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Tax Smart Real Estate Investors Podcast
MLRE: How to Raise Capital Legally for Real Estate Deals with Attorney Mola Bosland
00:39:48
In this episode of the Major League Real Estate P…
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- [00:02]
A
Welcome to the Major League Real Estate Podcast. A podcast for large scale real estate portfolios. My name is Nathan Sosa and I'm your host. Together with my co host Tom Castelli, we talk about tax and legal strategies and we bring on operators of large portfolios for in depth discussions on how they grow their business and this tax strategies behind what they do. We hope you enjoy. Hey everyone. Welcome to another episode of the Major League Real Estate Podcast. I've got of course my co host Tom and a special guest today, my Mola Bosland, who is a highly regarded corporate securities attorney with a decade of experience guiding real estate investors, syndicators and fund managers through the complexities of raising private capital. She is a key member of Syndication Attorneys and has helped countless clients structure compliant and effective real estate syndicates and funds, ensuring they operate within the bounds of securities law while maximizing their fundraising potential. So Mola, thank you so much for coming on today. We are super excited to have you on. Anything else you want to add to that?
- [01:03]
B
Well, I'm here in Florida and I have been a Florida licensed attorney for almost 20 years and my specialty besides securities law is actually real estate. So I am a licensed real estate attorney here in Florida. So I do understand the complexities of both ends of your transactions. You know, whether it's raising money or trying to get to the closing table and your documents there. So title and all, that's a lot
- [01:26]
A
of crossover, I bet.
- [01:28]
B
Yes it does. Especially for people that are raising specifically for real estate purposes. So they have a lot of questions and we always have recommendations with regards to like how long your due diligence should be and you know, and your closing time just so you have enough time to actually raise the capital to close.
- [01:44]
C
Absolutely. So, so we have a lot of listeners on this show. We diverse array for people who are just getting started and maybe their first syndication or considering jumping into the the game. The world of syndication all the way up to people who are very sophisticated have done multiple single asset syndications and all the way up to very large fund structures. So maybe we just start with entity structuring. LLC is always seem to be a hot topic for everybody.
- [02:08]
B
Always.
- [02:09]
C
It is, it's, it's like official.
- [02:11]
B
Right.
- [02:12]
C
So first question is what's the most common entity structures you see for single asset syndications versus funds?
- [02:18]
B
So with a single asset, you know, we call them specified offerings in our firm but everybody calls them something different. Some people just call them syndications. There is typically a two entity structure. You have your entity that is for your investors. So that's like the investment entity, right? So we'll call it like 1, 2, 3, Main LLC because that's the property you're buying. It's going to hold title to the property. It's also going to be the borrower on any loans. And then you have a manager entity or a GP entity as some people will still call that. That entity will actually use to incorporate insulate the sponsors or the offerors of that syndicate. We use that to manage the investment entity just for the fact that you don't want to put your personal assets at risk. So you are isolated in an LLC and that will manage that investment entity. And so that is the typical structure of a single asset. Once there's like a loan balance over 10 million, the lenders will typically require you to have a separate title holding entity just so that if anything unfortunate would happen if they had to foreclose, there are no members in there. And that structure is also pretty common when you are doing development projects or any type of construction because you're isolating your investors from that potential liability.
- [03:36]
A
Real estate syndication tax is confusing to you. Well, that's why hopefully you listen to the podcast today. Also you should go to our website www.therealestatecpa.com and you'll be able to get access to the old ultimate guide to Real Estate Syndicators and Sponsors which breaks down everything from preferred returns, depreciation strategies. Whether you're a GP or an lp, avoid costing mistakes and maximize your returns. Download the complete guide free and get the taxpayer you need to succeed. What does the title holding go? Is it kind of just like, is it 100% owned by the fund above? Is that typically how it works? Is it completely separate out by its own.
- [04:10]
B
Yeah, it is typically 100% owned by the investment LLC and it's still managed by that manager or GP entity. The reason it is owned by that investment entity is so that funds can legally pass to the investment entity for distributions for tax purposes. They have to be a related entity.
- [04:29]
A
Okay, yeah, actually you kind of like kind of already went into this. It's like, so what point does a syndicator kind of like outgrow that deal by deal structure and like get. They need something more sophisticated like me and you were talking about beforehand, like open ended funds with that type of structure.
