Hi friends,
I want to start put together a term sheet that can send to potential limited partners (LP/investors).
I was hoping to find a typical set of legal documents including a term sheet, a partnership agreement, typical payout structure, etc. I searched the file repository on BP, but not sure how actionable they are. For example, the promissory note document is too short to be airtight.
These documents will be for entry-level commercial deals such as 10+ units apartments.
- If you are an experienced investor/syndicator, your help is greatly appreciated!!
- If you are a real estate lawyer, please send me a private message. I would love to have a lawyer review the documents once drafted.
Thanks,
Au
@Ben Leybovich please elaborate?
Matt, I'm simply saying that the overhead for a PPM and all that comes with it is too much for smaller deals.
Ben,
To put a bit more meat on the bones for readers who are not used to syndications, what would you expect to pay for the 'overheads' if the deal size was $4M? Just a round number so others have an order of magnitude estimate.
Well, the PPM and SA will cost you $25,000. Local attorney will cost another $7,000 - $10,000.
These costs are the same regardless if the deal is $500,000 or $5,000,000. But, obviously, on a $500,000 deal these costs alone constitute 7%. It gets hard to underwrite returns having loaded the deal with these costs.
Additionally, there's an engineering inspection, appraisal, survey, etc. And, they don't cost much less on a $500,000 deal than $5MM.
@Au Jia
Hello Au,
Congratulations on your syndication journey. This is something I hope to get into one day.
I know of a good lawyer who might be able to help. Shoot me a PM with your email, and I can get you connected.
Hi friends,
I want to start put together a term sheet that can send to potential limited partners (LP/investors).
I was hoping to find a typical set of legal documents including a term sheet, a partnership agreement, typical payout structure, etc. I searched the file repository on BP, but not sure how actionable they are. For example, the promissory note document is too short to be airtight.
These documents will be for entry-level commercial deals such as 10+ units apartments.
- If you are an experienced investor/syndicator, your help is greatly appreciated!!
- If you are a real estate lawyer, please send me a private message. I would love to have a lawyer review the documents once drafted.
Thanks,
Au
You really need to speak to a securities attorney about your project and what it is you would like to do. You can’t just send random documents to potential investors. You must a a prior substantive relationship with qualified investors before you send an offer for them to invest.
Hi friends,
I want to start put together a term sheet that can send to potential limited partners (LP/investors).
I was hoping to find a typical set of legal documents including a term sheet, a partnership agreement, typical payout structure, etc. I searched the file repository on BP, but not sure how actionable they are. For example, the promissory note document is too short to be airtight.
These documents will be for entry-level commercial deals such as 10+ units apartments.
- If you are an experienced investor/syndicator, your help is greatly appreciated!!
- If you are a real estate lawyer, please send me a private message. I would love to have a lawyer review the documents once drafted.
Thanks,
Au
You really need to speak to a securities attorney about your project and what it is you would like to do. You can’t just send random documents to potential investors. You must a a prior substantive relationship with qualified investors before you send an offer for them to invest.
Check with Crowd funding attorneys they are top notch.
Hi friends,
I want to start put together a term sheet that can send to potential limited partners (LP/investors).
I was hoping to find a typical set of legal documents including a term sheet, a partnership agreement, typical payout structure, etc. I searched the file repository on BP, but not sure how actionable they are. For example, the promissory note document is too short to be airtight.
These documents will be for entry-level commercial deals such as 10+ units apartments.
- If you are an experienced investor/syndicator, your help is greatly appreciated!!
- If you are a real estate lawyer, please send me a private message. I would love to have a lawyer review the documents once drafted.
Thanks,
Au
Unless you are buying 10 units in the Bay, and a cost of $350,000 per unit, or something, you can't afford to syndicate. The overhead is too high for anything under about $4MM.
Good luck!
@Ben Leybovich please elaborate?
Matt, I'm simply saying that the overhead for a PPM and all that comes with it is too much for smaller deals.
@Ben Leybovich please elaborate?
