Syndication Attorneys Podcast
As a syndication attorney, this is the second most common problem that I see happening not only with people who I meet with for the first time, but it’s also the problem that I think is definitely under a lot of scrutiny by regulators on exactly how they can be fixed and address this problem. We’re gonna go through that problem. The problem is solicitation that occurs with Regulation D, Rule 506(b) offerings. Just as an aside that number one problem is when people just assume that it’s not a security, that what they’re offering, they are making investments with private investors who are going to be taking on a passive role. And they’re saying, Well, its friends and family. That’s the number one problem. It’s not correct. It is a security, it needs to be either registered with the SEC, or fall under an exemption, like Regulation D. But let’s go on to the number two most common thing that I see, in this series, this seven part series on how to stay out of trouble, in compliance with both the SEC and state regulators.
This is what it looks like. There’s a Regulation D Rule 506(b) offering, because someone wants to include non accredited investors in their investment. They don’t know everybody, and that is the where the problem lies. So we’re going to talk about solicitation, how that works, what the problem is, and what the what the real rules are about it. And then we’ll put that in the context of how to be in compliance with the SEC. So let’s go to a whiteboard. So we can outline things a little bit easier here. So what is solicitation?
Well, it falls under Rule 502. “But I thought we were talking about Rule 506(b)?” Yes, it does. And 506. Rule 502 is where we have in Rule 502(c), as it relates to Rule 506(b) just for manner speaking, because what it’s what this rule says is any kind of offering except as provided in rule 504(b)(1), which no one really uses anymore. So let’s get rid of that. Or if it falls under 506(c). So what does that leave us with? We’re not doing we’re not really talking about rule 504. We’re not talking about Rule 506(c) that means we must be talking about 506(b).
So we’re talking about Rule 506(b) here. So we’ve heard different things about well, you can’t advertise you can’t do this need to have a they need to be people are known you people in your network. Let’s put it all in context. The rule actually doesn’t say explicitly that you need to know everybody. However, what it does say is the following. So there are two there are two examples that are given on what is what is solicitation. So the first set of examples is an advertisement a article a notice a that is in like a newspaper, magazine or similar media or TV or radio. Now this just kind of shows how lawmakers really aren’t that up to date. Because this was I mean, we revised this whole section much later. Come on who’s really doing this anyway, it was really advertising in the newspaper We’re actually a lot of people do advertise their fiber 60s in the newspapers successfully. But that’s not really what we’re interested in most of the time people want to know about, what about the web?
And social media. Right? I mean, that’s what most people are going to as their first time. But Rule 502(c) is really saying that this is general advertising. But it’s it’s includes this, it’s not limited to just this. It’s really anything. So I think this is the similar, I think any regulator would agree that if you put it on the web, or social media or Tik Tok, or YouTube or whatever, we’re talking about something similar. So that is definitely general solicitation, right. The other example that they give, actually, we’ll go to the other example in just a minute. Let’s talk first about what we mean by putting it, putting this advertisement out there on the network and what you can and what you can’t do. So when we are advertising and when we’re soliciting. So a general solicitation means we’re making a public announcement to the world, we’re putting it out there where anybody could find out about it and come to us. What the SEC is trying to prevent here in Rule 506(b), is they’re trying to prevent people from putting together syndications and funds by just broadcasting it out whereby they get non accredited investors. Because the thought is this, if you could put a net out there, that is broadcast totally loud, loud. But we’re able to bring in non accredited investors, those non accredited investors don’t have as much protection. So that’s the main interest of the state and the and the SEC, is protecting those individual non accredited investors. If you’re broadcasting it out, there’s no one watching your back. So compare this compare this to rule two, a Regulation A offering, and a Regulation A offering, all the documents are put together, and it’s given to the SEC who reviews it and and makes sure that it’s that there’s enough there that an investor a non accredited investor could go in. That’s why it’s okay to advertise on a Regulation A offering. And it’s okay to have non accredited investors in the same one. But under 506(b), it would be completely abnormal. It used to be 506(c) originally didn’t exist. It used to be that the only kind of ways to market to market a Regulation D was not on was no solicitation of any kind. So actually allowing solicitation to occur under 506(c) is totally new. It’s very different and brand new for us. Whereas 506(b) is it’s been there for for pretty much since the get go. And under 506(b) now we’re trying we are trying to say okay, if you know if you have this relationship, then you could do it. So that brings us to this. Well, the establishment of the relationship issue, right? Because if you can’t do a general advertisement, then there’s only one other conclusion, right, that the investor had to have come to you through another means right? Meaning that you knew them. So you weren’t making a general solicitation. You were making a very specific solicitation. Brother in law, are you interested in investing in this very clear cut, very directed, it’s to somebody who I know as well already within my network. That’s the difference. So that’s kind of the overarching thought about why you need to know them. Now, this is definitely 100% Not to say. So I am not saying this at all. I’m not saying that you can bring in investors, who a friend of a friend of a friend knows because you’re not making a direct communication with them. That’s probably not okay. Now, it doesn’t specifically say that in the rules. But once it starts getting reasonably removed from you, it stops looking a lot like like it starts looking more like some sort of general solicitation. And, or some attempt to get around the rules, I think it’s definitely the best possible advice that I could give you is if you’re going to do a Regulation D rule 506. B offering, you only solicit to people that you already know. So it’s not a general solicitation, it’s a you go to them to the people that you already have a pre existing relationship with. It’s clear cut, you’ve already got the relationship. I know who all these people I’m putting this offering out there, right. So that’s clear cut. Where people start bending the rules is always well, how do I have to know them? Right, and I get this question a lot. How do I have to know them in order to bring them into my offering? You know, what about the friend of a friend? You know, can I do that? And by the way, I want to compensate my friend of a friend. We’ll deal with that in the Finder selection later. But for now, that’s probably not okay. It probably is outside of the rules, because it starts looking like a general solicitation where if I’m relying on people that aren’t me to go and talk to other people, even if they’re not being compensated, that starts looking a lot like some sort of solicitation. So that brings us to our next part, our next example, that the SEC gives us, or actually the the lawmakers give us on exactly what to do with are exactly the most common way that used to exist, and still pretty darn common in order to build the network and find investors. And that is a seminar or meeting. So what happened at first is people would say, Okay, we cannot sell, we cannot do a solicitation, but here’s what we’re gonna do. Instead, I’m gonna pull it out there, hey, come to my meeting. And we’re going to talk about real estate. Now, people would show up at this, at this meeting, I’m just using real estate as an example. It can be anything investing in businesses, investing in notes, whatever it is. So people would show up to this meeting, and it wasn’t really about that. It was about let me tell you about these investment that we’re working on. And we can you can come in that way. So this rule very specifically under Rule 502(c)(2) says, okay, hold on a minute here, whenever there is a seminar or a meeting, where there’s been any kind of advertisement.