- [04:44]
B
So typically what we recommend to our clients is you should do at least four or five of the individual syndications just so you can develop that rapport with your own investors. You have a track record showing that you know how to manage other people's money because your real estate track record is actually pretty good. But people want to know how you manage other people's money. So we do recommend that you do at least four or five individual ones. So that way when you are ready to do a fund, your own investors are going to be chomping at the bits to get involved in that. Right. You want to be able to have investors that you can carry over into the fund structure. Because funds are really the hardest way to raise money because it's nothing tangible. You're going and saying, I have this idea, I'm going to raise all this money to buy these different types of assets. Whereas an individual syndicate, you know. Exactly. This is what I'm buying. This is where every penny is going and the investors can see that. So you want to have that investor trust with you already when you're getting ready to want to launch a fund.
- [05:43]
C
That makes a ton of sense. Yeah, sometimes people want to pull the trigger on that a little bit too early. But what kind of mistakes do you see when working with both new syndicators and experienced indicators when it does come to entity structures? Because we've seen a lot of mistakes people make out there. Maybe they didn't get the advice up front or maybe they tried to do it themselves, which is crazy sometimes to see that type of stuff when you're dealing with other people's money. But what types of mistakes do you see there?
- [06:08]
B
Typically one of the number one things is like the entity's already formed. Wrong. Right. They'll make it member managed. And there's a big difference when an entity is member managed because your members then actually have voting, real voting rights. Right. It is statutory. So they have a say in what you're doing. When it's a manager managed entity, the manager is actually in control and makes the day to day decision. So your members have a very limited voting rights rights. They don't control what happens to the property. They don't get to say if you refinance or when you sell. They have nothing to do with your day to day function. But member managed companies do. A member managed company is just like having a joint venture or any type of regular partnership where your partners get to make a decision. That's one of the first ones. We always see entities already structured wrong off the bat. And then another one that we kind of see is where the equity distribution, where it's not marketable for people. Right. So if I say that I want to raise $2 million, typically you're supposed to be selling a percentage of your company. Right. To raise that $2 million. What you see out in the market since COVID it's been about like 70, 30 or maybe 75, 25 now the economy's changing a little bit more, maybe even 80, 20. But the higher percentage is what you're actually selling for the investors. And a lot of people come in with like the reverse and we're like, that's really not marketable for a lot of people. They're not going to want to take the bite that there's not that much equity up for sale if they're going to have to be putting in this money. So that's one of the two biggest things that we really see coming in is when people are just not willing to sell more of the entity, thinking that they'd lose control. But you're not losing control because it's
- [07:54]
C
a manager managed entity that makes a lot of sense. It's not just the equity. It's not necessarily, doesn't matter how much equity somebody owns, as long as it's structured the right way, you could still maintain control even with a low, with, even with a lesser equity stake.
- [08:06]
B
Correct. Because typically your lesser equity stake for a syndicator is your sweat equity in the deal. Right. If you're going to put money in, you're going to put in the same side as your investors. But what you're not selling is your own sweat equity that you are retaining. So regardless of if you sold 80% to raise money, you are, it's still a manager managed company. That manager controls the day to day functions of the company and of the asset.
- [08:30]
C
Makes sense.
- [08:31]
A
And mo in the tax world like that, that'd be the profits interest to promote the carry that you're talking about that sweat equity piece. Right?
- [08:38]
B
Correct. And with that sweat equity, it's not really quantitative. Right. Because you just really put together the deal. So you're going to have to assign a value to it. We typically have our clients invest like a nominal amount for that sweat equity, maybe $1,000 divided up amongst everybody. Because you're going to lay your tax basis. So whatever now you get in that percentage will be taxes, capital gains versus ordinary earned income. So that's how we lay it out in our documents for our clients.
- [09:06]
A
Right? Yeah, that's really key. To do that.
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B
Right.
- [09:09]
A
In the front end is like get a little bit of investment in there, 100%.
- [09:12]
C
Right.
- [09:12]
A
It's like, like you said, get the tax basis piece and then.
- [09:14]
B
Right.
- [09:15]
A
Like you said, it's not quantitative either, but it's the most important part for the GP at the end of the day. Right. It's like the most crucial piece.
