RE Attorney for reviewing a PPM for a Pvt Lending project

[Mukesh Yadav]

Hi ,

I am looking for some references for a RE Attorney who can review a PPM for a Pvt Lending opportunity I am looking to invest in. I'm a California resident and the project/firm I am looking to invest in are in Texas...Any help would be greatly appreciated. Thanks 

Mukesh

[Jay Hinrichs]

well they need to register in CA.. I am pretty sure.

I think you have two issues. and maybe @Brian Burke Or @Ivan Barratt  could chime in to help U.

I can see the attorney advising you on the X s and Os but as to the merit of the deal.  Unless its a fairly unique attorney in CA that would know deals in Texas.. I think you have two things.

One is it legal and does it need CA registration since your A CA resident.

and two is it a good deal for you.. Is the Sponsor qualified to lead this charge.. Is it their first one.. or have they done many successful ones. 

the asset in some instances will be secondary to the Sponsor you need well capitalized experienced folks to pull these deals off if things get at all rocky. 

Keep in mind syndication is soup D Jour these days.. anytime you have how to syndicate guru's selling systems and training you know they are going for the mass's and not everyone frankly can be that IE a good operator.

the two I tagged I know are experienced if they care to engage .. and I know there are plenty of others on BP I just happened to know these two personally. 

[Brian Burke]

@Mukesh Yadav yes @Jay Hinrichs is right, the attorney will be able to review the legal aspects of the deal but would be unlikely to advise you as to whether it is a good deal to invest in.  They would be more likely to tell you it's not a good deal even if it is because an attorney's job is to protect their clients and minimize their risk.  

Having said that, the legal review of the offering should be done by a securities attorney.  I wouldn't recommend a real estate attorney unless they also had securities experience.

I don't think the attorney has to be located nor licensed in California nor Texas but should be familiar with the laws of both states.  I've worked with plenty of securities attorneys that operate nationally and I've worked with out of state real estate attorneys that are not licensed in my state, such as transactional attorneys located here the property is located.

There are a few securities attorneys right here on BP that can probably help with this review.  I'm sure some of them have keyword alerts set up and will chime in on this thread.

[Lucas Miller]

@Mukesh Yadav What kind of asset? 

[Ivan Barratt]

@Jay Hinrichs thanks for the mention. Only one thing to add regarding your advice and @Brian Burke's.

@Mukesh Yadav for those of us in the biz every day it can take 200 offerings to find one actual deal!  If you want to greatly reduce your risk (especially if this is new territory); evaluate at least 50 deals (I would aim for 100) before investing in any one deal.

[Bob Floss II]

@Mukesh Yadav The comments above are correct, I can review the document and make you aware of any issues I find with the legality of the offering. I cannot tell you, in my legal opinion, if its a good investment. 

Most investors want to know if the group has satisfied the SEC regulations, but I've been spending extra time taking a deep dive on the individuals and track record. I've been shocked to find how many groups offer "success" stories, but when you do some independent research, red flags pop up. 

I'm not trying to steer any investors away from syndication, but it's any area ripe with fraud.

[Jerel Ehlert]

Most have already identified the key issues: does the PPM comply with federal and/or state securities requirements, what level of investor due diligence are you looking for on the PPM issuer/syndication, what level of due diligence do you want on the underlying real property?

I've put together PPMs for real estate and small business, and they can get complex quickly even for the simplest capital raise.  There are a number of exemptions and exceptions to securities registration the issuer can qualify for based on what the offering is, who will be accepted, and the target raise this round.  Most offerings are covered by federal regulation which preempts state regulation, so most issuers merely have to do an information filing with any particular state.  Jurisdiction will probably fall to the state where the issuer-entity is domesticated.  Supplemental jurisdiction over the offering may cover other states, but you run into federal preemption again.

When examining the issuer, background checks are a minimum.  Verification of claims of prior success are the next easiest.  Reference checks will tell you who their supporters are because no one will give bad references.  In the internet age, you can get a feel for who you are dealing with unless they curate their online presence.  

Checking the real estate deal may be easiest of the three issues, to the extent that historical and current market data is available the data can be verified.  Analyzing the feasibility of the issuer's pro forma is where experience comes into play.  People with advanced degrees disagree on the future value of a project because there are different methods to arrive at value.  Valuating real estate has fewer variations than business because analysis is limited to similar projects within the region (as opposed to the same businesses running across the country and overseas) and fewer variable inputs (wages, supply chains, distribution chains, marketing campaigns, etc.), but still presents challenges because the analyst needs to know what data to include and how much weight is given, and what presumptions to make.  Even with well managed real estate projects, management fees and payout structures can greatly impact returns to the investors.