Matt, I'm simply saying that the overhead for a PPM and all that comes with it is too much for smaller deals.
Ben,
To put a bit more meat on the bones for readers who are not used to syndications, what would you expect to pay for the 'overheads' if the deal size was $4M? Just a round number so others have an order of magnitude estimate.
@Ben Leybovich please elaborate?
Matt, I'm simply saying that the overhead for a PPM and all that comes with it is too much for smaller deals.
Ben,
To put a bit more meat on the bones for readers who are not used to syndications, what would you expect to pay for the 'overheads' if the deal size was $4M? Just a round number so others have an order of magnitude estimate.
Well, the PPM and SA will cost you $25,000. Local attorney will cost another $7,000 - $10,000.
These costs are the same regardless if the deal is $500,000 or $5,000,000. But, obviously, on a $500,000 deal these costs alone constitute 7%. It gets hard to underwrite returns having loaded the deal with these costs.
Additionally, there's an engineering inspection, appraisal, survey, etc. And, they don't cost much less on a $500,000 deal than $5MM.
1) Prior to putting together a term sheet for investors (btw, I think you're referring to what's normally called Offering Memorandum or Executive Summary), you should take the time to educate yourself on what syndication is and how does one function. This will give an additional guidance as to what the process entails and what investors are expecting from it. You can start by reading "Best ever apartment syndication book" by Joe Fearless and @Theo Hicks.
2) Here's a high level overview of the legal documents included in the process: https://www.biggerpockets.com/member-blogs/10850/7...
3) You haven't mentioned whether you have experience/track record with investing in apartment complexes. If yes - great. If not - then again take the time to get educated and get experience or partner with experience!
4) As others mentioned, all legal paperwork for a syndication must be prepared and reviewed by securities attorney.
Best of luck!
@Ben Leybovich please elaborate?
Matt, I'm simply saying that the overhead for a PPM and all that comes with it is too much for smaller deals.
Ben,
To put a bit more meat on the bones for readers who are not used to syndications, what would you expect to pay for the 'overheads' if the deal size was $4M? Just a round number so others have an order of magnitude estimate.
Well, the PPM and SA will cost you $25,000. Local attorney will cost another $7,000 - $10,000.
These costs are the same regardless if the deal is $500,000 or $5,000,000. But, obviously, on a $500,000 deal these costs alone constitute 7%. It gets hard to underwrite returns having loaded the deal with these costs.
Additionally, there's an engineering inspection, appraisal, survey, etc. And, they don't cost much less on a $500,000 deal than $5MM.
While I don't disagree entirely, curious to hear your thoughts:
Generally whether a PPM is required or not depends on 1) which exemption is being used 2) type of issuer 3) number of investors 4) level of sophistication of investors 5) amount of money being raised & 6) complexity and terms of the offering.
No PPM is "required" for offerings of <$5M
I am not a lawyer so would be happy to have one chime in :)
Regarding the Cost Seg, I have worked with and seen many studies on behalf of clients in addition to the cost benefit of such studies. For the most part, a study on a $500k property WILL cost less than a $5M property. If the firm needs to send 1 engineer out to a single building property at let's say 15k sqft, they will bill less than say sending 5 engineers out to a 80k sqft 5 building property.
Just my thoughts based on experience. Thanks for yours as well.
@Ben Leybovich please elaborate?
Matt, I'm simply saying that the overhead for a PPM and all that comes with it is too much for smaller deals.
Ben,
To put a bit more meat on the bones for readers who are not used to syndications, what would you expect to pay for the 'overheads' if the deal size was $4M? Just a round number so others have an order of magnitude estimate.
Well, the PPM and SA will cost you $25,000. Local attorney will cost another $7,000 - $10,000.
These costs are the same regardless if the deal is $500,000 or $5,000,000. But, obviously, on a $500,000 deal these costs alone constitute 7%. It gets hard to underwrite returns having loaded the deal with these costs.
Additionally, there's an engineering inspection, appraisal, survey, etc. And, they don't cost much less on a $500,000 deal than $5MM.
