Working Capital The Real Estate Podcast

Real Estate Syndications and Cross-Border Investing with Mauricio Rauld | EP102

May 5, 2022

In This Episode

Mauricio Rauld is the founder and CEO of Premier Law Group, a premier boutique securities law firm. As a nationally recognised expert on private placements, Mauricio works with elite entrepreneurs who seek to increase and protect their wealth through syndications.

In this episode we talked about:
Mauricio’s  Bio & Background
Syndications
Professional Advice on Raising Capital
Deals` Structures
Limited Partnership Governance
Real Estate Syndicator Live
Dealing with Foreign Investors
Mauricio’s Thoughts on The Current Real Estate Environment

Useful links:

https://us02web.zoom.us/meeting/register/tZEpfuGhqjgrHtSg8c-e9cmaN7zyD2hlGLHr

http://www.premierlawgroup.net

Transcriptions:

1 (23s):

Hey listeners. My name is Jessica galleon. You’re listening to working capital the real estate podcast. Our returning guest today is Maricio Roald. Maricio is the founder and CEO of premier law group, a premier boutique securities law firm. Last time on the show, we talked about syndications. We talked about different legal structures for real estate and a whole host of other topics that you got to look out for when you’re investing in real estate from a legal perspective from a man that doesn’t just speak legal, easy speaks English too, where you see how you’re doing.

 

2 (51s):

I’m going to get my friend out. How’s it going? Thanks for having me back. We shed it.

 

1 (55s):

Yeah. Well, thanks for coming back on. We were just chatting. You’re joining us from Newport beach today. So I guess where you’re saying you can see San Diego from, from your window there.

 

2 (1m 5s):

I can see San Diego Northern north county from here, and it’s freezing out here, there, man. It’s like, you know, 69 degrees. That’s a, I can’t stand that. I’m waiting. I’m waiting for the warm weather.

 

1 (1m 15s):

I was like, it is 69 degrees right now, or approximately I think that’s probably 10 degrees Celsius in Toronto. And everybody’s saying it’s so warm today. So we’re just coming from different angles

 

2 (1m 26s):

On the percent. Yeah.

 

1 (1m 27s):

Awesome. Well, we talked last time, a boat syndicating deals raising capital from outside investors. The things to look out for, I believe one of the takeaways was how not to go to jail. And we had a number of listeners reach out to me and said, you know, you should have Maricio back on. And, you know, just given the fact that over the over two years a lot has changed, it would be great to kind of get your perspective of what’s going on in the market right now. But for those that maybe didn’t, didn’t hear that last episode. Can you give a little bit of a background about, you know, how you got into this world and what you’re currently up to?

 

2 (2m 2s):

Yeah, I mean, I’ve been, I’ve been doing this now for 22, 23 years and I started just like every other, you know, dreamer out there, a lawyer. I started working for a large firm and doing a lot of securities work, but on the litigation side, so representing a lot of the big brokerage houses, JP Morgan Merrill Lynch, but when they got sued, right, it wasn’t really on the syndication side. But then I was lucky enough to meet a group called the real estate guys. Then they brought me in as their general counsel. And so that’s really where I cut my teeth on what I’m doing now, the syndication piece first, when I sort of as the middleman, the general counsel, and then ultimately just taking over that started my own firm. And, you know, that’s kind of really when I started doing the syndication stuff and, you know, luckily for me really have caught the syndication way. We’re talking a little bit about this before we came on, but at, I mean, it has been a syndication boom, especially the last five to seven years.

 

2 (2m 49s):

Always thinking that maybe we’re reaching a percento, you know, COVID was certainly something very interesting that happened. And, and we certainly weren’t doing anything for a good six or seven weeks when, you know, nobody was lending. Everything kind of came to a standstill, but man, ever since then it was like almost like just a little blimp on the, on the way up. And it’s just, it’s, it’s hotter than ever, which always makes me a little bit nervous, but there’s definitely a lot of enthusiasm on the syndication world.

 

1 (3m 14s):

Well, we’re both still in very, very hot markets, both of us, you know, where we are geographically. I think, I think we talked last time that you were on a boat, the litigation experience that you had. So that was, was that real estate focused on the litigation side?