Hope this helps.

[Amy Wan]

Echo what’s been said above, and will add that a real estate syndication attorney can probably tell you whether terms of the deal are standard or deviate from standard, but you’ll still need to run the actual financials and conduct DD yourself.

[Mukesh Yadav]

Thanks @Jay Hinrichs, @Brian Burke, @Ivan Barratt, @Bob Floss II, @Jerel Ehlert and @Amy Wan for your perspectives and insights. I am a newbie investor and all your responses are very educative open my mind to various elements that need to be examined.

I have been looking at investing in some syndication deals (have already invested in a two so far) but every time I look at a PPM and the Business Summary I feel like getting an expert to vet some of the legal items on the one hand and the attractiveness of the deal from a financial standpoint on the other hand would be very helpful and wouldn't mind spending some money in fees for that service....So if you all can recommend some service/individuals who can do this for a fee I would really appreciate it....Thanks

[Jay Hinrichs]

Originally posted by @Mukesh Yadav:

Thanks @Jay Hinrichs, @Brian Burke, @Ivan Barratt, @Bob Floss II, @Jerel Ehlert and @Amy Wan for your perspectives and insights. I am a newbie investor and all your responses are very educative open my mind to various elements that need to be examined.

I have been looking at investing in some syndication deals (have already invested in a two so far) but every time I look at a PPM and the Business Summary I feel like getting an expert to vet some of the legal items on the one hand and the attractiveness of the deal from a financial standpoint on the other hand would be very helpful and wouldn't mind spending some money in fees for that service....So if you all can recommend some service/individuals who can do this for a fee I would really appreciate it....Thanks

that's a good question other than a financial advisor who specializes in real estate deals.. not really sure if there are any consultants out there that take these kind of projects on..  

[Amy Wan]

I dont often see folks asking an attorney to review the PPM of a deal they're investing in (unless they're a high net worth individual/family). Mostly what you want to look for is clarity in distributions, ownership, and voting rights (to see what your rights are when things go wrong). The sponsor should use an attorney to draft their documents (if they drafted it themselves or edited a template from the internet, run away...)

Otherwise, people don't often have an attorney take a deep look unless they've lost money and are now consulting an attorney about suing the sponsor.

[Jerel Ehlert]

Sorry, but interpreting legal instruments is EXACTLY the time to get a lawyer involved.  

If the sponsor drafted something they got off the internet, you want to get a lawyer to look at it.  If you don't fully understand what the investment is, you want to get a lawyer to look at it.  Before the transaction goes sideways to see what your options are going in, you want to get a lawyer to look at it.

Sure, the investor is going to pay a bit to have a lawyer look at it, but it is often better to pay a bit now and pass, than invest and pay a lot later.

[Bob Floss II]

@Jay Hinrichs I've tried to offer reviewing syndication ppm's for investors and review the document itself and the underlying investment from my experience in investing in my own deals. However, I found syndication investors are shocking unwilling to pay for their own adviser to review the paperwork.

[Jay Hinrichs]

Originally posted by @Bob Floss II:

@Jay Hinrichs I've tried to offer reviewing syndication ppm's for investors and review the document itself and the underlying investment from my experience in investing in my own deals. However, I found syndication investors are shocking unwilling to pay for their own adviser to review the paperwork.

I get it  I have learned the hard way believe me. !!! 

[Mukesh Yadav]

Originally posted by @Jerel Ehlert:

Sorry, but interpreting legal instruments is EXACTLY the time to get a lawyer involved.  

If the sponsor drafted something they got off the internet, you want to get a lawyer to look at it.  If you don't fully understand what the investment is, you want to get a lawyer to look at it.  Before the transaction goes sideways to see what your options are going in, you want to get a lawyer to look at it.

Sure, the investor is going to pay a bit to have a lawyer look at it, but it is often better to pay a bit now and pass, than invest and pay a lot later.

[Mukesh Yadav]

@Jerel Ehlert, can I message you one one to explore the possibility of you providing me some on this topic?

[Amy Wan]

Originally posted by @Bob Floss II:

@Jay Hinrichs I've tried to offer reviewing syndication ppm's for investors and review the document itself and the underlying investment from my experience in investing in my own deals. However, I found syndication investors are shocking unwilling to pay for their own adviser to review the paperwork.

 I've found the same.