- [09:22]
B
Correct. Because you don't want to be paying out, you know, because I mean, there's a significance difference between ordinary earned income versus capital gains payments in your taxes
- [09:30]
A
at the 17% swing.
- [09:33]
B
Oh, yeah, yeah. And that makes a big difference and makes the determination if your deal is even viable anymore, right?
- [09:40]
A
No, totally.
- [09:41]
C
You know, kind of switching gears is the bit into capital raising. I know it's kind of all capital raising at the end of the day to some extent. But, you know, there's obviously 506B and 506C. There's a few other exemptions and securities laws around that, but that's often the two that we see most syndicators going towards. And when you're operating in 2026, you know, with the proliferation of the Internet, social media, all that type of stuff, how should syndicators, general partners, sponsors, how should they be thinking about, you know, when to choose 506B versus 506C for their offering?
- [10:13]
B
So I've always told our clients, when you're looking at a deal, depending on how much you need to raise, right, you're going to look at your network, your friends, your family, people, your business associates. That's typically what falls under a 506B. If you can raise the total amount from your own circle, there's no reason to do a 506. A 506C is really for marketing purposes, right. You know, you're not going to be able to raise it all from your circle. So you're going to have to market to raise that money. And that makes it a little bit more nuanced, right? Because you have marketing rules and regulations and things you can say and things you cannot say. But if you can raise that money from everybody in your circle, there is no need to do a 506C. We have clients that have done enough offerings over the years that they have never done a C. They have raised $30 million from their own circle because they keep growing that network. And as long as you have that pre existing substantive relationship, which is what a 506B really requires prior to your deal being contemplated, every time you meet people and you just keep building that relationship, moving it forward, you know, always remember that there's people in the background, so you want to make sure you keep in contact with them. You know, ever so often check in even if you don't have a deal. Check in, see how they're doing and you're going to keep that relationship moving forward. By the time you do have a deal, you probably will have enough people in your circle that you can go back to and say, hey, I've got an investment opportunity that I think might really work for you. And then you can have that discussion with them because you've built that relationship
- [11:46]
A
already for the people who are doing that, who are just like, like doing the networking and that. So like I guess the question would be why do they still need the 506B piece to go with that? Is that so, like just like they can show those documents? Like I guess like could someone just like start up an LLC and start calling up people to invest? I guess like what's the legal process behind that?
- [12:04]
B
So the legal process is under regulation D, rule 506B, you have to have a pre existing substantive relationship prior to your deal being contemplated. Right. And the reason a lot of people want to be able to do a 506B is because if you have non accredited investors, they can invest in that. You can have up to 35 non accredited sophisticated investors and unlimited accredited investors. And there is no verification process. Your investor self attests. So on the subscription agreement or the questionnaire, they'll just check they're accredited or non accredited. With a 506C, it is for accredited investors only and they have to be verified accredited. So they need to provide proof through their cpa, their attorney, their third party services that prove that they are accredited, either that they have a million dollar net worth, they make $200,000 a year or $300,000 a year with their partner. With a B, you don't have to do any of that. Right. So it's a lot simplified for more people and you could open up, you know, your pool to the non accredited investors also that want to be able to invest.
- [13:09]
A
I guess. What type of deals do you see that where someone makes needs, like someone's been doing 506B for a while and then they flip to a C? Or do you see people who, who were doing 506C investments and then flipping back to a B? Does that happen? Do you see people going back and forth or is it really once you choose one lane, you stay in one lane?
- [13:24]
B
Well, we've seen it. I mean there are people that'll start off at an actual B, right, for their offering and, or a fund happens and they end up doing what's called a conversion. They didn't have enough people in their Circle to be able to really raise the money. So now they need to convert their offering to a 506C to be able to advertise now and get more investors. And when you do that, you know, the documents do need to change, so you could have the right exemptions in your documentation. And if you're doing that, you got to make sure you have enough time either if you needed to do it before close or after close, just to reach your target. So that is something that does happen. But you really do see some people that as they keep growing and they've done more and more syndications, instead of doing a fund, they may just do a 506C for their next deal. Right. Because they still have that. They're building that track record and they're getting their name out there and their brand out there. And then you do have people that have done a C in the past. It wasn't really great for them because they didn't have the track record of the reputation that, you know, people thought. And so they'll go back to doing a B with their own people. So you see it go either way, just depending on the scaling of the person and what they're trying to achieve with their business.
