Real estate syndication is the business of taking a property (or a portfolio of properties), dividing it up into membership units (or shares), and then selling those membership units (or shares) to investors. Those membership units (or shares) are technically securities, which means the Securities and Exchange Commission and state governments get concerned. While you are thinking of building an empire in your mind, the government is looking at you suspect and wondering if it should get the handcuffs.
When you do the process right, you make both your investors and yourself a great return. You do it wrong? Well, monetary damages and jail time can happen. Most of the time, when someone does it wrong, there is a sudden implosion of the syndication, and the syndicator is left liable to repay every penny investors put into the investment and a string of lawsuits.
We have helped many syndicators strategize their path forward. But don’t think you need to choose any particular map. They cross and intertwine, and ultimately, they will all get you to the best outcome (the summit) you are after, and we will guide you along the way. At your Orientation Meeting, we will work together to understand the summit you wish to climb and help you pack for the trip.
Here are some of the paths that Moschetti Law Group has helped others find:
Andy and James are real estate agents with a great sense of a ‘good deal’ and sales ability. The team are top producers in luxury real estate and have a client roster that includes celebrities and business moguls. A great apartment building was available through a client relationship, but they didn’t have the capital to take it down themselves.
We worked with the team, built a business strategy that would be successful, drafted their legal documents, and guided them through the minefield of what they could and couldn’t do. Andy and James are now the managing members of their syndication, and their investors want more.
Amol had been in real estate for 20 years and had done five successful syndications. He had a successful blueprint for the process and was ready to start his sixth deal. The one thing that bothered him was setting up the entities themselves. It took too long, and it was unclear. He didn’t trust an online resource, having been burned in the past.
We set up a simplified system for Amol to get his LLCs and corporations set up and manage his annual reports and agent-for-service process for him.
Sam was going into a joint venture with his brother-in-law Paul to develop a duplex that they would then rent out for years to come. Sam had the experience as a contractor, and Paul had the land. While both were sophisticated business people, they had been burned before. Each wanted to make sure they knew their rights, how the money would work, and how decisions got made.
We worked with Sam and Paul to draft an operating agreement for their LLC that was extensive and established how the venture would work.
Felix is a CPA who works with real estate investors and developers. He has seen his clients make a lot of money by syndicating commercial real estate. He began his research, but the SEC’s rules were so confusing, he decided he needed help.
We worked with Feliz to help him choose which section of Regulation D made the most sense, helped him craft a Private Placement Memorandum, and worked with him on establishing who could be considered an ‘accredited investor.’
Barry was syndicating a property in California to California investors. He had heard that the rules were different between those of the state’s ‘Blue Skies Laws’ and the SEC, but it wasn’t clear what needed to happen and by what time.
We worked with Barry to develop a strategy to syndicate the property within the state’s requirements and let him pay real estate agents referral fees and advertise differently.
Altitude Syndication Founders’ Club coaches syndicators on every aspect of the business, shaving off years of unnecessary struggle with Syndication Business Implementation’s tried-and-true system.
Syndication is the legal path to private equity funding, but it could lead to a breach of SEC rules if not done correctly. We offer a full package of agreements and disclosures, including a Private Placement Memorandum, Operating Agreement, Subscription Agreement to protect you and your investors. We can also provide counsel on how to do the formation and participate with you.
There are several different paths to raising equity.
Regulation D allows businesses to raise capital and use public advertising. Usually, a private company would have to go through the SEC’s registration process and be limited to only accredited investors. In 2013, after the JOBS Act, Rule 506 expanded from one exemption to two. This new exemption allows private companies to “generally solicit” (advertise) as long as they only accept accredited investors’ investments in the end.
Regulation A also shifted after the JOBS Act passed in 2012 to become more like an IPO in that businesses must be qualified with the SEC. But since that time, it has become more reasonable for companies to take this exemption because of the increased cap on the dollar amount that can be raised. The new Regulation A+ offers two tiers, both of which now allow accredited and non-accredited investors:
Tier 1: raise up to $20 million per year
Tier 2: raise up to $50 million per year (investment amounts per investor in this tier are limited)
The JOBS Act also created a crowdfunding regulation (“Regulation CF”) that allows small companies to raise money online by selling securities. The total is capped at $1 million per year but maybe raised from both accredited and non-accredited investors. The stipulation is that all crowdfunding investors must invest through a registered broker-dealer or funding portal, and there are limits on what each investor may contribute.