While I don't disagree entirely, curious to hear your thoughts:
Generally whether a PPM is required or not depends on 1) which exemption is being used 2) type of issuer 3) number of investors 4) level of sophistication of investors 5) amount of money being raised & 6) complexity and terms of the offering.
No PPM is "required" for offerings of <$5M
I am not a lawyer so would be happy to have one chime in :)
Regarding the Cost Seg, I have worked with and seen many studies on behalf of clients in addition to the cost benefit of such studies. For the most part, a study on a $500k property WILL cost less than a $5M property. If the firm needs to send 1 engineer out to a single building property at let's say 15k sqft, they will bill less than say sending 5 engineers out to a 80k sqft 5 building property.
Just my thoughts based on experience. Thanks for yours as well.
I am not an attorney, however:
whether you choose to do a PPM or not has nothing to do with the amount being raised, but the operational structure. If you want to run a democracy partnership, otherwise known as a nightmare, then you don't need a private placement. If you want to operate the deal with everyone else silent, then you need a limited partnership structure, which is going to require a private placement.
@Ben Leybovich please elaborate?
Matt, I'm simply saying that the overhead for a PPM and all that comes with it is too much for smaller deals.
Ben,
To put a bit more meat on the bones for readers who are not used to syndications, what would you expect to pay for the 'overheads' if the deal size was $4M? Just a round number so others have an order of magnitude estimate.
Well, the PPM and SA will cost you $25,000. Local attorney will cost another $7,000 - $10,000.
These costs are the same regardless if the deal is $500,000 or $5,000,000. But, obviously, on a $500,000 deal these costs alone constitute 7%. It gets hard to underwrite returns having loaded the deal with these costs.
Additionally, there's an engineering inspection, appraisal, survey, etc. And, they don't cost much less on a $500,000 deal than $5MM.
While I don't disagree entirely, curious to hear your thoughts:
Generally whether a PPM is required or not depends on 1) which exemption is being used 2) type of issuer 3) number of investors 4) level of sophistication of investors 5) amount of money being raised & 6) complexity and terms of the offering.
No PPM is "required" for offerings of <$5M
I am not a lawyer so would be happy to have one chime in :)
Regarding the Cost Seg, I have worked with and seen many studies on behalf of clients in addition to the cost benefit of such studies. For the most part, a study on a $500k property WILL cost less than a $5M property. If the firm needs to send 1 engineer out to a single building property at let's say 15k sqft, they will bill less than say sending 5 engineers out to a 80k sqft 5 building property.
Just my thoughts based on experience. Thanks for yours as well.
I am not an attorney, however:
whether you choose to do a PPM or not has nothing to do with the amount being raised, but the operational structure. If you want to run a democracy partnership, otherwise known as a nightmare, then you don't need a private placement. If you want to operate the deal with everyone else silent, then you need a limited partnership structure, which is going to require a private placement.
I think under Reg D, Rule 504 there is an exemption for registering securities offerings of less than $5M w/in a 12 month period. The specifics escape me. Additionally, your operating agreement can define the structure of your LLC to the extent you have silent LPs. I guess my overall point is that the cost you outlined in the original post was presented as a "one size fits all" pricing, which is where I beg to differ. That is all.
@Au Jia You need to hire a securities lawyer to put your deal together for you. It's going to cost a little money, but in my opinion, this is way too complex of a subject, with way too many traps and potholes for you to do it on your own.
@Ben Leybovich please elaborate?
Matt, I'm simply saying that the overhead for a PPM and all that comes with it is too much for smaller deals.
Ben,
To put a bit more meat on the bones for readers who are not used to syndications, what would you expect to pay for the 'overheads' if the deal size was $4M? Just a round number so others have an order of magnitude estimate.
Well, the PPM and SA will cost you $25,000. Local attorney will cost another $7,000 - $10,000.
These costs are the same regardless if the deal is $500,000 or $5,000,000. But, obviously, on a $500,000 deal these costs alone constitute 7%. It gets hard to underwrite returns having loaded the deal with these costs.