- [14:38]
A
Yeah, it's something you mentioned multiple times is like getting that reputation or that resume, and that just comes from by doing deals. That's like just getting the experience and having success.
- [14:45]
B
Correct? Correct. I mean, we have clients that have started off with deals raising only like $250,000, really, just to start to build that track record, to show people what they're doing with other people's money. Because that is the most important thing is investor trust. If investors trust you and they see that you've been doing well with other people's money, they're not going to feel so apprehensive about investing with you as you keep growing.
- [15:10]
C
That makes a ton of sense. I think track record is really important. And I know as an LP myself, that track record is one of the top things I look at. And if somebody has very short track record or no track record at all, that definitely complicates the due diligence process as an investor and would call for a premium on the return. So you got to be able to build up the track record for sure. I know we touched on a lot so far. But when it comes to raising capital, what mistakes do you see newer syndicators make when raising their capital for the first time?
- [15:40]
B
Over promising, that is one of the biggest big things is over promising. When we have Clients, we always tell you it is better to under promise and over perform than it is to over promise and underperform. And a lot of people don't understand that. There are very triggering words even that the SEC gets involved in. You cannot guarantee returns. And if you say that your returns are going to be, you know, 30% annualized return, you have investors that are going to look at you that you don't know what you're doing or they know that they could take advantage of you. So you never want to over promise. You want realistic looking returns, especially when you're doing your projections.
- [16:26]
C
And for sure that is definitely something that I know going back to my OP experience, I'm always trying to look at how well did syndicators do in their track record and meeting or exceeding their projected returns. And if it's so far off on a consistent basis or they're just unwilling to provide that information or they don't have that information, that's a major, major red flag because you know, as a steward of somebody else's capital, people want to see that you're going to be able to achieve the results you set out to achieve. And if you, and if you over promise and under deliver, especially consistently, then I think you'll probably be toast in the long run.
- [17:00]
B
Yes. And the other thing that we do see is like not wanting to disclose things. That is not possible. You are dealing with other people's capital. Disclosure is an. Honesty is the most important factor. You have to be upfront with your investors. Even if the project isn't even going as well as you predicted. Right. Things happen. You have to be upfront. Not everybody wants to hear how, oh, everything is wonderful and the next thing you know, well, we've are losing the property. Well, what happened in the, in between when you kept saying everything was great. Right. So you have to be always upfront with your investors. You have to tell them everything. I mean we've had clients that had, you know, some restructuring issues and they needed additional capital to make their project keep going. Right. And a lot of times capital calls can be voluntary and our client was very upfront, told them what, you know, told all the investors what was going on, what they needed. And every single investor actually did additional capital because they felt that confident in their syndicator that was honest and knew that this is what their money was really going to be used for to make sure that this project could keep going forward. So honesty and disclose, disclose, disclose. I can't speak on that enough. Disclose. If you're doing a Single asset. You make sure that your purchase and sale agreement is attached as an exhibit so that they know it's a real property that you are buying. Because a lot of times if they're not willing to show you that there might not be a real property that they're buying, you don't know what they're really raising money for.
- [18:39]
C
Yeah, look, there's definitely Ponzi schemes out there, for sure. I've seen so many of them now, and I've been unfortunately exposed to one myself on the limited partnership side. And what Mola is saying here cannot be understated. This is all about trust when you're a syndicator, and if you're going to try to hide things or not present information that should otherwise be transparent, that it's just another red flag and it's going to inhibit your ability to raise capital.
- [19:03]
B
Most definitely. Most definitely. I mean, what was it just two weeks ago in Miami, they just arrested somebody for what, an $84 million scheme?
- [19:15]
C
I. I didn't hear about it, but I believe it. I believe it exists. I know there's the ATM machine fund issue that is still going on, but, yeah, no, this stuff definitely exists. And there was other. Other things. So that's what you see maybe on the newer syndicators, you know, what is. Any particular mistakes? You see more experienced or sophisticated operators. Any mistakes you see them make that maybe a little surprising to see them make, or just. Just in general?