And I’m not gonna go through the exceptions, because there are a few exceptions. They’re actually very, very rare. So. So there’s if there’s been this sort of solicitation of hey, come to my meeting, but at that meeting, where I’m basically selling, that’s not okay. That is a solicitation as well. So these are the two ideas. A solicitation is, you know, no advertising, no doing this fake seminar thing in order to actually advertise. This is something that the SEC is very, very aware of. And this is something that every every regulator knows is going on. To a large extent, that solicitations are happening, that it’s happening, you know, and people are being sneaky and clever. Now, there’s only so much that the SEC or any state can regulate it. But people are getting to get caught. And people are going to have major, major penalties as a result of it. The odds of it, of getting caught and that happening, I predict this is a prediction. I predict it’s going to go on the rise. I think as the economy changes as people start investing more and more into alternative investments. And these things pick up even more than they are today. Because I think that the alternative investment horizon is extremely bright. But that’s another topic for another day to about why public markets are failing investors, but the private market, these alternative investments are going to do great, and they’re going to do a lot and they’re going to make investors a lot of money. And they’re going to make syndicators and fund managers Oh, lot of money in the in the very near future mean they’re already do but they will make even more. And what’s going to start happening is that that hunger for investors for non accredited investors who can come into the offerings, people are just going to be more and more frustrated when they’re trying to put these deals together because they want more and more of those non accredited investors. And it’s understandable that they do I get people in my, you know, that we just we talked to every day who were putting put deals together. And a lot of times, it’s how can I make this work where I can have non accredited investors. But I don’t have but I can make this happen. And 99% of the time, these people are actually trying to just do a good thing. They’re trying to, you know, be the Robin Hood, like the stock trading platform of real estate or something. For the non accredited investors, for the every person, for the for the people who aren’t, who don’t qualify for that. That’s very noble, it’s, it’s a great thing to do. It’s just it’s not within the rules. And the regulators know this. And the whole point of the rule is to protect those non accredited investors from not from these people who are trying to do a good thing, but from the people who are unscrupulous and will take advantage of them. And so how can the state regulators in the SEC monitor this more? Well, there’s going to be a lot more investigations, and there’s going to be a lot more things that starts happening as people start digging deeper into, well, what’s actually going on here. Now, I’ve seen this happen firsthand. So I have a client who was putting together a a Rule 506(b) offering, before they hired me, they had put together a Rule 506(c) offering and and put it out there as well. Now, that offering actually never happened. And actually the both two offerings, we changed everything radically and restructured it and and put it forward because it was much more there. There were technical problems about the assets that they wanted to actually acquire weren’t weren’t available, there were real real estate assets. And it turned out that the that they just didn’t want to go through that and wanted to repackage it. So nothing happened. But under that rule 506(c) offer. They were testing the waters, they were putting they put some advertisements out there. Well, the state, one of the states, one of the 50 states, a state regulator had seen that ad. And they were concerned about it. So they thought maybe then they were advertising a Rule 506(b) offering. So they wrote my client a letter and said, Please tell us everything you can about this offering. Now, this wasn’t the offering that I did for them. This was actually a 506(c) offering that was actually done, but they didn’t have an attorney at the time, who knew to put that sort of thing, make it very clear that it’s a Rule 506(c) offering only accredited investors, the independent verification, blah, blah, blah. So they didn’t know. So the regulator’s didn’t know, but they The point is that they were watching. And they reached out to my client and said, Okay, what about this and tell us about every other offer you have going on? Because then as they did an investigation, they started hearing about the other offer that I wrote the 506(b) offer. I don’t know how it came about, oh, I know how it came about. Because we did a we filed the forum D on it ahead of time. So they they saw that they looked up all the deals that the that my client had done, they saw that there was also this this Rule 506(b) offer. And they wanted to know about what went on Who are they how many investors did they have? What states were they coming from what what was the money? Why didn’t they receive notice? Well, the fact is, is that didn’t know if there hadn’t been a sale occurred. So it was okay that nothing happened. But they were watching. And I think they’re going to be watching more and more. You see a lot of advertisements of these offers that are out there. And it’s kind of hard to figure out whether it’s Rule 506(c) or 506(b). And so but they’ll make may makes mention of a state where we’ve got this great multifamily property in Texas, hey, we’re going to be doing oil and gas in Louisiana or wherever. In North Dakota. The states are also looking and monitoring it because they’re concerned that their their citizens are going to be taken advantage of. So they are going to be watching and they’re going to increase the level of investigation. Now the SEC today He doesn’t proactively investigate until there’s been a lawsuit. But they could change their mind, they could decide to be more proactive about. And they may, certainly the states can can do whatever the states want in terms of investigating, they have a right to not only make sure that they get noticed, but also to investigate to see if that what’s going on. And I predict that it’s going to happen more and more. One thing I’ve also noticed is that people are putting together, what they’re saying is, oh, we’re testing the waters and plan on doing a Regulation A offering, where they’re not trying to do a Regulation A offering, as soon as you submit to there. Tell me more about this investment. Because it says specifically for non accredited investors, you’re going to notice that oh, this, we’re actually not going to be able to do the the Regulation A offering. But we are doing a Regulation D Rule 506(b) offering. That’s not going to fly. No regulator is going to let that slip, I predict that all the people that are doing that are also going to get munched and rightly so they’re trying to skirt the rules. Again, just like I discussed in the first video, this series, regulators are very smart people. They’re great lawyers, they really are. And their job, their mission in life is to protect the public. Don’t try and get clever, just follow the rules, and everything’s fine. Their rules are wide enough for everybody to be able to raise as much money to do whatever projects they want to do. The rules are there to protect the public. And by complying with the rules, we stay out of trouble with the SEC and the states. We’re in compliance, we’re doing better for our investors anyway, because we’re complying with those rules. I mean, how awful would it be if one of your investors loved what you were doing? They just loved it. It was so amazing. They called you every week. We’re just like, Oh, you’re the greatest person ever. But someone else was unhappy. And then the SEC stomped on them. Because they were you did something or I was wrong. And now the person who who loved you. They’re out also, their whole deal just fell completely apart suddenly and they love. That’s why investors get hurt by this as well. So I hope this helps. That is about solicitation. So solicitation of Regulation D Rule 506(b) offers. It’s happening out there, but it doesn’t need to, and it shouldn’t it is against the rules. And when we say no solicitation, bottom line is no solicitation. That’s all the regulators are asking for is to follow that very simple rule that you follow. Rule 502(c) have really good Regulation D Rule 506(b).
My name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group. If we can help you with your Regulation D Rule 506(b) offering or your 506(c) offering. Feel free to give us a call and let’s talk about your project so we can make sure that you are in compliance and that ultimately you’re successful in putting raising the money and bringing what you want people to invest in out to the public so that people can invest, make money, you make money, everybody wins.
In this six part series, we’ll uncover not only what is behavioral finance, which we’ll go through in this video, but we’ll also talk about those biases. Specifically, what are those biases that make up cognitive biases and emotional biases that lead us astray and lead us to make not the best decisions that we could make. Now, this is critical information for syndicators and funds, because we’re buying assets for our investors in order for them to make money. But everybody has these underneath the surface. And once we can identify that, hey, these are what they are, it will make us better investors, because we can either mitigate them, or learn to deal with them and find workarounds. So they don’t pose a problem to ourselves, and ultimately, our investors.
I know you’re gonna like this six part series on behavioral finance, it is very important to know because it’s going to make you as a syndicator, or a fund manager, understand how to make better decisions, when it comes to choosing what assets to buy, when to exit all those decisions that you have to make to make money for yourself and for your investors. So let’s go through from a higher level, what is behavioral finance? Now, I said in the beginning introduction that evolved in the 1990s. So what happened was this, we have a world that we could call the Orthodox financial world.
In that orthodox financial world, there was a process or a way that we looked at finance, it started with the premise that all individuals are rational. That idea that all individuals are rational, and that finance itself was a rational process in order to make money. So risks were assessed and thought about and waited and scored and figured out what made the most sense, right, it was a very, you could basically put it all into a calculator, at the end of the day, a number would be spit out of not only how much money you should invest, but what sort of return you should get. This still goes on today. And it’s still extremely important. It’s part of our financial modelling that we do, whenever we do financial analysis for any kind of property or any kind of asset that we’re going to be buying, on behalf of our investors are selling, it’s part of the underwriting process for us to go behind. So it’s still very present. But it starts with this notion that everything that goes on here is a rational process. So out of this rational process, we use all relevant info to make decisions.
Right, we’re very rational people, we use all the information at hand in order to do it part of that due diligence, making sure we understand what all those risks are, we can score those risks, we can come up with scenarios and do scenario analysis and Monte Carlo simulations to make sure we understand at the end of the day, what our risk levels are, and that the likelihood of success of returning this and getting a real value for our investors and for ourselves. Right, that’s, that’s part of the original way of thinking. So we’re still doing that again today, right? So we still we still do that. And out of this comes efficient markets.