Additionally, there's an engineering inspection, appraisal, survey, etc. And, they don't cost much less on a $500,000 deal than $5MM.
While I don't disagree entirely, curious to hear your thoughts:
Generally whether a PPM is required or not depends on 1) which exemption is being used 2) type of issuer 3) number of investors 4) level of sophistication of investors 5) amount of money being raised & 6) complexity and terms of the offering.
No PPM is "required" for offerings of <$5M
I am not a lawyer so would be happy to have one chime in :)
Regarding the Cost Seg, I have worked with and seen many studies on behalf of clients in addition to the cost benefit of such studies. For the most part, a study on a $500k property WILL cost less than a $5M property. If the firm needs to send 1 engineer out to a single building property at let's say 15k sqft, they will bill less than say sending 5 engineers out to a 80k sqft 5 building property.
Just my thoughts based on experience. Thanks for yours as well.
I am not an attorney, however:
whether you choose to do a PPM or not has nothing to do with the amount being raised, but the operational structure. If you want to run a democracy partnership, otherwise known as a nightmare, then you don't need a private placement. If you want to operate the deal with everyone else silent, then you need a limited partnership structure, which is going to require a private placement.
I think under Reg D, Rule 504 there is an exemption for registering securities offerings of less than $5M w/in a 12 month period. The specifics escape me. Additionally, your operating agreement can define the structure of your LLC to the extent you have silent LPs. I guess my overall point is that the cost you outlined in the original post was presented as a "one size fits all" pricing, which is where I beg to differ. That is all.
It is one size fits all. Unless, of course, you are suggesting that someone who knows absolutely nothing (as is evidenced in the original post) raises money from people without the council of a securities attorney. Are you really suggesting this?
I mean, I know advice on BP has been rolling downhill for a while, but this would take the prize!
@Ben Leybovich please elaborate?
Matt, I'm simply saying that the overhead for a PPM and all that comes with it is too much for smaller deals.
Ben,
To put a bit more meat on the bones for readers who are not used to syndications, what would you expect to pay for the 'overheads' if the deal size was $4M? Just a round number so others have an order of magnitude estimate.
Well, the PPM and SA will cost you $25,000. Local attorney will cost another $7,000 - $10,000.
These costs are the same regardless if the deal is $500,000 or $5,000,000. But, obviously, on a $500,000 deal these costs alone constitute 7%. It gets hard to underwrite returns having loaded the deal with these costs.
Additionally, there's an engineering inspection, appraisal, survey, etc. And, they don't cost much less on a $500,000 deal than $5MM.
While I don't disagree entirely, curious to hear your thoughts:
Generally whether a PPM is required or not depends on 1) which exemption is being used 2) type of issuer 3) number of investors 4) level of sophistication of investors 5) amount of money being raised & 6) complexity and terms of the offering.
No PPM is "required" for offerings of <$5M
I am not a lawyer so would be happy to have one chime in :)
Regarding the Cost Seg, I have worked with and seen many studies on behalf of clients in addition to the cost benefit of such studies. For the most part, a study on a $500k property WILL cost less than a $5M property. If the firm needs to send 1 engineer out to a single building property at let's say 15k sqft, they will bill less than say sending 5 engineers out to a 80k sqft 5 building property.
Just my thoughts based on experience. Thanks for yours as well.
I am not an attorney, however:
whether you choose to do a PPM or not has nothing to do with the amount being raised, but the operational structure. If you want to run a democracy partnership, otherwise known as a nightmare, then you don't need a private placement. If you want to operate the deal with everyone else silent, then you need a limited partnership structure, which is going to require a private placement.
I think under Reg D, Rule 504 there is an exemption for registering securities offerings of less than $5M w/in a 12 month period. The specifics escape me. Additionally, your operating agreement can define the structure of your LLC to the extent you have silent LPs. I guess my overall point is that the cost you outlined in the original post was presented as a "one size fits all" pricing, which is where I beg to differ. That is all.