- [19:42]
B
Actually, there are some syndicators that make a simple mistake and it can come back to bite them later on. So most people, as they start to grow, they'll make websites, you know, and they'll show what their track record is and all these things. One of the number one mistakes that people make is that they say that they own those properties. Syndicators do not own those properties. They manage them. The syndicates own those properties. And they can get dinged by the SEC for that.
- [20:12]
C
Really?
- [20:13]
B
Yes. So years ago, there was this couple, they were very well known in the business, and they had an investor complain the complaint was not founded, but based on the sec, they do like a background on everything that you've ever done off of one complaint. And so those syndicators got dinged on their website because they said that they owned the properties instead of managing them. And then they also got dinged on how they were emailing their investor database. So they deemed it like mass communications, which would fall under solicitation, but they used to do B's. So you can't do like mass communications. To like all of your investors at once, you know, they want you to still have that personal relationship under a 506B.
- [20:57]
C
Yeah, that was actually a follow up question I was going to ask before, but didn't. I was going to say, you know, is saying having an email newsletter enough to, to establish a substantive relationship with your investor base, but from what you just kind of indicated that it's not.
- [21:09]
B
No. So the way the SEC kind of looks at a substantive relationship is that you have to basically understand their financials. Right. You need to know if they're accredited, they're not accredited, what they've ever invested in before, if they've invested anything, what types of returns have they received, what types of returns are they looking for? Basically, as a syndicator, you need to understand their overall investment goals. Goals. And how those investment goals align with yours. Because not everybody is good for your projects. Right. All money is good money. Right. So the people may, let's say somebody wants to invest and your deal is only going to do like an annualized 13, right. Over a five year period and you have investors on your list that are looking for something like a 17 annualized. Those are not good people to pitch that deal to. They may be good for your next deal. So understanding how their investment goals and your investment goals line is also very important because then you'll know who you can go to talk to and who you shouldn't go to pitch to.
- [22:08]
C
Yeah, no 100%, you know, definitely. I've seen my fair share of investor relations issues and if you can get in front of that, all the better. And, and I always tell people who are considering investing as an lp, know your buy box, know what your criteria is, because sometimes LPs don't know what their criteria is.
- [22:24]
B
Correct.
- [22:25]
C
Certainly as a syndicator, you definitely want to make sure you're doing your due diligence and asking this question so you don't accidentally place them in something that is a misfit and they're not even aware that the LP is not even aware that it's a misfit because they don't even know.
- [22:37]
B
Right.
- [22:37]
C
That makes a lot of sense.
- [22:38]
B
Yep. So like what I tell people is not everybody has a CRM out the bat, you know, off the box. So a lot of people actually use like Excel spreadsheets, notate your conversations with people, take notes. You know, it doesn't have to be like this long diatribe. I mean I know zoom even now does AI summary. Right. And they even have the note taker just Notate those calls, right? So you know what you spoke about, you know what those people are kind of looking for and you keep it in one place because it can always come back later on. I've had that happen to a client. They spoke to somebody, they're that person invested. And when they filled out the subscription agreement, they wrote that they did not know them. And it's supposed to be a 506B. They're supposed to have that relationship. And the investor said, no, I don't know this person. And so when the client called and asked about it, I was like, did you take notes? Did you have conversations with these people? And they're like, yeah. I said, well, how about you give them a call? Give them a call and try to jog their memory. When they did, the investor was like, oh my God. Yeah, I remember when we spoke about this and we spoke about that. So it's always good to have your own notes on those calls. And that also helps you kind of weed out who you want to pitch to for what deals.
- [23:50]
C
Yeah, that makes a ton of sense. If we just switch gears just a little bit again into moving up the capital stack, right? So when syndicators are just starting out, it's often from individuals, you know, whether it's high net worth or high income individuals, accredited investors. But at some point you might be raising capital so large or doing deals that are so large, you need more, more than that when you see people start to target like family offices or other institutional level investors that are not just individuals anymore or going beyond that.
- [24:17]
B
So what I can tell you about family offices you've got, have been raising for a very long time, very long time for them to even have the slightest interest in you. It's just the way that their mechanisms work. As people grow, what a lot of people end up doing is private equity. And with private equity, you have to actually be very careful of the terms and read all the fine prints and have an attorney actually review it to tell you if it's a good deal or not. Because private equity will have terms in there that if you miss one thing, you can lose your whole project. And a lot of people don't realize that or don't see that. So most people, when they're scaling up, that is the first place they go is to private equity firms. So like it. It'll have terms like, you have to have this type of report in on this day and these type of reports and you may miss one. You can put your whole project at jeopardy and they can own it and walk away and you end up with
- [25:12]
C
nothing, some, some predatory language from the private equity funds. I expect nothing less.