 

2 (3m 30s):

No. So on the litigation side, it was primarily securities. And then I was doing some maritime it’s down here in long beach, California, where the port is where you’ve probably seen it in the news lately with all the shifts that are just kind of stuck out there. But so we rushed a lot of the ship insurance companies. So that was probably half of what I did was on the minute on the maritime side. And the other half was working with securities clients, but that was different. That was really completely, this was literally, you know, your, your, your grandma who lost, you know, the stock market went down and they lost a bunch of money. And so they would Sue the brokerage house because, you know, they, they, you know, they put them in investments that weren’t suitable for them. And so that’s what we would defend. So it really didn’t have much to do about raising capital. And again, what I love about what I do now is, is with litigation it’s conflict, right? Like you’re representing the defendant, you’ve got a plaintiff’s attorney and it’s very confrontational.

 

2 (4m 14s):

And when you’re trying to settle or win, what I love about what I do now is that it’s the complete opposite where everybody’s moving in the right in the same direction. Right? So my clients not only needed me, but want me and I need my clients and we’re all going in the same direction and going after the same goal. So it’s a much more stress-free environment. And when you do a good job, you know, you’re doing a good job for your clients. There’s really nobody that’s unhappy once you actually get to that closing table.

 

1 (4m 37s):

Yeah. That’s a good point. And when we were raising capital for our last deal, it’s, it’s funny, you mentioned that because really there’s no adversary for, for our, our lawyers. There’s, there’s the LPs that, you know, if they’re at the table, they, they want to be at the table. And if you’re engaging the lawyers, it’s because they want to, you want to structure a deal. So it’s, it’s funny. Cause we do a lot of in our brokerage, we do a lot of office leasing and even there, it’s still a, the spirit is everybody’s in the same direction, but you still have, you know, the tenants and landlords, you’ve got lawyers on both sides that there still is a bit of that friction.

 

2 (5m 9s):

Yeah. If you’re, if you’re a transaction, which we’re not a lot of people think that we do real estate law as well, especially with my Felicia and the realistic eyes, but that’s a difference of ex confrontational because you got the buyer and the seller, and you’re trying to come up with terms, then you got a closing date. Do you want an extension? And you don’t want to. And it’s like super stressful. It’s

 

1 (5m 25s):

Reasonable,

 

2 (5m 28s):

But no, mine’s, it’s all transactional. Corporate is nice because other than, you know, the only stress that we really have is, is, is ultimately if we’re under the gun, right. If somebody calls us late in the process and you know, they they’re, they’re stressed about CLA or maybe they’re coming on from another attorney. So they really need to get this thing done ASAP. And so it was a bit of pressure there, but otherwise there’s no an anniversary adversarial person in the original thing. Now, obviously at some point, if there’s a passive investor, that’s not happy about something that might come up, but that, that that’s something that we don’t I’ll handle that over to a litigation attorney now. So it’s a, it’s really nice to be working with great clients and everybody’s moving in the right in the same direction.

 

1 (6m 3s):

Yeah. It was pretty much zero stress. And you know, until the last minute where I said, can you give me a break on the pricing? I think that was the only friction to the deal, but no, that’s great. So what would be the kind of the top things that you, that over the last, you know, the numbers of years that you’ve been doing this, you know, some of the, the high level things that you see keep coming up again. And again, maybe it’s something that if the people don’t think, you know, right away is going to be an issue, but it seems to be something that, that you make sure that you’re on top of.

 

2 (6m 34s):

I mean, the, the, the big thing that always pops off, especially with first time syndicators, or even some of the more experienced ones, they just want to get around this up, but just not realizing that they’re actually selling securities, which kind of makes sense. Right? Cause you’re buying real estate, like why is the securities and exchange commission in my world? Like why do I have to file an exempt? Whatever all the securities nonsense is. And so that’s a big one. They’re like, well, I didn’t realize any, I know this isn’t a syndication. I’m just, this is a joint venture. I’m just doing a note to run doing all these other things that they don’t think is it would be triggered by securities laws. And that’s, as we may have talked last time, it’s just the definition of a security is so broad that it basically catches all of these things. So one of the things I’ve been pounding lately, I always trying to find a new way of saying the same thing.

 

2 (7m 18s):

But you know, a lot of people try and pull money raising through a joint venture and like, well, I’m not, I’m not selling securities. I, this is a JV, so I don’t have to worry about stuff. And what I’ve been telling people is like, Hey, you don’t get to make that decision. Whether it’s a joint venture or a securities office indication, it is what it is. Just calling it a joint venture. Doesn’t get you off the hook. But that’s probably the most common one because they’ve got loud and I’m raising a couple hundred grand or maybe even six, 700 grand, but it’s only by a few people. And you know, this is really a joint venture and the reality is it’s the structure itself that really matters. And so, yes, if everybody’s actively involved and everybody’s rolling up their sleeves and they’re getting the work done together, and you’re almost like a, a business, right. There’s three or four or five partners that are, that are starting a business and everybody’s rolling up their sleeves.

