506(c) Syndication(s) Secret

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506(c) Syndication(s) Secret

Joe Binkowski
Contractor · Chicago, IL · Member since 2020 · 14 posts · 6 votes

Hey BP Community -

I was sitting-in on an investor presentation for a syndication of an attractive 320-unit Class B MF development in a fast-growing market, and then I realized... it was a 506c project for accredited investors only [which I am not.. yet:)]

So then I began thinking...

How can I possibly get involved?

If I have a capital provider whom wants to be 100% passive and is ready to invest $100k with me (cash), and I have all the syndication structure and offering documents for this project... can’t I just find an accredited investor, present them the deal / get them on board, and go through them?

Why wouldn’t an accredited investor want a small portion of the pie at no-risk?

I’m curious to hear if people have done this in the past, how they did it, how they started, etc.

Any thoughts / discussion / enlightenment on this is encouraged!

Thanks!

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Mike S.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
5y

@Joseph Binkowski

Don’t forget that you can now be qualified as an accredited investor by passing the series 65 exam without any income or net worth requirements.

It will cost you around $200 to $300 and will be valid for 2 years (unless you can park your license with a financial advisor firm, then it will last as long as you maintain it).

It is not a difficult exam and you should be able to pass it with around 40 hours of self study with a good prep book or website.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    5y
    Originally posted by @Joe Binkowski:

    Hey BP Community -

    I was sitting-in on an investor presentation for a syndication of an attractive 320-unit Class B MF development in a fast-growing market, and then I realized... it was a 506c project for accredited investors only [which I am not.. yet:)]

    So then I began thinking...

    How can I possibly get involved?

    If I have a capital provider whom wants to be 100% passive and is ready to invest $100k with me (cash), and I have all the syndication structure and offering documents for this project... can’t I just find an accredited investor, present them the deal / get them on board, and go through them?

    Why wouldn’t an accredited investor want a small portion of the pie at no-risk?

    I’m curious to hear if people have done this in the past, how they did it, how they started, etc.

    Any thoughts / discussion / enlightenment on this is encouraged!

    Thanks!

     Do the joint venture deals rather than syndication to get started. The Joint venture is not subject to all these complicated rules. A good attorney on your side would help. 

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  • Joe Binkowski
    OP
    Contractor · Chicago, IL · Member since 2020 · 14 posts · 6 votes
    5y

    @Ashish Acharya

    Appreciate the comment. I will explore the JV approach.

    0Reply
  • Vinay Kolluru
    Investor · Cary, NC · Member since 2017 · 78 posts · 89 votes
    5y

    Hey Joseph, my understanding is that if you wanted to team up with an accredited investor though an LLC in order to invest, both members of the LLC would have to be accredited. And, as I'm sure you know, both investors would require a 3rd party verification of assets to prove their accredited status.

    Let me know if this is what are asking or not.

    3Reply
  • Daniel Han
    Investor · Member since 2019 · 74 posts · 70 votes
    5y

    the question is confusing to me.

    are you referring to taking funds from an investor and then putting it into a known syndicator's deal? and you split the return?

    or becoming a syndicator yourself?

    or have an accredited investor invest in the syndicator's deal with your money? and split the difference?

    0Reply
  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    5y

    Of course there is nothing magical about a "syndication", it can be as good or bad as an investment in any other real estate activity.

    0Reply
  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    5y

    @Joseph Binkowski

    Don’t forget that you can now be qualified as an accredited investor by passing the series 65 exam without any income or net worth requirements.

    It will cost you around $200 to $300 and will be valid for 2 years (unless you can park your license with a financial advisor firm, then it will last as long as you maintain it).

    It is not a difficult exam and you should be able to pass it with around 40 hours of self study with a good prep book or website.

    4Reply
  • Joe Binkowski
    OP
    Contractor · Chicago, IL · Member since 2020 · 14 posts · 6 votes
    5y

    @Daniel Han -  So there are essentially four parties in this situation. 
    A) capital provider,
    B) deal provider (me),
    C) accredited investor,
    D) syndicator

    I'd want the accredited investor to invest in the syndicator's deal with my money. So I'd need to figure out an agreement/return between A and B, and then I'd need to figure out an agreement/return between (A&B) and C. Or vice versa, depending on who is more negotiable.

    --------
    @Mike S. - I had no idea about this. Wow. Thanks for your comment. I will research further.

    0Reply
  • Jackson Babcock
    Investor · Charleston, SC · Member since 2021 · 120 posts · 108 votes
    5y

    @Joe Binkowski There are many syndicators that offer 506B opportunities that you could be a passive investor on.  Then you wouldn't have to give up any return by handing off your money to an accredited investor.  Im not an SEC attorney but I would think you would have to be careful doing this.  If the accredited investor took your money and ran, you probably wouldn't have a leg to stand on in court because you weren't supposed to be In the deal in the first place.  I would be leery of this. With a 506B offering you need a prior relationship with a syndicator before they have a deal. Then when they have a deal in place they are legally able to offer it to you.  Under 506B you can not solicit offerings to the public.  Feel free to contact me if you want to discuss further. 

    3Reply
  • Daniel Han
    Investor · Member since 2019 · 74 posts · 70 votes
    5y

    @Joe Binkowski - this seems overly complicated and possibly breaking a law... maybe you need a lawyer to vet this.