So that was the idea of that everything in the marketplace is efficient. So the pricing comes together by buyers and sellers all with all the information, making rational decisions. And so the outcomes were basically predetermined. You know, there were things that were already Oh, that would happen and move the numbers, but everybody would always agree on what actually something was worth and what you’d pay for it. Well In the 90s, people started saying, that’s not what we see at all. We see people who are paying crazy prices for things, we see people that are not spending money for things that are great opportunities, what is going on here, we also see people who are not who are so afraid of, of selling at at a at the wrong time, that they’ll stay in long after long after something is done, putting good money after bad after bad after bad. Keep investing that money to keep that decision if you’re making a flow. Now, why does that happen? If we’re all rational? Well, it doesn’t, it doesn’t happen. And so this is the idea that, Oh, maybe this orthodox idea is fine for an ideal, right? It’s a good starting place for what we should aspire to, and how we should come up with things. But it also isn’t real. It isn’t real in the sense that it’s not actually what we see happening. What we see happening instead, is behavioral. Is that out of these things? There are major psychological factors at play. Psychological factors are changing our minds. They’re the lens that we’re looking at, for through the Orthodox things, but we’re still making decisions. And we’re still trying to analyze, and that’s influencing the numbers. And this is what explains those anomalies. Right? Is that the psychological factors that are coming into play? Or would explain it? That’s why things are sometimes you have crazy prices on things that make no sense at all. I mean, I’m sure you know, of assets that just don’t make any sense. Maybe it’s your favorite stock. It’s like, how on earth could that be trading in 1000 times earnings? Or does it even have earnings, and it’s trading so much? And it’s such a terrible idea? Well, psychological factors are the what are what’s at play here. And behavioral finance is shifting those things. Right. So behavioral finance is, is accepting that individuals behave irrationally. Not all the time, obviously. But they do have a tendency to behave rationally, we make decisions very quickly, sometimes that are snap decisions that are terrible. Sometimes they work out, sometimes not. And that, to do that, individuals we use rules of thumb.
Or heuristics and shortcuts. I don’t think you’ll find a human being on the planet who doesn’t, you know, it’s so accepted. Behavioral Finance is real. So that’s what behave, how behavioral finance kind of came to be a recognition that there are things happening that are completely unexplainable outside in within the by Orthodox, the Orthodox financial models that we have, behavioral has to be playing bar, and you’ve seen this in your everyday life. So there are actually two kinds of biases we have cognitive and we have emotional so these are two different sets of biases that we know that we have, and then what we can look at through this lens of behavioral finance. So this is what came out of it is that we have these different ones. And when I now in this video, we’re just going to talk about what those two are kind of compare and contrast. In the next videos we’re going to go through in detail the different actual biases that exist. So I know you’ll find these useful. Cognitive cognitive biases are caused by faulty reasoning. So it’s us trying to be rational and reason things out. But mistakes happen. And so that could be mistakes, interest processing whatever it is that we’re doing, right, or it could be memory errors remembering things wrong incorrectly, or a lack of understanding.
Have topics like statistics right can lead us astray? So it’s just faulty reasoning. The idea was good. We wanted to be we wanted to make things in a rational way. But there was just a myth. The machine wasn’t working quite well, quite right. It made a mistake. So that’s the that’s just a faulty reasoning problem. It’s a cognitive problem. Now, these can be mitigated. Through education, advice, and information.
Right? Because if they’re just cognitive problems, if it’s just the reasoning, it was broken, in some some manner, the logic that we were applying was just made, who there was an error in, that can be solved? Right? I mean, it’s just part of it. It’s a very formulaic thing. It’s it can be solved. But what’s different is emotional. Right? So these are caused by impulse, or intuition. So there are mistakes that we make because we’re acting impulsively, or we’re just relying on intuition. They’re spontaneous. They’re due to feelings, or attitudes that we have about certain things. There are ways for us to decrease the pain and increase the pleasure. Now, how do we mitigate this? I don’t know. The best way we can do is to recognize that we’ve got these emotional biases going on. And if we can recognize that they’re going on, we can adapt ourselves to them and change our processes in order to diminish the effects of them to make the the negative effects that are there go on, also gives us an opportunity to question them to say, Well, why am I thinking this way? Why am I choosing to be impulsive and make this this kind of decision, because maybe that’s something that needs to be checked on a much higher level, and fixed. So in this net in these next videos, so five videos after this one, in this six part series, we’re gonna go through those each individual biases, we’re gonna go talk about what the cognitive biases are. Well, then we’re going to talk about what those emotional biases are, and then figure out what can we do about them. So I know you’re gonna find these videos helpful. I’m very excited to get to present this information to you because I know it’s going to make you a better syndicator it’s going to make you a better fund manager. It’s going to give your investors more money may make sure that they’re that what they’re ultimately investing into is better quality. It’s relying on what your magic is, because your magic isn’t in making spontaneous and impulsive decisions. Your magic that you’re bringing to the table is the opportunities for them to invest in things that go through your proper reasoning that you’ve thought about, that you’ve come to the right conclusion that match up with your founder investment theory and make them money and make you money at the same time. My name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group.
Just how do you raise money for a business? What’s that structure look like? And exactly how do kickers work. So those two are gonna get lumped together in this video, that’s actually a blast from the past. So this video was recorded about two years ago, it is a video that goes through those topics. But it looks at them for my elite mastermind that I ran, that I used to run, I used to coach very, very high level people from the top of their profession in primarily in real estate, but also in other industries as well. All right, so let’s say there is a building that you want to buy. And actually, I’m going to talk about this in the exact context that I did this year. So I’m going to tell you what that was. And so one of the projects I was working on, and I still think is an incredibly great business tool, this product project actually never got started. But we got everything formed, we got we had investors who were interested in we’re coming in. And fortunately, it didn’t happen. And you’ll find out why in a minute. So you’ve identified a property so you find a good property, but you also the purpose for for occupying that property is a business entity, and I don’t know how to draw a business. I’m going to draw, I’m gonna draw money.
All right. So this is the business. So in my case, Anya and I were working on a project, which is still a tremendous idea is was to do a, not a cloud kitchen, but to do basically executive suites for kitchen space. So take an existing warehouse, something like that, convert it into commercial kitchens, and then rent those spaces out on a month to month or a year lease, basically turn it into an executive suites for kitchens. Now, the advantage of doing that is all of your co packers also use this same model. So people who sell to grocery stores, people who sell in places like that cannot operate and you cannot sell food, at least in California and probably throughout the country, you cannot sell food to, to a grocery store. And you cannot sell food to a to even a restaurant, unless it’s the cooking itself takes place inside of a commercial kitchen. Excuse me, a commercial kitchen. So whereas a cloud kitchen, technically can. So it’s, it’s really becomes a point on is there a interface between the the cook and the public, if there is someone in between there needs to be a commercial kitchen. So you can do this where you can sell at the farmers market. There are a lot that is allowed in California, but you cannot sell to grocery stores or to two restaurants. So the people who occupy these things are bakers, who bake fresh baked goods and then sell those to restaurants who then use that as part of their service or they sell to coffee shops with a nice pastry. You have school lunch programs occupying these, these places, or caterers have occupied these places, because to be do catering, you really shouldn’t be doing that in your kitchen either that should be taking place in a commercial kitchen. So So our idea was that executive suites for them. So as part of that deal, we needed some number of dollars and I forgot what it was. And so we would buy a property and we would form the business. Now the business in our case, didn’t need any capital from the business. In order to get started. We didn’t need to put in any money in the business, but the structure is still the same. So we didn’t need money for the property. So we were in escrow to buy How much was it? I don’t know. It was maybe, let’s say it was a $3 million building. I don’t remember it was in Van Nuys. It was very cool building. So we needed $3 million. And then we, I mean, total, so the building might have been 2 million. All right, 2 million for the, for the building itself, plus 1 million to build out the space and to kind of finish the business. So we needed to raise this $3 million. So how do we do that in terms of in terms of investors, because Anya and I wanted to own this business forever, right. So we wanted to own the business forever. The property, however, wasn’t the play here. For us, it was, it was