 

2 (8m 1s):

And yeah, that’s a joint venture because everybody’s actively involved and the returns are being generated by everybody’s efforts. But if you’re just got four or five people, but you know, you’re doing most of the work and people are giving you money and you’re doing a 7% pref and an 80 20 split or whatever. I mean, you can call that a joint venture all day long, but at the end of the day, the minute you are a tech accepting monies from passive investors where the returns are generated by your efforts, you’re selling securities and you have to comply with all the securities. Also, that’s probably one of the biggest mistakes or whatever, you know, call that. I see I still to this day, see it over and over again.

 

1 (8m 34s):

And is that a function of the fact that when people, when they do make that claim, that it’s a, it’s a joint venture, is it just predicated on the fact that there’s only a few of us in this, you know, we’re not doing anything as formal of what they might think of would be, you know, a fairly sophisticated unitized, you know, structure.

 

2 (8m 53s):

Yeah. I think it’s mostly because it’s, there’s usually a few only a few people. So, you know, maybe there’s four or five investors and they’re all good friends or one’s my dad. And once they know that’s another, that’s another one that I love. It’s like, well, you know, there’s no exemption for your mom and dad. I mean, yeah. The odds of your mom and dad suing, you may not, not be high, but there was nothing in the law that gives them any special treatment. But yeah, I just think they just think it’s simple as you know, I’m, I’m not raising too much money. I’m only raising, you know, half a million bucks, which quite honestly, it doesn’t make sense to go spend the, the, the amount of compliance that you’d have to spend. But yeah, I’m only, I’m only raising 500, 600 grand, 300 grand. That’s only me and my buddies. It’s just kind of a couple of people. And so I don’t want to do a syndication or it’s not worth doing a syndication. And again, you just don’t, you don’t get to make that decision.

 

2 (9m 34s):

One of my, one of my good friends, Tom Wheelwright, who’s a tax guy. He loves to say, you know, in order to change your, your tax, you have to change your facts. You know, that’s kind of his little emo and it’s the same thing with the JV. Like, yes, you can make a securities offering into a JV or try and get it onto that side, but you’re gonna have to change your facts. You’re going to have to change that this one person isn’t doing anything and they put in money and they’re getting 10% of the property and not really doing much. They have to now start doing. And maybe you have to be a co-manager may have to get on the loan. They may have to do all these things to now take it out of the realm of a securities offering or a syndication and, and, and become a true joint venture.

 

1 (10m 10s):

So where would you suggest to people that if you are raising money in any form, if, if you are, I guess maybe to clarify if you are raising money for a real estate investment by a person outside of your bank in you, so you have a partner, you have two partners or more, at what point would you recommend for them to clarify exactly what structure you have? So, you know, you know, am I raising capital? Am I, am I a, just a partnership? How would you, you know, what point would you start to say, you need to get professional advice on it.

 

2 (10m 43s):

Well, at any time, your, your, your S your splits don’t necessarily match the amount of money people are putting in. So if you’re starting to get paid for doing the work, so you’re getting a, you know, an asset management, for example, or maybe a acquisition fee, you can maybe get away with it. Cause that’s just, you know, you found the property or what have you, but, but an asset management fee or a 20% carry, there’d be no carried interest in a joint venture. Like if we were really our three buddies or four people getting together and each look, not everybody has to put the exact same amount of money, but if I’m going to put in 10, 10% of the money, why am I not going to get 10% of the deal, right? The minute you start messing with that, that’s when it starts to say, wait a minute, is this a securities offering? Because if you’re getting paid for doing the work, then what is everybody else doing?

 

2 (11m 26s):

Are they really active? Or they just pass it. So anytime you start seeing things that look like securities offerings, a carried interest, a preferred return, you know, they’re the only manager, right? And everybody else is not a manager, or maybe they’re the only ones who were on the loan, but you know, why are the other people not on the loan? Like when you start seeing things like that, that’s when you start thinking, you know, this might be a securities offering, which is why it’s nice to work with. Like, we don’t do joint ventures anymore, but it’s nice to work with a tr attorneys who do joint ventures that know no, just enough about securities laws, that if they see that fact pattern and they were like, wait a minute, this doesn’t seem quite right. Let me call Maricio let me call the securities guy or gal to make sure that we haven’t crossed the line. And if we have crossed the line, what can we do to pull them back over the line?

