Raising equity funds - general legalities

I know people on this forum have found partners through contacts made here. I also know that Frank once posted a comment that I interpreted to mean that soliciting investors (advertising / marketing) to the public through this Forum was not appropriate. I wonder if anyone has any comments on how to find investors and what is “legal” solicitation and what is not allowed?

Brandon@Sandell

Brandon might be a good topic for Frank to address here and also boot camp since Frank is not using any money directly that is his or directors??? in the ELEVATION CAPITAL GROUP that we see all over this site and also trying to reach park owners when they are ready to sell. Investors give a minimum of $50,000 and up to have interest in the parks Frank is managing but investors are buying. The idea is using other people’s money which than falls under some government securities where some park owners find they then need considerable attorneys help to set up and operate. Brilliant plan that is only limited by investors money and their risk. Frank can explain it clearly and concisely–not here to be negative about it. Frank is not the only group doing this and you will notice there are other parties soliciting when giving answers on this blogging forum. All great ideas have a time line as per success and longevity. There might be a group of park owners that might desire to do similar–give a shout out as to thoughts and actions. Great topic!!

There’s been some rule changes recently regarding this and advertising. Probably the best place to learn is looking at what apartments and other commercial real estate is doing. Most apartment deals are done with investor capital.

Investors who invest their money with a syndicator also get together at little boot camps and meetings just like we do. If you want to put yourself in front of these people, go out and search for these meetings, network with these people, and ask for referrals from anyone who will talk to you. Their big problem is finding an appropriate vehicle for their liquid capital and it’s a problem you can solve. It’s not a hard pitch once you find the right audience.

1 Like

Thanks, @CharlesD! I recall something about “crowdsourcing” rules changes. Do you have a link or reference? I can always start with the SEC (rule 504 I think), google, and wikipedia.

What would be a good search term for finding these “small investment groups?” Does this typically involve a “dog and pony show” or just cold hard facts and figures?

Any experience to share?

Brandon@Sandell

The logical starting point will be to create a quality email to send out to every name that currently sits in your email box. It should give the reasons why parks are the best, why you are the guy that can help them get into the business, a call to action, and ask for referrals at the end. This might be as far as you need to go to get the average park deal done.

Outside of that, you have local investment clubs, you can look for groups on LinkedIn, you may want to talk to anyone who has a self-directed IRA, you can do deeds searches for private lenders in your area, etc.

One of the better investor presentations I’ve seen is the one @Jefferson did about a year ago. It may still be on the investor side of his website.

1 Like

Partnerships have been around since real estate began. Over the years, there have been more advancements in how to raise capital, culminating in the JOBS Act, which was enacted, in part, to facilitate the ability of small business to raise capital. Here’s a link to get you started https://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups_Act Crowdfunding is another new opportunity that some people are evolving into. However, all of these channels are very sophisticated and something that you need legal guidance on, and are not something that you can just jump into based on posts on a Forum. Nobody is going to want to give advice on this topic as it is highly complicated and nobody wants to be responsible if you misinterpret it. A Reg. D 506 offering will cost around $25,000 or so in legal fees, and using a competent attorney is a must. To start out, the standard deal would be a capital partner, with a preferred return on their capital, and the order of payment would be the investor’s capital, then the preferred return, and then the profit split.

3 Likes

Well, getting a conduit loan or a defeasance also costs $25,000 in legal fees so it’s not outrageous.

I am curious about the order of the waterfall – How can capital be returned prior to the preferred return? If the capital account is empty, there is nothing to return a preference on…shouldn’t it be preferred return, then profit split, then investors’ capital (upon dissolution)?

Update - edit: I’m referring to the economics of the deal – the tax consequences (how much capital gain, how much income, how much return of investment basis) will be determined by IRS rules, not by what the partnership agreement says.

Brandon@Sandell

Frank I think you are assuming that this Forum is a public space and anything offered here would be a “public offering.” This is certainly a safe assumption.

I imagine there is at least a plausible argument that this Forum is not “public” within the meaning of the relevant SEC laws and an offering here would not be considered a general solicitation or advertisement.

I hope I’m not staking my reputation on this – I do not know who would complain and under what circumstances you’d get “caught” and what the penalty would be. Presumably if all goes well no-one cares. It’s only when things fall apart that you run into trouble… But what do I know? Nothing about it.

SEC regulations provide an exemption from state securities law, but it is not required that issuers rely on this exemption if they will only be haled into (plaintiff’s) state court and state laws allow whatever transpired.

@CharlesD, by my (5 minutes of) google-fu, it seems to me that emailing everyone you know and posting on this forum are essentially equivalent. If one is a general solicitation surely the other is. The difference is that people who email everyone they know don’t know they could get into trouble for it?

In any event, surely asking for referrals is a no-no. That’s no better or different than putting an ad in the paper. Or is it?

Just as Frank suggested, you’ll want to speak with an SEC attorney to get a handle on what you can do and what you can’t do. However, I don’t see anything wrong with sending out something to the effect:

Mobile home parks are great because of x, y, z and I am great because of x, y, z. I am currently looking to form strategic partnerships in order to take advantage of this mis-understood, highly lucrative real estate niche. If you, or someone you know, would like to speak with me about how you can get involved, please contact me at 555-5555.

1 Like

Thank you @CharlesD and @frankrolfe for taking the time to respond! I appreciate it.

Brandon@Sandell