It is one size fits all. Unless, of course, you are suggesting that someone who knows absolutely nothing (as is evidenced in the original post) raises money from people without the council of a securities attorney. Are you really suggesting this?
I mean, I know advice on BP has been rolling downhill for a while, but this would take the prize!
You said that a PPM will cost $25k no matter the size of the deal and a local attorney will cost $7-10k no matter the size of the deal. I am telling you that is simply not the case. It can cost more or less based on the size of the deal. I have seen the balance sheets.
Frankly I'm not sure how you arrived at your conclusion based on my last comment....
@Ben Leybovich please elaborate?
Matt, I'm simply saying that the overhead for a PPM and all that comes with it is too much for smaller deals.
Ben,
To put a bit more meat on the bones for readers who are not used to syndications, what would you expect to pay for the 'overheads' if the deal size was $4M? Just a round number so others have an order of magnitude estimate.
Well, the PPM and SA will cost you $25,000. Local attorney will cost another $7,000 - $10,000.
These costs are the same regardless if the deal is $500,000 or $5,000,000. But, obviously, on a $500,000 deal these costs alone constitute 7%. It gets hard to underwrite returns having loaded the deal with these costs.
Additionally, there's an engineering inspection, appraisal, survey, etc. And, they don't cost much less on a $500,000 deal than $5MM.
While I don't disagree entirely, curious to hear your thoughts:
Generally whether a PPM is required or not depends on 1) which exemption is being used 2) type of issuer 3) number of investors 4) level of sophistication of investors 5) amount of money being raised & 6) complexity and terms of the offering.
No PPM is "required" for offerings of <$5M
I am not a lawyer so would be happy to have one chime in :)
Regarding the Cost Seg, I have worked with and seen many studies on behalf of clients in addition to the cost benefit of such studies. For the most part, a study on a $500k property WILL cost less than a $5M property. If the firm needs to send 1 engineer out to a single building property at let's say 15k sqft, they will bill less than say sending 5 engineers out to a 80k sqft 5 building property.
Just my thoughts based on experience. Thanks for yours as well.
I am not an attorney, however:
whether you choose to do a PPM or not has nothing to do with the amount being raised, but the operational structure. If you want to run a democracy partnership, otherwise known as a nightmare, then you don't need a private placement. If you want to operate the deal with everyone else silent, then you need a limited partnership structure, which is going to require a private placement.
I think under Reg D, Rule 504 there is an exemption for registering securities offerings of less than $5M w/in a 12 month period. The specifics escape me. Additionally, your operating agreement can define the structure of your LLC to the extent you have silent LPs. I guess my overall point is that the cost you outlined in the original post was presented as a "one size fits all" pricing, which is where I beg to differ. That is all.
It is one size fits all. Unless, of course, you are suggesting that someone who knows absolutely nothing (as is evidenced in the original post) raises money from people without the council of a securities attorney. Are you really suggesting this?
I mean, I know advice on BP has been rolling downhill for a while, but this would take the prize!
You said that a PPM will cost $25k no matter the size of the deal and a local attorney will cost $7-10k no matter the size of the deal. I am telling you that is simply not the case. It can cost more or less based on the size of the deal. I have seen the balance sheets.
Frankly I'm not sure how you arrived at your conclusion based on my last comment....
It's just what I pay, whether it's an $8MM deal, an $11MM deal, or one twice the size :)
Regarding the Cost Seg, I have worked with and seen many studies on behalf of clients in addition to the cost benefit of such studies. For the most part, a study on a $500k property WILL cost less than a $5M property. If the firm needs to send 1 engineer out to a single building property at let's say 15k sqft, they will bill less than say sending 5 engineers out to a 80k sqft 5 building property.
Just my thoughts based on experience. Thanks for yours as well.
Matt, not sure why one engineer wouldn't be able to do a survey on an 80k sqft property, or a 400k sqft for that matter by himself. Sure it's more work, and takes more time, but the findings will certainly be more consistent than having 5 engineers on it. Furthermore, I don't know any cost seg firms that have 5 engineers to depose on one mission, unless they don't have much work...lol. The only time we send more than one engineer to a property is when it's either an office tower of over 300K sft, or the like. Multifamily is much easier, because according to the IRS guidelines, the engineer only needs to see one of each unit type lay-out, and not every single unit.