a good property, and it would be significantly higher value because it had all this new kitchen standards in it. But it wasn’t, it wasn’t like, that’s where we were going to make the money, the profit on the business itself was huge. So are our estimates were it was not going to be a problem in order to pay, like 30% returns to, to our investors back. Not a problem by any means. So how were we going to run that. So we would basic, we went to the investors, and we told them, Look, here’s the way that this business is going to operate. We’re putting together an LLC that owns the property right, that owns the property, it’s going to do all of this work ahead of time, in order to build out the kitchen space. And in exchange to for that the business was going to have a lease with the property. Now it wasn’t going to just have any lease it was going to have a percentage rent lease. So a percentage rent lease, says that the rent amount wasn’t going to be fixed, the rent amount was going to be based on the income of the of the tenant. And in that way, as the business took off, they, the number of the rent that was getting paid for the building was going to go up and up and up. And that’s how we’re able to do 30%. So rather than rather than having it be something like the build a B, you know that rent itself was going to be 10% of our income. Or actually it was 10% the sales, we said now it’s going to be and I don’t remember what the exact numbers is, that’s going to be 40% of net. And here’s how we define and how we’re going to monitor the nets. And so ultimately, that’s how the investor gets the money. Now, you can absolutely do this model too. And I know that some of you are looking at the same model where you’ve got a business that you want to buy, and it will occupy a property. But just how do you get the how do you get how can you buy the business with investor money, but not give him any profit for it. And so this is the mechanism to do that. What we also did is say okay, and in year seven, we now have a buyout clause. Just like we talked about Grant cardones buyout clause, we have a buyout clause for us and your seventh act this way we calculate it based on percentage over the of what sales is so that way we had a built in mechanism in order to value the property and the dollar amount. So it was all spelled out in the PPM. It was all spelled out in the in the operating agreement. It was very clear how that was all going to work in our business plan. So it was bad is the structure that you do it, I will backtrack just slightly to say the reason that it was a good thing that it didn’t, that this particular business didn’t happen was because our date of estimating on when this would start looking for tenants was March 15 2021. I’m sorry, 2020. I hear I had this great lead up, and then I go and ruin it with the year. March 15 2020, was the day that tenants were supposed to start coming in, oh, my God, that would have been a disaster of epic proportions. That was a good example of God or the Universe stepping in and saving our bacon. So didn’t work. It was a really great idea that the really the problem started coming in as we got closer towards getting removing contingencies is the our estimated costs was going up and up and up. And the city of LA was also being really inflexible when it came to parking. And the more they were strict about parking, or the needs for the parking in this area was it was above what was there. So it was currently had, it was under park for a for the industrial building that it was. And then suddenly, we wanted to put in all of these kitchens there. The city hated that idea. So they were getting very mean, they were saying, Well, you know, you need to find a lot more parking. And we also don’t think that you’ve done the that the handicap parking is, is really accessible either. So that’s why the deal fell apart. So fortunately, deal fell apart because oh my god, what a disaster that would have been so. Alright, let’s talk about kicker. So anybody wants more detail on that just asked me to because I, you know, that deal was I worked really, really hard on that deal. And it was gonna be amazing. And it’s really not very, it’s very similar to what business a lot of you are that some of you I know are working on right now. It’s just in a different kind of industry, but it is the it’s the same business model. So think about it. And you know, feel free to reach out to me and we can collaborate on on your business plan and make sure that it’s is awesome as as this business man was gonna be. So let’s talk about kickers. There are a few different times when you need to start thinking about kickers. So kickers are my word for incentives for bonuses. They’re really their thing things that you give certain investors in order to in order to come in to do certain things. So when do you need kickers? So certainly you need kickers when it comes time to make your your your deposit, cash, cash for deposit. Another time you may need kickers is you need cash for due diligence.
Never remember due diligence as one L or two. So I think it’s too so we’ll put into the wrong sorry. A third time that you need kickers for is signing on the loan. So if for whatever reason you don’t want to be a signer on the loan, you may need to offer incentives in order to get people to get somebody to sign on the loan for you. So what is these? How do these typically work? Well, there’s two different ways to structure and it comes down to are they going to do it as an investor or as part of your team? Right. Those are the two choices If it’s going to be part of your team, it’s actually a little bit simpler in some respects, because this all takes place internally, it does. So this is your investment
this problem here, where they’re here doesn’t have any visibility to the outside world, you are not under an obligation to say to your investors, who all the people on your team are as part of your ppm, you can keep it quiet, or you can keep making it public, it’s up to you. Likewise, the deal that you get isn’t subject to or that you give isn’t subject to anybody seeing it and knowing what it is through the PPM you do want to make disclosures for any money that’s being paid to you, but there’s money being paid out to, to this to the your kicker is totally irrelevant to them, they need to know how much money they’re getting, they don’t need to know how much money each person on your team is getting. So, this generally takes place just through the operating agreement to your to your company or it takes place into just a side agreement between you your company and the and the person giving it the kicker now when it comes to the investor side, now we need to start looking at it from Okay, now it doesn’t need to be disclosed and when it needs to be set up in a specific way because as a matter of the investment they are getting a certain extra piece out of that that dollar amount. Right so that could so here’s how how it is oftentimes structure. A good example of somebody who did this and that we talked about was again, Grant Cardone syndication in his syndication remember he had two classes of shares he was calling them shares they’re actually membership units but they’re their membership to classes of membership units and what it said was that well if you come in under this time period, because he wanted to close and yeah, that’s the third idea is cash for closing. And this means like if you’re short any money you know where that money is going to come from. So so someone who can take out the rest of the shares so it can just basically guarantee that they’ll take out the rest of the money for you. So we have two classes of investors in his case and this is off the top of my head so I have to remember it was something like okay if you come in here you are gonna get it’s gonna be a straight 8020 split of cash flows right that was that was the is Class A one shares if it’s after that, so if you come in later your split is going to be 6535 split of cash flows and then after this what they did was they said okay, if you’re on the sale of the property, first everybody gets their money back or when they buy it from you because I think that’s ultimately what they’re playing is when they buy it from you. Then they will get they get everybody gets their money back. And then out of the any prop proceeds. That money is divided pro rata between the two pools. Alright, so pool one, let’s say pool one represented 70% And then 30% was was the a two shares So 70% of the profit goes here. Right? And then then 30% of the profit goes here. And then out of this 70%, out of this pool of money, it is then split at 20. And then out of this pool here, it’s split 6535. So that’s how they did the kicker through the investment. Now, the easiest way to do it is through the team. But it also can be a nice way to kind of incent people to invest now, invest now give us your money now, because you’re gonna lock this in, you can say very clearly, look, we’re only have a certain dollar amount until we close our cash or a one shares. So you can buy in obviously, that the two shares at any time, they of course, would take that why wouldn’t they, but two, you’re only going to be taking money in our a one shares. You know, either until we close the whole deal, or until we until we decide, you know, which will be on September 15, or whatever you’re going to choose. So that is the way that kickers work. If you’re looking for work to raise money for your business, or you need to talk about kickers, or really anything as it relates to raising money under Regulation D so that you can be successful with your offering, whether it’s putting the legal docs together, which of course we do, or you just need the additional help of also, somebody who’s been there before who’s been in your shoes is raised money, somebody who does his own deals still. That’s me. So my name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group. I love to talk with you and help you be successful with your Regulation D Rule 506b or 506c offering.
Welcome to part two of this video series going through how to stay in compliance with the SEC and state regulators. When you’re doing a securities offering under Regulation D, this is an exciting video because this one is going to be a problem that I see coming up time and time again, though it’s happening more and more. So let’s go through exactly what I’m talking about. It’s time I call this section, improper structures. What exactly does that mean? Does the structure of my regulation security have to do with it? My name is Tilden Moschetti. I am a securities attorney with the Moschetti Syndication luck.