 

2 (12m 9s):

Because sometimes you can, you know, sometimes they are like, look, if there’s three people involved, I mean, I would just make them all co-managers right. If they, if everybody’s a co-manager and everybody has to make, you know, sign on the dotted line to do something, and there is a good argument that you’re active, but, and if you have no more than four or five people, now, if you’ve got seven to 10 people in there, there’s no way you’re going to pull that off. I mean, it’s usually less than five. It has to start. The starting point would have to be at least less than five people in the whole deal. Otherwise it gets extremely difficult to show that everybody was actively involved.

 

1 (12m 38s):

Yeah. That, and that makes sense. And for those, you know, those interested in, if they don’t know the term for carried interest, I would look that up and you know, it, we call it a promote carried interest. And it’s just usually the, the lopsided in a sense addition that you get for being a general partner. And I assume you probably see 2080 and, you know, and then sometime waterfall from there.

 

2 (12m 60s):

Yeah. The English definition that I like to give is it’s just your sweat equity. It’s what percentage of the deal you getting for doing all right? So you put up all the money. I do all the work, I’ll get 20% and you guys, the investors will get 80% if it’s an 80 20 split. And that 20% is the carried interest, which is just sort of sweat equity in my book. But yeah, traditionally I think, you know, coming from that, I think it comes from the hedge fund model. Most people will do a 2%, a two and 20 is what we call it. So a 2% asset management fee and then 20% of the profits. And so most of the deals I see are 80 20 and maybe 70 30. That’s kind of the range that I would say 99% of deals are in that range. From where, where it’s a 20 to 30% carried interest or sweat equity.

 

1 (13m 40s):

Is it weird as a Canadian that when I hear carried interests, all I think of is Obama V Romany,

 

2 (13m 46s):

Probably I wouldn’t have it.

 

1 (13m 48s):

I just remember during the political campaign, it was like carried interest. See, it’s all it’s trouble. That’s how he gets paid Mitt Romney during the election cycle. So, I mean, that makes sense. My only apprehension with saying sweat equity is I just feel like my property manager would just look at me in a funny way, but it, that makes sense. And it sounds to me like, it’s, at least there’s like the smell test for me that when you have somebody putting in 5%, but they’re getting 30% or they’re, you know, they’re, they’re getting an outside proportion of what they put in. You know, you’re starting to play around with not necessarily, you know, it’s like you and a friend are buying a place together.

 

2 (14m 25s):

So just ask the question why, I mean, the story just has to add up, like, why are they putting in, you know, 30% of the money, but only getting 5% of the, you know, what, why is that a Y you know, w or flip on the flip side, if the sponsor, why you putting in 5% of money, beginning 30% of return. So when you start going through that story and you realize, well, that’s, well, it’s because I’m doing all the work well, there’s your red flag. Like if you’re doing all the work, then that’s kind of your textbook definition of security.

 

1 (14m 49s):

So for the actual deals that you do mostly, maybe we could, I know we talked a little bit about it last time, but to just kind of review the type of deals, like, you know, let’s talk in the American context for Canadian listeners. Everything we’re going to talk about is, is really covered by what’s called national instruments. And it’s just the securities way of talking about the exemptions made prospectus exemptions made for accredited investors, family, and friends. So for the work that you do, you know, what’s the, the vast majority of the structures that you would typically try to use during syndications

 

2 (15m 24s):

From an exempt and from an exemption standpoint. Yeah. So in the U S the general rule for us is, you know, whenever you, you realize that you’re selling securities, you either have to register that security with the securities and exchange commission the sec, or you have to find an exemption, or it’s illegal as I like to say. And so we’re always looking for an exemption and literally 95% of the U S clients will use either what we call a five oh six B as in boy, or a 5 0 6 C as in Charlie. Those are by far the most common ones that we use. And even between those two, you know, in our practice is probably 70%, five or six B’s and 30% final succeeds. But if you look at the national statistics, you see from the SSC is closer to 90 10.