In terms of the pricing, you're right that the size and type of the building, should determine the scope of work involved, and set the price, but not the purchase price. If a firm is charging a fee contingent on the tax savings, that's a no-no in the eyes of the IRS.
Regarding the Cost Seg, I have worked with and seen many studies on behalf of clients in addition to the cost benefit of such studies. For the most part, a study on a $500k property WILL cost less than a $5M property. If the firm needs to send 1 engineer out to a single building property at let's say 15k sqft, they will bill less than say sending 5 engineers out to a 80k sqft 5 building property.
Just my thoughts based on experience. Thanks for yours as well.
Matt, not sure why one engineer wouldn't be able to do a survey on an 80k sqft property, or a 400k sqft for that matter by himself. Sure it's more work, and takes more time, but the findings will certainly be more consistent than having 5 engineers on it. Furthermore, I don't know any cost seg firms that have 5 engineers to depose on one mission, unless they don't have much work...lol. The only time we send more than one engineer to a property is when it's either an office tower of over 300K sft, or the like. Multifamily is much easier, because according to the IRS guidelines, the engineer only needs to see one of each unit type lay-out, and not every single unit.
In terms of the pricing, you're right that the size and type of the building, should determine the scope of work involved, and set the price, but not the purchase price. If a firm is charging a fee contingent on the tax savings, that's a no-no in the eyes of the IRS.
Thanks Yonah, you obviously have a more detailed perspective. I was just merely using simple numbers to arrive at my final end point which you seem to agree with.
There is... just a lot to unpack in this thread. It doesnt sound like a GP/LP structure to me, for one. Real estate attorneys generally handle purchase/closing transactions but you want a securities attorney also for the syndication aspect of what you're trying to do. I'm not sure why you're looking at note agreements. And... syndications oftentimes don't even use a term sheet. I do ppms/docs for smaller deals and start at 7500, but am a national provider.
Happy to chat with you. There's just... a lot of confusion here I think.
@Matt Ward - I am going to be super blunt: your advice is terrible. A Rule 504 offering DOES allow for a raise of up to $5 million, but you most CERTAINLY need a PPM. Furthermore, 504 offerings are often PROHIBITED by state law. You must go with Rule 506 offerings to enjoy what is known as a "federally covered" security.
@Au Jia I will just get straight to the point: you need a PPM, Operating Agreement, Subscription Agreement, and file your Form Ds. An offering between 2.5million and 5 million will cost you about $15,000 all in. Please feel free to contact me. Our website has already been graciously mentioned. We have a ton of free materials there. We also have a lot of free videos on FB and YouTube.
@Matt Ward - I am going to be super blunt: your advice is terrible. A Rule 504 offering DOES allow for a raise of up to $5 million, but you most CERTAINLY need a PPM. Furthermore, 504 offerings are often PROHIBITED by state law. You must go with Rule 506 offerings to enjoy what is known as a "federally covered" security.
@Au Jia I will just get straight to the point: you need a PPM, Operating Agreement, Subscription Agreement, and file your Form Ds. An offering between 2.5million and 5 million will cost you about $15,000 all in. Please feel free to contact me. Our website has already been graciously mentioned. We have a ton of free materials there. We also have a lot of free videos on FB and YouTube.
Although I didn't mean to be giving advice at all as i actually asked for a lawyer to chime in (LOL), as i stated i am not a lawyer, i do appreciate the candid feedback... although, again, never gave advice.... not a lawyer....
Also thanks for pointing out the cost of your services. Clearly different pricing options out there, which was MY ONLY POINT.
:). Please take my bluntness as nothing more than trying to get the right info out there.
:). Please take my bluntness as nothing more than trying to get the right info out there.
Like I said, I do appreciate it. Candid feedback is the best kind. Cheers.