All right, we’re going to talk right now about three different structures that I call improper structures. They’re structures that, in my opinion, as a securities attorney, as somebody who specializes in syndication law, these are big, big problems, I think the SEC is going to be looking extremely close at what that these two kind of three setups, these kinds of three structures. And if they found wind of what was going on, there is going to be an issue. Now, let’s talk real briefly about how the SEC normally gets notified about things. So most of the time, 99% of the time, the SEC gets wind of things when there is a lawsuit filed. So when there’s a lawsuit filed the plaintiff’s attorney most of the time will file a complaint also, with the SEC, saying that the Regulation D is not set up properly, or it’s not compliant, and therefore, it’s not under what we call the safe harbor of the of Regulation D. If it’s not under the Safe Harbor of Regulation D or any of the other exemptions, then it automatically is a public security. And if it’s a public security, and there is a violation, then the investor themselves has a right of rescission. That’s what that means is the investor has the right to say, hey, there was no contract whatsoever, give me all my money back, give me the money that I lost as opportunity cost. And SEC states go get them. Just go get them, grab them, drag them to the ground. And they will. So let’s go through what these three structures look like and why exactly I think they are a big problem. And what I think the SEC is going to be doing about them and looking very, very closely at. So again, I am an attorney. And I’m not saying that they will look closely at these things. This isn’t legal advice for you. Right. So this is the kind of normal caveat, I don’t normally put this out there except in the show notes. But this isn’t legal advice for you. If you’re watching this video, and you are part of an investment that gets set up for this, that may or may not be something that is relevant to you. So do not call my office. If you are an investor in this is something that happened to you. We just don’t have that kind of case. I want you to get help, you should find a securities attorney who does litigation and discuss it with them. But that’s just not us. We help syndicators and fund managers put these together in compliance. So if that is you, you never got you’re never calling on these people because they’re in compliance, they’re doing a great job. So, again, if this is you, it’s not us that you want to talk to so let’s go through what these structures are. And they’re similar. So number one is what I call the fake. J V. I’ve done another video on this. It’s a phony system. Let’s talk about what a fake JV is. So JV stands for joint venture. The idea goes something like this. We’ve got a syndicator here, right? And he’s got this wonderful investment that he is syndicating out. He’s got a number of investors actually let’s drive over here. He has some investors over here who all want to be a part of it. But this guy has a problem. He needs more money. Right? So he’s trying to put this great deal together. But he hasn’t raised all this enough money. Let’s say where I see this happening a lot is under Rule 506b also. So this is a 506b offer. So 506b offer, say that also lists that there can be no general solicitation, he cannot put advertisements out there. He these people here are just friends and family really wants to do this deal. Everybody’s going to make a lot of money in this deal goes forward, this guy knows it. But he’s doing a 506b, and he’s hasn’t come up short. He’s come up short. He’s got half of the money that he needs. So what does he do? He calls his friend over here.
He calls a friend and says, Hey, I’ve got I’ve got this problem, I need to raise another $2 million to make this project, go for it. Forget about the dollar. It’s just we need some sort of dollar. So I need 2 million more dollars. In order to do this, do you want to invest? And he says I $2 million, I don’t have $2 million, you know that? You know, I’ve got a lot of friends who would invest. And so this guy has a great idea. But he thinks it’s a great idea. This is supposed to be a lightbulb. He says okay, why don’t you go and tell your three buddies that they can invest in this in this property? Well, this guy has heard of securities rules, right? So he knows kind of what he’s doing. And he says, Well, I can’t you don’t have a personal relationship with them. And he says, oh, yeah, I don’t this guy’s I don’t have a personal relationship with them. What can I do? What if you either put together your own syndication here. Or sometimes they say, What if you put together an LLC and bring them in that way, they can either come in on that 506b that you’re putting in or they can come in through this LLC and then invest up here. And if you do that, I’m gonna give you 10% of the equity that you raise, because I’m desperate. And this money this is going to make a big this is gonna make us so much money we can afford I can afford to pay a 10% Okay, so so this is the joint V JV problem. This guy says, well, we can’t do this. We we know we can’t do this. That’s that’s not we can’t join like that. And so this guy being clever, being clever gets us in trouble here. being clever says, oh, yeah, we can because what we’re gonna do is on our paperwork here, on our ppm, we’re gonna say that we’re doing a joint venture. And that’s how you come in, you’re coming in as a joint venture out, which is in itself investing into this thing. This is the fake JV JV problem, because, well, it seems like this should work. It doesn’t. So he is not this is not a joint venture at all right? This guy is acting as a finder being paid a commission in order to bring people to the investment. It’s a clear cut case of what is actually going on here. The SEC would not like this, this does not comply with the rules, and it would immediately get kicked out. Now there’s actually another kind of JV fake JV and I’ve made a video about this guy as well. So so we’ll let’s call this Let’s race here. So we’ve got fake JV A, which is finders and then there’s fate jVb. Now we’ve got this guy here. He’s going to be unhappy. But right now we’re going to put him not unhappy. So what his idea is, is, he knows that he doesn’t want to pay a great syndication attorney, any money. He doesn’t want to pay the guy, you know, he just wants to be able to syndicate this. I mean, after all, all these people here, who are very excited about his investment are gonna come in. That’s supposed to be a certificate are going to come in, right? After all, they’re all friends and family. And this isn’t for that much money. It’s only for $2 million, and 4 million, like the last example. So it’s only $4 million. And the they I know them all really well is what this guy’s thinking. Right? He’s thinking that they that they’re all friends. And I don’t want to pay some amount, you know, I don’t want to pay something to the to the syndication attorney to set it up and go comply. I also don’t want to file a Form D, that sounds really hard. I don’t want to put together a private placement memorandum that sounds really hard. So what I’m going to do is I’m going to put together this LLC. And I’m gonna go to all my friends here. And I’m going to tell them, Okay, we’re all coming into this LLC together, and we’re gonna invest in this real oops, you can’t see that we’re gonna invest in this really great property, for example. It’s really great, we’re gonna buy it, we’re gonna make lots of money. And investors listen up. I know, you want to be passive. I know, you don’t want to be actively working on this thing and banging on toilets for this multifamily building, right? So you don’t have to worry, I am going to be the manager of this. And I’m going to take care of everything. I’m going to do everything for you. But if you read the paperwork, if you read the paperwork, what I’m actually what we’re actually saying is that you’re going to be an active decision maker, but you’re not okay. You don’t need to be an active decision maker. You don’t need to come to meetings or do anything, I’m going to do all the work, I’m going to get a small management fee. But just if anyone asks, tell them that I’m that you’re active, okay. Yeah, well, you can tell already, because the guy would say that this can’t be good. This can’t be something that’s actually legit. And it’s not legit at all. It’s awful. But there’s still some people out there in the world, including here on YouTube, where you can find their videos, who think this is a compliant solution, it’s not that guy is going to get have that right of rescission problem. One of those investors is gonna get mad and he’s gonna get compensated for it. So bad, bad, bad. The, we’re gonna call this the SED type of thing I manage is what we’re going to call it. And they are we’re calling it still under the umbrella of g v, because it’s a joint venture under that LLC. With those other people, everybody is all together doing a joint venture together. Except it’s not that is a fake JV. This is a real problem. This is something that is absolutely going to bite people in the butt. And there are going to be people losing money left and right. When is it going to start happening? You know, we’ve got bank rates really high right now and properties are starting to, you know, need to get reified. And now the actual amount of money that’s coming in is tanking. Look at my, the stuff that I’ve published about apples way. Apples way, look it up. Google it. They lost $240 million of investor money. Do you think they were in trouble? Yeah. Do you think they wanted to lose it? Absolutely not. They didn’t want to lose investor money but they screwed up. They did. They weren’t doing this setup, though. Let me preface that. They’re not following the setup there. They actually set up a proper way and they’re probably not going to jail for it. They made mistakes, but not this kind of mistake. They were inaccurate in their underwriting and in MIS sized what the risks are. That’s not illegal, they born their investors that that could happen. They’re probably not going to be going to jail. They’re probably okay. The end of the day now, will we be able to do another deal? Again? No, I doubt it possible, but not likely.
Because that’s a pretty bad mistake losing $240 million. Would you really invest with that guy again? Probably not. So. But when loans are coming due, and when things are gonna have to get renewed, this is gonna bite. This is gonna eat up a lot of people. And when this comes out, there’s gonna be lawsuits filed. And that’s how the SEC is gonna see. Wait a minute, Howard, why are they setting up and trying to claim that they’re not under Regulation D. They’re not under Regulation D actually. Which means it’s a securities violation because this shirt is a security. So these people are gonna get nailed. I don’t know if they’ll go after the gurus who told them that this is an okay setup, because it’s not, or this is going to bite them. Because those finders, those people are going to be desperate to get their money back. And they’re going to immediately be telling they’re playing their plaintiff’s attorney. Hey, you know what? This was Joe Smith, who brought me in, he actually didn’t really have anything to do with the deal. He just sold me the security. So We’re suing him. But you know who the real bad guy is, is the guy who put it all together and said it was okay the guy with the lightbulb. He’s got a problem. So fake JV, these people are going down. That’s my prediction. We’ll see if I’m right, I’m sure well, legally, I know I’m right, whether or not they go down or not. We’ll see that’s up to the regulators to figure out number two we’ll save the worst for last. So number two, we’ll put compensation Oh, my goodness, compensation of investors. Now this is actually a problem that I do see from time to time happen. It looks something like this. It’s not a problem in the structure. It’s a problem of disclosure. And so inherent in that as a problem of structure because if it was disclosed properly, it would be properly structured. So you’ve got this guy here. He put together an amazing LLC and he did everything absolutely right or so he thought he did a great PPM right. And you’ve raised money from investors now the investors are actually all happy.