- [25:17]
B
Yeah, very. So you definitely need to have those agreements reviewed by your attorney to at least try to help level out some of that playing field.
- [25:28]
C
That makes a lot of sense and that, that I guess from that perspective this is like when you've been in the game for a while. It sounds like when you're kind of leveling up to the, the family offices and the more institutional investors of private equity. You really need to have your systems valid and you really need to have a strong business around you at that point, not just like a few syndications that you may be done and you're still on the come up, so to speak.
- [25:48]
B
Correct. You should have. You probably are raised, been raising money for quite a few years. This may be one of your larger projects where you're raising a significant amount of capital. You know, because we have clients that have done, you know, 30, 50 million, you know, depending on what they're doing, what kind of development project they're doing. People that are building hotels raise an exorbitant amount of capital and you'll see a lot of private equity in that. Right, like in the big names that are getting the flagships and the banners from, you know, big name hotel companies. People that are building not multifamily properties, but single family homes that are building not just the build to rent because that's been a new fad for the last couple years where they'll build a whole development and then they'll rent out the homes in the development. We're talking about people that are building like, you know, big luxury home developments. They also syndicate, which a lot of people don't realize that they do syndicate and they'll use private equity towards helping continue the build. You just gotta watch how you want to grow and you take your time and you're growing and you look at every possible avenue and you make sure you read every little line and you have an attorney behind you to read every other line for you as well and make sure your questions are answered.
- [27:06]
A
Have you experienced a situation where someone said, hey, can you review this for me? And then turns out you have to give them the awful news that our private equity owns everything. And it sounds like maybe you've experienced that.
- [27:15]
B
Well, we've done it. What we do is when our clients are interested in private equity, we always tell them, send us the documents, do not sign anything until we have actually read them. And then depending on what the terms are, we Will sit down and break down. These are what the terms really are. These are your obligations under this to keep the project for yourself. And then these are the terms we think we can help you renegotiate before this is finalized. So we haven't had any of our clients actually lose their projects to, to private equity because we try to take care of it on the front end.
- [27:51]
C
That's, that's golden advice right there. Getting advice proactively. Right. I've said this now in three different podcast episodes recently, but I, and I, I love this. An ounce of prevention is worth a pound of cure. Make sure you get it done up front. Otherwise, you know, you might end up losing your deal in this case.
- [28:07]
B
Correct. After all that work you put in. Right. Because the syndication is like a full, it's just like a full time job. And I tell that to clients all the time, especially the ones that don't want to charge fees. I'm like, you need to remember this is having another full time job. Because you see a lot of people are Transitioning from the W2 job to doing this. And so they still have their 40 hours or 50 hours, whatever they're obligated to with their job. And they don't realize that a syndication and managing investors and managing their expectations and managing the properties and all the people that are working for you behind the scenes is another full time job.
- [28:43]
C
Yeah, for sure. For sure.
- [28:45]
A
What are some of you kind of actually mentioned some of the trends you're starting to see right now, which was like developers bringing in private equity, we're seeing that too actually. So I guess what trends or changes are you really seeing in the syndication world right now that maybe you hadn't seen previously? Or what are some actually suggestions you have for those folks who are getting into that space?
- [29:05]
B
So some of the trends is actually they're selling more equity in their deals versus, you know, less. Especially we're seeing people are going back to the higher preferred return. Right? Because there's a while that you saw like the prep was like maybe 6%. Now you're seeing more back to the 8%. And then you're seeing more people do straight returns. So they're instead of preferred return and then an equity split, some people are just offering, you know, 12%, 13% or something like that. And then you're also seeing more debt offerings happening now where people are instead of like promissory notes, they're getting the same function as a promissory note, but it's an offering. Because one of the biggest things Is if you have multiple promissory notes, lenders are not going to lend for secondary debt. So it provides the same function. They have no equity, they have no voting rights. It's just a straight return. Basically, you're the borrower and they're the lenders to you. So you're seeing more of that actually happening as well. Because it's just a straight return. Just like a note.
