SEC Regulation - 20% rule?

[Charlotte Dunford]

Hi all. Question: When you raise money from your LP's, do you have to limit each LP's to a maximum contribution of 20% of the total capital needed to close the deal? I heard that this is a SEC related regulation. Is that true? But if I had an LP's who's contributing all the capital needed to close the deal, is there a way to get around the SEC regulation and stay legal?

[Brian Adams]

@Charlotte Dunford the 20% ownership is for some lenders. If the investor has a 20% or greater ownership, the lender could require underwriting the investor. Meaning the investor would need to provide bank statements, net worth (PFS) and a schedule of REO (real estate owned). The lender also might do background checks on the investor. Also, the investor could be required to sign as a guarantor on the loan.

@Ade Babasola no the GP doesn't need to be accredited and the SEC doesn't vet the sponsor. The lender will though.

A lender will want to see that the sponsorship team has multifamily experience, net worth - usually equal to or great than the loan balance, and 10% liquidity of the loan balance post closing.