All right, the investors are actually all happy they’re making money now what was this investing into? It was investing into this company up here or a let’s let’s call it a project and this project what happened the LLC just goes and invest right? It doesn’t matter if it was a development project or some other kind of security doesn’t the one I heard about this happening on first wasn’t even a wasn’t real estate at all. It was another kind of security altogether. Which guy and will be kept private because the may be figured out double who that was that we’re talking about. So it is a it was a project to make money. It was completely sound business idea, and it made total sense. Now that project was run by these guys. And these guys were super smart.
Okay, it was run by this guy, let’s say and he’s super smart. Right? He’s he’s doing everything right. Everything was totally legit paper looks good. So the compensation problem is this. He this guy. Now he’s that comes up with a brilliant idea. His brilliant idea is I’m gonna make it so here. There’s no fees Right, there’s no management fees, and incredible splits. Were like 98% to the investor. Wow, that sounds pretty good. So 98% to the investor. And then we’ve got, we’ve got all these people investing here. So that’s, that sounds pretty amazing. I want to go in on that deal. But how is this guy getting paid? Well, this guy is getting paid by that guy, because he wants to get this project done. Right. And it looks legit, it’s set up in a way that is not a it’s not a fake JV. It’s not anything like that. It looks compliant. And probably would be, except for one problem. This guy here is the problem. Actually, this guy’s the I actually, this guy’s well, actually everybody on this site is the problem, because they have no idea that this is going on, they have no idea that you can see, they have no idea that that this guy is being compensated by this guy. And that’s a problem. And so what happened in the instances that I know about is the regulator’s said, Ah, so here’s the, the regulator.
Aha, I know how we can protect our my investors, I know how I can protect this guy, this guy, this guy, I know how I can protect people from this state, because they never had the opportunity to look at this compensation, this compensation was being made, it’s quite possible that if he knew about it, he wouldn’t have been an investor at all. And this guy, if he knew about it, he wouldn’t be an investor at all. And if he knew about it, he wouldn’t be an investor at all, because you’ve got this conflict of interest here. And you know what? He’s right. It’s right, it is a conflict of interest. And the problem with conflicts of interest are, they can exist, but they’ve got to be disclosed in your PPM everywhere, make it super clear, so that everybody knows that it actually exists. So that is the compensation problem. That happens, why is it an inverted structure because it was structured everything, right? Except the disclosure wasn’t structured at all. So you can take that money, but you got to tell them that, uh, you got that you’re gonna take that money and make it super clear, and give a basis for allowing you to, if it’s part of some sort of thing that requires a licensee gotta disclose whatever it is, it’s got to be disclosed, and that the mechanism for getting that paid should be disclosed as well. Otherwise, it is a failure to disclose, which is punishable by right of rescission, which comes with lost opportunity costs, and possible criminal penalties for fraud. So bad, bad, bad. That is the compensation problem. The third, and my new favorite way of of trying to cheat the system is the fun fund of funds. And want to use the most egregious form of it that I’ve seen recently, and why it’s bad. Now, this gets really complicated, and I’m going to try desperately to try and simplify it. So I’m going to focus really on what is inherently bad, most of all the fund of funds problem, so we’re going to abstract it a little bit. So we’ve got this guy here. He thinks to himself. Wow, I’ve got a great idea. I am going to put together this guy actually let’s talk about him first. Very smart has a master’s degree in finance. He knows a lot about securities. He knows a lot about alternative investments. He knows a lot about cryptocurrency, he knows everything about money, right? He knows how the whole system works. He doesn’t know about the laws, but he knows how the money system itself works and how to make good money. And his friends, he’s got two friends. And both of them are like, Whoa, dude, you know a lot about making money. Can you help us and invest some of this money for us? And the answer, he answers Well, sure, I know how to do this. So he goes to a securities attorney and says, Hey, can I do this? The securities attorney says, Well, I don’t know. Let’s look at it. You know, that’s a complicated question. Okay. And then he asked, well, what’s the fee, so he tells him the fee, and he’s like, Oh, I can, I don’t need to pay that. These are just friends, I’m just going to invest it for, after all, I found this amazing website with a YouTube video that plays at the top. And it says that I can set this up. That basically this beautiful website, what it does is it lets this guy come in, and it lets this guy come in, and it lets me charge fees to manage their account. That’s amazing. So I get to manage this account for these guys. And these guys all have their own individual accounts, they can keep making money deposits in, they can put money in, and they just keep getting money back. This kind of starting to sound like something, something that may be a little familiar. Well think about what a broker dealer does? Isn’t this pretty similar to what a broker dealer or a registered investment advisor does? And so this guy is already thought of that. He’s like, Yeah, I know, I know all about them. But here’s where it’s different. Is that these assets that I’m putting in here, they’re not they’re not full on things. These are funds. This are your this is your I’m just choosing, you know, different, different certifications out there that I think are really good. And I’m putting them into this hopper. And then these guys get to choose which ones of those they like? Well, that’s certainly interesting, because now it sure sounds like this guy is putting together a fund of funds. Wow, maybe on the surface. But to me, what, and probably my guess, is to the SEC, and every state regulator, who were would look at this is gonna say, No, that’s a big problem. You’re not acting as a true fund of funds. You’re acting as a broker dealer. You’re buying securities, on behalf of clients, probably advising them on what exactly they need to do and what they need to be doing. And if you’re not advising them, well, then you’re certainly acting in their stead, which is definitely a problem. Because they’re not actually if they’re not actually making the problem, then it’s another problem. But if you’re making a management fee after placing them into these funds, well, you’re either acting as an unregistered broker, or you’re buying them for your own account, and then divvying things up which is basically acting as an unregistered dealer. Either way, you’re going down. And so the SEC or the state regulator, sees what to do and bows it up. Now, I have seen that this is heavily in existence right now. There are this platform. These platforms exist. They’re out there. I’ve read the policeman memorandums for them. I know how they work. My prediction these guys are gonna go down by facilitating and unlawful thing there They’re going to be, they’ve got multiple problems. Right? These guys are not only giving out PPMS. But they’re not attorneys. So they’re going to be hit with unauthorized practice of law. But they’re also facilitating the functions of not even the broker dealer, but the guy who holds the license under the broker dealer. These guys have a big, big problem coming. I predict sec and FINRA, sec, FINRA, and the states are coming after that guy with with vengeance and look for that fairly soon, we’ve got a recession coming, people are going to start losing money. And when that happens, they are not going to be in business too much longer, and they have a mountain of securities problems coming. If they had, if that guy with a brilliant idea had just called a securities attorney, we could have set up a system for him to basically do what he’s wants to do in a manner that would be totally compliant. But he fell into the marketing hype from another company, or from a company that thinks it knows what it’s doing is not an attorney, and is causing massive, massive problem on its subscribers. So those companies are out there, a big, big problem is coming down the pipe. So hope that helps. That is the section on improper structures, I see those three things as major problems of structure that are going to start hitting people or could be four. So we’ve got the fate jayvees, we’ve got the Finder System where it’s like, hey, we’ll be partners, and I’m going to and will basically just been paying you find your fees and not going to work. We’ve got the fake JV of the SED. What’s all the buzz, I’ll pretend that I’m not the manager, and then but I’ll really be the manager, fake JV, going down, then we’ve got the issue of compensation. This is an inherent problem that’s so easy to prevent, oh my gosh, just Tez glows and make it super apparent that it’s abroad that it exists. And then it becomes so much less of a problem. A state regulator isn’t going to be spending every nickel and dime that he has in his budget to go after somebody who disclosed everything about what’s going on. It’s just not going to happen. Even if it’s coming close to a gray line. My guess is I have Well, Mike, it’s not even a guess. The fact is state regulators are way over work. They are doing a monumental task against people who are committing massive frauds, like the people running Jake fake jayvees and funds of funds. They’re working hard to prevent those. They’re not going to be spending time almost certainly going after the guy who does compensation who didn’t disclose a compensation model. Right? Or who I’m sorry, who did disclose a compensation model.
