to chat with you! Please reach out to me and let's see what we can do together. I know a bunch of my clients could you use your services. 

Post: Real estate syndication Rule 506(c)

Jillian SidotiPosted
  • Professional
  • Murrieta, CA
  • Posts 405
  • Votes 458

Hi @Storm S. - I have many clients who use Rule 506(c). You could advertise today, if you would like, with no offering documents in place and no FORM D yet filed. Everything under Rule 506(c) becomes critical only at the point of investment. 

So what does this mean? 

1. Before investing, an investor must receive proper documents such as a PPM, Subscription Agreement, and Operating Agreement. 

2. At investment, the investor must "prove" they are an accredited investor either through their tax returns, a letter from a CPA, attorney, or RIA, or a third party verification service. If they are unable or unwilling to provide this, you cannot accept their subscription agreement. 

3. You must file a FORM D in the state in which the investor resides 15 days within the acceptance of the subscription agreement. THIS IS VERY IMPORTANT AS THE ADVICE ABOVE NEGLECTS CERTAIN STATE REQUIREMENTS. If you are holding money in an escrow or bank account for closing DO NOT accept the subscription agreement until such time that you are closing on the property or your 15 days might (depending on the state) start ticking at the moment you accept that subscription agreement. 

Also, for any advertising, always avoid the words "low risk, guaranteed, safe, and secure." Best of luck!

Post: Free Webinar- How to Create a Rockin' Investor Presentation.

Jillian SidotiPosted
  • Professional
  • Murrieta, CA
  • Posts 405
  • Votes 458

Hi John, 

Thanks for coming! I hope you can make it to the next in the series! www.privatemoneyrockstar.com