    If I were that accredited investor, I wouldn't touch any of it. There is no such thing as risk-free money.

    "small portion" of profit is not worth the possible legal issues.

    2Reply
  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    5y

    There are no "secrets" and every scheme has been tried and tried again.  Fortunately the rules have been "modernized," which is kind of a rich NLP technique if you ask me.  In any event you can see what the SEC thinks of modernization here:

    https://www.sec.gov/news/press...

    I have read of late that small family offices can pool non-accredited investor money to qualify that entity as an accredited investor.  You can also seek projects through licensed Portals that are using Title III and can accept money from non-accredited investors.  Some of those may even be competent and know how to underwrite deals and sponsors.  Our firm is planning on starting a Portal (legal term) next year on our roadmap because with $5M as the new threshold this really can move the needle for certain projects and sponsors.  

    Keep in mind that the sponsors with the longer track records and deeper bench of investors are unlikely to use some of the newer exemptions.  From their point of view they're seeking three primary things:

    1. Access to capital
    2. Control of their deal
    3. Cost of capital

    They likely have a lot of the first two so the only motivation they'd have to accept your money into their deal is either the third bullet.  The more junior sponsors are seeking more of the first two bullets; but fortunately you're also yield-seeking as a non-accredited investor so there is alignment.  

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    5y

    Most deals are 506B which accept non accredited

    0Reply
  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    @Joe Binkowski.  (Not judging the merits of the deal, alternatives, etc...) At face value, if you want to invest in this deal or another 506C deal, you will need to be accredited.  So @Mike S. is providing the perfect solution for you.  Good luck! 

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  • John Rubino
    Lender · Burke, VA · Member since 2013 · 177 posts · 28 votes
    5y

    Wow!!!  Great thread.  I just got back on to BP and boy have I missed these types of threads and insights.

    If you are non-accredited and sophisticated, find Sponsors you can talk to that you get to know. You have to have confidence and the Sponsor needs to build a relationship with you if he wants to be sure you have some insights into the risks of the types of deals you would be funding. If you are syndicating or partnering with other investors to fund a Sponsor's deal and you are a company doing this (LLC, partnership) then get a PPM attorney and file with the SEC. 506B is easiest but if it is really risky...then 506C is best. You have to have an "existing relationship" if you are or you are working with non-accredited and sophisticated investors. I would also highly recommend you set some parameters when thinking about working with non-accredited investors or if you are one and want to invest on a large deal. For instance, the SEC doesn't define income or net worth for non-accredited like they do for accredited. Something to consider...and if you are syndicating for your deals or a Sponsor you are partnering with make sure you get verifications for both your accredited and even those non-accredited you work with. Keep records and ask for re-verification as per the guidelines on net worth and income.

    Thanks for letting me jump in here.

    0Reply
  • Ivan Terrero
    Investor · Naples, FL · Member since 2016 · 256 posts · 75 votes
    2y

    https://mises.org/mises-wire/are-apartment-syndicators-incom...

    0Reply
  • Account Closed
    Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
    2y
    Quote from @Joe Binkowski:

    Hey BP Community -

    I was sitting-in on an investor presentation for a syndication of an attractive 320-unit Class B MF development in a fast-growing market, and then I realized... it was a 506c project for accredited investors only [which I am not.. yet:)]

    So then I began thinking...

    How can I possibly get involved?

    If I have a capital provider whom wants to be 100% passive and is ready to invest $100k with me (cash), and I have all the syndication structure and offering documents for this project... can’t I just find an accredited investor, present them the deal / get them on board, and go through them?

    Why wouldn’t an accredited investor want a small portion of the pie at no-risk?

    I’m curious to hear if people have done this in the past, how they did it, how they started, etc.

    Any thoughts / discussion / enlightenment on this is encouraged!

    Thanks!


     Bit of a cynical viewpoint, but most investment firms like this will take money from anyone and never dig into if the investor was accredited to begin with. Ask yourself why your so lucky to invest in such a great opportunity. Usually its because there is a lot of debt risk. when interest rates went up a year or so ago I lost over 300k in sydication projects I was a part of because I didn't understand this concept. Please make sure you do your homework and understand the deal structure and capital stack 

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Zachary Jensen

    The original

    Post “ why wouldn’t an accredited investor invest with no risk….”

    Why is it that people think there is no risk in real estate.

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  • Account Closed
    Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
    2y
    Quote from @Chris Seveney:

    @Zachary Jensen

    The original

    Post “ why wouldn’t an accredited investor invest with no risk….”

    Why is it that people think there is no risk in real estate.


     real estate only goes up right?? i think its the easiest asset class to understand that isn't stocks and a lot of peoples livings depend on marketing how perfect it is

    0Reply
  • Cortney Jones
    Real Estate Investor · Chandler, AZ · Member since 2009 · 111 posts · 114 votes
    1y

    Although in the last couple deals most have come out as 506C deals where only accredited investors are allowed, there are still 506B syndications where you can be a sophisticated investor (self proclaimed) so you don't have to be accredited. Look for some of those to go in as an LP (limited partner) and learn and grow your knowledge, skills and investment money so you'll be ready for the next accredited deal. 

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