And then we’ve got the issue of the funds of funds. I mean, come on. If you want to be a broker, dealer, go be a broker dealer, go get a securities license, hang that license under somebody and be as broker dealer. It’s a great job. It’s very unpleasant. And if you love securities, and you love financial instruments, it’s fantastic. I know broker dealers, I know. They love their job, they totally are obsessed with it and love it. They call them Masters of the Universe for a reason. Because they feel like Masters of the Universe. They love it. So if you want that world, just go do it. Right? And then you’re not going to be in trouble. Because you’re going to be fine with all those compliance rules. Absolutely. I mean, there’s like so stack of those, but be compliant. So again, I’m gonna reiterate one thing, just because this is a video on the internet. And this specific one is giving kind of closer to more what some people may consider legal advice. This is not legal advice. This is what I’m giving to you as education about what I see going on in the securities world and urging you to not fall victim and to be can stay compliant. Just follow the rules. You need help with those if talked to a securities attorney who can help you navigate it. You know, that’s what we’re there for. Yes, we get paid. But isn’t it much better to pay a securities attorney than to go to jail? I think so. And isn’t it much better to pay a securities attorney than to lose all your investors money? Absolutely. That’s even worse than jail in some way. So, and if you are somebody who fell victim to one of these types of problems, what are these inherent structural problems? Look, I’m not saying you don’t have a real issue here. But I’m just not the attorney for you. I work with the guys setting these things up, the ones who do it in compliance and doing it right. That’s the people I help. So if you need it, you definitely need help. If you have questions, it definitely should get the answers. Talk to your state regulators. If you if that’s helpful. Talk to the SEC, if that’s helpful, they’re very, they’re actually very good at helping people. Right, they’re actually very good and very approachable and will help with what your issue is. And if you’ve got a legitimate litigation type issue, or you’ve got something that happened that went wrong, then talk to an attorney who can help you. So it’s just not my firm. So I don’t have referrals for people who do that. I represent the other guys, and I make sure that they don’t vote that they’re not. I make sure that they’re always in compliance anyway. So I never run across the people who are suing the people because my guys never never have this issue. So, again, my name is Tilden Moschetti. I am a securities attorney, syndication attorney with the Moschetti Syndication Law Group. Now if we can help you stay in compliance, I would like to talk with you feel free to give us a call or visit our website. Let’s set up a meeting to talk.
So just how do you go from just starting out to a very, very large fund? Or somebody who’s a multiple serial syndicator? How do we set those goals in order to achieve what we want to do? In this blaster in the past, we’re gonna look at a video I recorded about two or three years ago, when I was coaching syndicators, who are really at the top of their game in their fields. But we’re brand new to real estate syndication. So I hope you find this video helpful, I know you will. It’s a formal process to think about how you do your goals, so that ultimately you can be successful. And take this wherever you want to go.
And in this video, we are talking about goals. Oh my god, did he say goals? Yes, we’re going to talk about goals, goals are important. I’m sure I don’t need to hammer that in. And so this is actually going to be a fairly short topic, because I want to give you a different paradigm for thinking about goals. They all start with facts of where you are today. You are here. And this is also your investment company. So let’s talk about it in that framework. You’ve got so many assets under management, you’ve got such an such track record. And it doesn’t matter if this is a trillion dollars under management and a track record of one have no properties at all. But there are facts. So you have so many team members. You’ve identified a founders investment theory and a niche. You’ve got so and so interested investors. Do you these are all facts that you have in setting your goals? Those are the facts. Now, where are you want to go? So let’s pick a time horizon. So let’s say I don’t know three years out, doesn’t particularly matter where they go. But I’ll show you why it why it does. So let’s say actually, let’s let’s do one year out, I think it’ll be a little bit clearer for this example. So let’s say but where you want to be is way up here. And you want you want a certain AUM AUM stands for assets under management, you want a certain track record you want specific team members
you’ll still have your fine founders investment theory. And you’ll have such and such investors. And so the distance between here and here creates this large chiasm here. You’ve got this big pit to get from here to here. And somehow you have to get from there to there. So the first question we ask ourselves to get to this goal is who do I have to become? And none of this is new. None of what I’m talking about here is my ideas. It’s just ideas I’ve picked out that I have I’ve found particularly useful and hopefully you do as well. So how are you going to get from where you are in your present facts in order to the goals? Well, you’ve got some some you’ve got some ground to cover, don’t you? I mean, you’ve got to answer the question of Who do I have to become, you’re gonna have to become better than you are today in order to reach those higher goals. If you keep doing exactly what you’re doing today, there is no way you’re going to get there. I would posit to you that there. The way to get there is actually through this is through this gap. And we do that by breaking up the gap into quarters
q1, q2, q3 q4 And now becomes suddenly much more manageable to get to q1. You just have to do the q1 things to get to q2, you just have to do q2 things. That leap is much shorter. Now, yes, the time period is much less. But once you’ve identified Okay, well, that’s where I want to go. Now, what has to be true for me to be here? Yeah, well, what are the facts that need to be true? What’s the Aum? What’s the track record, et cetera. And you don’t pay it, you don’t worry about q2, and you don’t worry about q3 And you don’t worry about q4 until you get to q1. Because that’s your, that’s your next stage. That’s what you’re working on. That’s your entire focus. And so you take this q1 goal, and then you simply
come up with your smart goals. And you’ve probably heard of SMART goals before. So they need to be specific. They need to be measurable. They need to be achievable. They need to be relevant. And they need to be timely. Timely is already covered. It’s got to be done in q1 specific we’ll get to achievable is Yes, it definitely needs to be something that you can do. It needs to be a stretch, but it can’t be impossible. Same thing with your year out. If you’re starting with no assets under management and a track record of zero properties, it’s definitely a an achievable goal, to have two syndications done and funded and up and running and happy. But it’s not achievable to do assets under management of $10 trillion, or $10 billion, or even $100 million is going to be a little bit tight for for the first time invest for the first time cindicator within a year’s time. So it needs to be something achievable, like it should be something beyond your wildest dreams. But it should be really achievable. It shouldn’t, it should make you kind of freak out a little bit, but it shouldn’t make you go well. No way that’s just completely impossible. So it does need to be achievable. So make it achievable. And then what is that q1 And what is it what is achievable? There? I mean, maybe it’s finding your starting your first indication. So I would say your q1 would probably look like form company.
q2, I mean, sorry. Still in q1. q1, you’re building your grow list. And I’m in this is just an example for a smaller, newer syndicator. Grow list. To say 50 names of people you’ve talked to q1 Identify fishermen. We’ve talked before about fishermen or if we haven’t seen it yet. Fishermen are people who will help bring you deals and Wales. Wales are being big investors. And q1 will also be you’ve identified one good property All right, is that achievable? Heck, yeah. It’s achievable. There’s no reason you shouldn’t be able to do that in a quarter. Can you form your company that takes a few hours? Can you grow your list of 50 names? Absolutely. You can grow into 50 names and have conversations with 50 investors. I mean, over a course of a quarter, you’ve got 90 days. You definitely can talk to more than more than even one person a day. So you definitely can grow that. Can you identify fishermen? Absolutely. Can you find one good property? Absolutely. If you just do the work and talk to brokers and look for deals every day, you’re absolutely will find a good Would property to invest in. So then at the end of q1, then you’d be setting out q2. Now what’s a good idea of what q2 would look like? It would be put together for syndication.