- [30:13]
A
Interesting. Why? So I guess, why people just doing more straight returns? Like, like, I don't. Like, like, why is. Like, I feel like why is a pref not being as prevalent? Sounds like.
- [30:22]
B
Well, you're seeing more people move to the straight returns, I think because of the way the economy has been situated. Right. So pre Covid, an annualized return in the high teens, low 20s was wonderful. Right. And then post Covid, it was like the mid to high teens. Now for, you know, great returns, it might be in the low teens. And so instead of doing a prep and all these other things, it's just, you'll get a straight, you know, 13, 14%. And a lot of investors are okay with that because that's more stimulated, stable than waiting for, you know, if I haven't annualized 8%, that's 2% a quarter. If there is anything left over, then it might get split along the equity lines and then I have to wait until sale to realize that annualized return. Whereas if I'm saying it's just a straight return, annualized, it's just a straight return.
- [31:15]
C
Yeah. The market, the market's definitely changed over the last few years. The amount of returns that commercial real estate can generate just aren't as strong as maybe they were.
- [31:25]
B
Right.
- [31:25]
C
Pre covered. I know I'm seeing that on the LP side just kind of with the deals that I'm seeing, they're not as favorable as they once were. And whenever I do see people, because we do have some prospects to come in and want to work with us, have some crazy return structures, I'm looking at them like, are you sure? Are you sure you can do that?
- [31:42]
B
Right.
- [31:43]
C
Especially with the first timers.
- [31:44]
A
Right.
- [31:45]
C
Like, it's kind of going back to what you said before, under promise and over deliver. Definitely something that people need to be cognizant of at this point.
- [31:52]
A
One more like trend question I want to ask you, Mel. Are you seeing a lot in the data center space? I know that's like kind of like the hot topic right now. Are you seeing a lot in the data center space from a syndication perspective?
- [32:02]
B
Not from our clients so much, but I'VE heard, you know, out there, you know, you know, but we have a lot of like, you know, multifamily has kind of really tanked, so we're seeing more people. They are doing, like, RV parks, self storage, even, like, super storage. Right. So you have like the super storage that can be turned into, like, kind of workspaces. We are seeing. We had one client through tiny homes. Right. They were buying land and then entitling the land and then building tiny homes. We do have a lot of clients that are just buying raw land and titling it, holding on to it, and then selling it for a profit. So they're not even building anything. They're just buying the land to sell to a future developer after they have entitled it. So those kind of things are very common right now. So are like lamping parks, RV parks, mobile home parks. Those are what you're really seeing out there compared to, you know, the traditional multifamily. That was such a big thing for quite a while.
- [33:03]
A
That's interesting.
- [33:04]
C
Yeah.
- [33:04]
A
That's the way actually seen that too. Is a lot of people trying to, like, lean into that space a lot more.
- [33:08]
B
Yeah. On our website, we actually have done a whole series on outside of multifamily. Right. So if anybody is interested, they could go look on our website. We do have a couple of podcasts and we've talked with clients that are not doing multifamily and how that's going for them and, you know, their process behind stepping outside of that multifamily world to invest in other asset classes.
- [33:29]
C
It's probably a valuable resource. So we're gonna drop that into the show notes for everybody who does want to go ahead and check that out.
- [33:35]
B
Yeah.
- [33:35]
C
Is there anything else that we've not discussed that you think syndicators, whether they're new or whether they're seasoned, should know about? In the current environment, really deciding if
- [33:45]
B
your deal is viable. Viability is a big thing. If you are. Because we've seen this with people that are not very experienced with doing their financials right and their projections and their business modeling that we're seeing a lot from a lot of new syndicators. There are a lot of modeling programs out there. And, you know, if you have people on your team that are great with the business financials, wonderful. You need to make sure you have that because you're going to need to figure out if this deal is viable, are the returns that you're projecting, really what's out there in the market and what people really want to see. So that is the one thing I would really hammer home for new syndicators and even older syndicators that have been doing it for quite a while. Making sure your deal is actually viable by really doing your projections and your financials. Because I can't tell you how many people have come, they said they had a deal, and you get down to setting up their documents and putting their deal together, and they have no clue what they're supposed to be paying out to their investors. Absolutely no clue. So that is a big key. Looking at your projections and the financials. And is that deal viable? Is it really going to be selling to people or are people going to want to invest? You got to know your financials first to know that.