How long is an escrow normally? Well, funnily enough, they go up to, most of them are 60 to 90 days. Can that all be done in a quarter, you bet it can. So put together first syndication has a perfect q2 goal. q3 might be grow more, add another find another property, all the meanwhile you’re growing your list growing other investors. So all of these things can get you from where you are today into where you want to go. So it may not be that you know the path to get here. But as long as you can see the path to get here, that’s what’s critical. So you should be excited. This is how you get there. So you’re breaking down what’s impossible into multiple, achievable things. And so each step along the way, step one, step two, step three, step four, you know, in their various quarters, it’s just going up, and they’re just, they’re just different goals that go up and up the ladder. I know you found this video helpful in thinking about how do you go from where you’re at today, to where you want to go? How do you make those smart goals? How do you do all the work so that you ultimately can go from basically where you’re at now, to having the business of your dreams, whether that’s in a real estate syndication, or real estate fund, being a serial syndicator, whatever that is. Now, if I can help be a part of your journey, I’m happy to do that. I would love to help you on your path. My name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group. Part of our practice is the legal documents. What do you think of a syndication attorney does putting together the the private placement, memorandum, the operating agreement all of those things that are necessary to be compliant, and while we do an excellent job, and we’re top of our field for doing that, what sets us apart truly is that background that I have in coaching, that background that I have and taking the expertise from having done many, many deals for myself, and translating it into actionable steps with my clients, to help them go from where they’re at today to go, where they want to go, whether you’re just starting out, or whether you’re looking to ultimately put a wreath together, we can help you along that process. All you have to do is simply get on the phone, get a meeting, and let’s have a conversation about what it is that ultimately you want to do and where you want to go. And then we can talk about how we’ll get started with your very first project or that your 50th project wherever it is that you’re at, so that we can plot out that trajectory. Make sure that that happens. And we go from there. It all starts with an engagement for a single project or for a fund or something like that. So if you’re ready for that, feel free to give us a call set up a time to be with me, and we’ll go through that.
Newer Episodes:
Episode 86 – Develop Your FIT: A Guide for Real Estate Syndicators and Real Estate Funds
Past Episodes:
Episode 80 – Understanding the Levers of Financial Analysis in Real Estate Syndication
Episode 78 – 5 Key Documents for Syndication or Fund Formation
Episode 77 – Syndicators and Fund Managers Predict the Future: Understanding Real Estate Cycles
Episode 76 – Building a Strong Real Estate Syndication Team
Episode 75 – Who Can Fundraise for Regulation D Rule 506b or 506c Offers
Episode 74 – Where to Buy For Your Real Estate Syndication or Fund: Your Guide to Finding Assets
Episode 73 – The Essential Guide to Structuring Your Real Estate Syndication
Episode 72 – Understanding Fees and Splits: The Backbone of Your Syndication or Fund
Episode 71 – How To Find Investors For Your Regulation D Syndication / Fund Offline
Episode 70 – Choosing the Right Entity Type for Your Regulation D Syndication or Fund
Episode 69 – What Happens When an Investor Wants to Exit Early in Your Reg D Syndication Or Fund?
Episode 66 – How to Start a Real Estate Fund: A Step-by-Step Guide Using Reg D, 506b, and 506c
Episode 65 – Mastering Financial Analysis: A Key Skill for Reg D Syndicators and Fund Managers
Episode 64 – Raising Money From Friends And Family: Unlocking the Legalities of Raising Funds
Episode 63 – Are You Creating a Security? The Howey Test Knows: A Look At SEC vs. Howey
Episode 62 – Deconstructing a Reg D Real Estate Syndication Deal A-to-Z: Part 2
Episode 61 – Regulation D Waterfalls 101: Understanding Investment Distribution
Episode 60 – Choosing Between Regulation D Rule 506b and 506c for Your Syndication
Episode 59 – Deconstructing a Reg D Real Estate Syndication Deal A-to-Z: Part 1
Episode 58 – 10 Essential Tips to Secure Investment from Family Offices for Your Reg D Offering
Episode 57 – The ‘Syndication LLC’ Disaster: Consequences of Bad Advice
Episode 56 – What Is Equity Dilution In A Regulation D Syndication Or Fund Offering?
Episode 54 – Demystifying Open-Ended and Closed-Ended Funds In Reg D Private Equity
Episode 53 – An Innovative Example Of A Syndication Investment Strategy: F.I.T. In Action
Episode 51 – Cash Flow vs. Appreciation: Understanding Reg D Syndication Investor Types
Episode 50 – Choosing Between Regulation D and Regulation CF: An Attorney’s / Syndicator’s Analysis
Episode 49 – How To Find Investors For A Regulation D Offering Without Using A Broker-Dealer
Episode 48 – The Difference Between REITs and Real Estate Funds & Syndications
Episode 47 – Securities vs Joint Ventures: Know the Critical Differences or Risk the Consequences
Episode 46 – Eight Steps to a Successful Real Estate Syndication
Episode 45 – How Long Does It Take to Raise Money for a Reg D Syndication?
Episode 44 – How to Ensure Your Reg D Syndication Offering is Marketable and Legal
Episode 43 – 5 Mistakes Rookie Regulation D Syndicators Make
Episode 41 – How Capital Accounts Work in Syndications
Episode 40 – Why You Need a Private Placement Memorandum (PPM)
Episode 38 – Strategies for Managing Multiple Reg D Offerings: A Guide to Fundraising
Episode 37 – Understanding Real Estate Syndication Through a Practical Example
Episode 36 – The Art of Getting Investors’ Commitment: A Six-Step Guide
Episode 35 – Unlocking The Secrets To Establishing A Pre-Existing Relationship for Reg D Rule 506b
Episode 34 – Unveiling The Essential Fiduciary Duties For Syndications & Funds
Episode 33 – Navigating Securities Laws And Social Media: A Guide For Syndicators
Episode 32 – Assembling Your Real Estate Syndication Team: Who’s In?
Episode 31 – Understanding Waterfalls in Real Estate Syndication
Episode 30 – Choosing the Right SEC Exemption for Your Investment: Alphabet Soup
Episode 29 – Understanding Reg A, Reg CF, and Reg D in Syndication: The Alphabet Soup Explained
Episode 28 – LLC vs. LP vs. Corporation: Which to Choose for Syndications?
Episode 27 – Can You Get a Bank Loan?: Leveraging Traditional Financing in Syndication
Episode 26 – Securities Licenses and Real Estate Licenses for Reg D Syndications
Episode 25 – Unlocking the World: US Syndications Open to Non-US Investors
Episode 24 – Syndicators’ Guide to Self-Directed IRAs: Maximizing Capital Sources
Episode 23 – GP and LP: Exploring Syndication’s Key Players
Episode 22 – Syndication Fallout: What Happens When Losses Happen?
Episode 21 – Business Funding Unleashed: Embracing the Opportunities of Regulation D
Episode 20 – Behind the ‘Bad Actor’ Rule: Rule 506d Demystified
Episode 19 – The Myth Of The Friends And Family Securities Exemption For Syndications
Episode 18 – Demystifying Form D Filings with the SEC: In-Depth Walkthrough and Tips
Episode 17 – Can An LLC Invest Into A Regulation D Rule 506b Or 506c Syndication Offering?
Episode 15 – How Does Regulation D Rule 506c Work For Syndication?
Episode 14 – Syndication Attorney Webinar – ‘Ask Me Anything’
Episode 12 – ‘Can I do both a Regulation D 506b and Reg D 506c in one LLC?’
Episode 11 – ‘Can I do a 1031 exchange in a Regulation D syndication?’
Episode 10 – Regulation D Limitations on Resale: What You & Your Investors Should Know
Episode 9 – How does Regulation D Rule 506b work for syndication?
Episode 8 – How do I pay people to market my Regulation D syndication?
Episode 7 – What information must be disclosed in a syndication private placement memorandum?
Episode 6 – What are ‘Blue Sky’ laws when it comes to syndication?
Episode 5 – How can you structure sponsor fees for a Regulation D Rule 506 syndication?
Episode 3 – Should I do a Regulation D 506(b) syndication or a 506(c) syndication?
Episode 2 – How do I market my Regulation D Rule 506 offering?
Episode 1 – How Should I Structure My Regulation D Syndication?