- [35:02]
C
And that means having good, good records and stuff. I can't tell you how many times people come to us and say, I don't know how much to pay out my investors and my whole. What's your, what's your accounting system look like we don't have? Okay, well, that's a problem.
- [35:12]
B
Right?
- [35:14]
C
So, you know, definitely, definitely have to take the financial side of your business seriously, especially if you're syndicating. But if listeners are tuning in right now and you know, they need a syndication attorney, whether they're. Maybe the question is what types of syndication clients do you typically, you know, work with who should maybe consider reaching out to you?
- [35:31]
B
So we work with new to old. We actually have our own programs, so we have a starter package and we have an accelerator package and a turbo package for people that are new to syndication. They don't have a project yet. You know, they may have raised money once or twice, maybe through promissory notes, but it is our own process to help them put together their whole, whole marketing plan behind the scenes. Right. And all the different steps that you need to take to move forward, to begin raising capital to. So that you can start raising money for your own deals. And we also have our own mastermind for our clients. It's client only. We meet every Wednesday, I believe, at noon Eastern time for an hour, hour and a half. We talk about different marketing strategies, different investor relations strategies, and just answering general question questions with regards to syndication. So like I said, we start from the very beginning. And when you do a syndication with us, we make sure we walk you through that process from beginning to end. We are all about unlimited communication. It is not, you know, hourly charge to talk to us. We do phone, email, text messages, any which way you want to reach out to us. We are reachable to make sure that you understand what's in your documents and you can answer your investor questions confidently. Knowing what's in your documents.
- [36:48]
C
Absolutely. That is very important to be able to do. If our listeners wanted to get in touch with you, what's the best way for them to do so?
- [36:56]
B
So you can reach me at mola m o l a@ Syndicationattorneys.com so you can email me directly if you wanted to go. On our website, syndication attorneys.com there is a link that you can schedule free consults and normally they're with me, so you'll still get to meet me. Right. And if anybody's also interested, on our website, Syndication Attorneys, there is a link for a free ebook on how to raise capital legally written by the firm's owner, Kim Lisa Taylor. She's written two books, but the first book is truly a how to and you can get a free electronic copy of that on the website. And all of the content on the website is free. There's like 70 articles on there about any kind of question you want to have about syndicating and raising funds. Funds. There's also frequently asked questions and then there's also every podcast that we have ever done for the last nine years, plus their transcripts, all free content available for your perusing.
- [37:51]
C
So we're gonna drop that in the show notes. I remember I've read the book that Kim wrote whenever it came out. Phenomenal book. And if you're raising capital, definitely a good read. Mola, I wanna thank you for joining us on the show today. We know that syndication and tax kind of go hand in hand, you know, so it's always great to be able to talk about these things and help the listeners out there gain clarity on what they need to do when they're operating the space, which is certainly more sophisticated than your typical individual investor or small partnership type of arrangement.
- [38:17]
B
Definitely, definitely. And we are here to help. We're here to answer any questions. That has been the one thing that I've always enjoyed really about this job. I've been with the firm for about nine years and helping people just learn how the back end works. You know, every part of it is a learning experience. You're going to learn something new on the first deal and then you're gonna learn something new on the second deal. Every time you do an offering, you're gonna learn something new behind the scenes on how it functions, what investors really are going for and what they're not going for. All of it's a learning process. You learn something new every day. And we're here to help you learn as much as you possibly can and make it as smooth as possible for you.
- [38:56]
A
Mel, thank you so much for coming on today. Really appreciate you having you and this has been another episode of the Major League Real Estate Podcast. Thanks for listening to the Major League Real Estate Podcast. There are three ways you can connect with us. If you're interested in getting email updates on upcoming shows, go to www.therealEstateCPA.com and subscribe there. If you'd like to explore a tax and accounting relationship with our CPA firm, you can go to www.therealcpa.com tax mlre and fill out a web form to get started. And if you'd like to connect with Matt or I on social media, you can find us on LinkedIn or Twitter. Just search Nathan Sosa, CPA Matt Hamilton, CPA and shoot us a request. We'd love to connect. See you guys next time.