 

2 (16m 4s):

So the vast majority of people will do a rule 5 0 6 B as in boy. And the reason for that is quite simply that you are allowed to bring a certain amount of non-accredited investors, people that don’t have a high net worth or high income, and you can bring in up to 35 of those types of investors along as long as they’re sophisticated. And so that really opens up your world. And especially if you’re a first time syndicator or the first two or three times where you’re really relying on friends and family, so sort of bringing capital or big percentage of capital, inevitably, one of your, you know, and Karen’s, I was joke or uncle Pete they’re, they’re going to be non-accredited somebody to be not a credit. So five and six B is very nice that way, the, the drawback of five or six B is just simply, you cannot advertise, right?

 

2 (16m 44s):

So now with social media and in podcasts, and everybody wants to get out there and, and, and, and scream there that they have a deal, and you can not do that under a five or six B, which is why those folks want, you know, we look at 5 0 6 C, which allows you to go on social media and market and do all that stuff, but that limits you to a credit investors only. So it’s like, you’ve got to pick your poison. You’ve got to figure out what’s more important for you. Do you, you’re the pivot points for me, are the, are you looking to bring in non-accredited or are you looking to advertise? And depending on the answer to those two questions will dictate which, which of those exemptions we go with.

 

1 (17m 15s):

So would an example of that be if, say you have a huge following online, you can probably get enough accredited investors. It might make sense to go that route, but if you are smaller and you know that the lion’s share of your investors are going to be family and friends, then you know, th that’s, that’s great that you can advertise, but it’s not really going to help you,

 

2 (17m 36s):

Right. That’s why they, they do a five or six B, or as I’ve been speaking about for probably the last four or five months now, or maybe longer that one of the new rules that have come out since you and I chit-chatted, since the last time we did a podcast was now you’re allowed to kind of do both in the same offering, which is kind of a little bit crazy. And I, when I first read this rule, I was like, really? And I did a deep dive it, but essentially the rule now does allow you to start your syndication under a 5 0 6 B comply fully with BS. Okay? No advertising, no solicitation. You can extend up to 35, not a credit. So just comply fully with that rule as if you were doing a 5 0 6 B only. And then at some point you can terminate that. You can literally pivot, you’ve been stopped.

 

2 (18m 18s):

You could say, look, I’m no longer doing a five or six P. And as of today, I’m going to do a five and succeed moving forward. And then from that point on you then comply fully with 5 0 6 C, which allows you to advertise, allows you to bring, you know, a credit investors only. And there’s a requirement that you verify, but it allows you to basically do both offerings, both offerings into the same exact deal, right? So it’s still the same apartment deal that you’re doing or whatever project you’re raising money for. You can now raise money under both exemptions without having to pick one or the other, as long as you do it. In that order, you’ve got to go from a 5 0 6 B and then transition to the five or six C. We can’t do it the other way around. We can’t start with a firewall succeed, and then say, wait a minute. I want to get uncle Bob in, but he’s not accredited. Let me switch to B. It doesn’t work that way, but we can now pivot and go from B to C, which has just been a huge.

 

2 (19m 2s):

And in your example was a great one. I have clients who said, look, I really want to do a fiber 60. I really want to advertise. I’m not sure I’ve got enough capital in my database, but boy, I’ve got all these non-accredited who had been with me for the last five or 10 years. And you know, they’ve been so great and I want to keep them in, but I also want to advertise, well, now you’ve got this option of doing a both.

 

1 (19m 21s):

Hmm. That’s interesting because the, I don’t know if it’s a, it’s a Canadian us distinction, but the last, the last indication we did, we had both non-accredited and, and family and friends. Yeah. Family and friends exemption. But is that still allowed in the states? If you’re not out, if you’re not going to advertise at all, you can still have both types of investors.

 

2 (19m 40s):

You could have both. Yeah. I’m talking about types of offerings. Yeah. If you want to just do a five and six B, you can take accredited investors and non accredit investors, 35, not accredited, but you’re going to be prohibited from advertising. Right? Have you’re going to have to limit your investors to people that you have generally a pre-existing substantive relationship with friends, family, coworkers, people, you already know you can’t just go to some seminar or go on Facebook and just, you know, meet somebody for the first time. And then be like, oh, look, I’ve got this Bible six B deal. Why didn’t you come in? You would have to already have known them before the offering started. So five and six B is like I said, the most common one because of that, it allows you to take accredited and non-accredited, but it doesn’t allow you to advertise.

 

2 (20m 21s):

So it’s not third piece. So to speak that people are used to be stuck with because I want to advertise. But if I advertise over here, I won’t be able to bring in my non-accredited folks that I really want to get those in. So this is a good solution for those, for those scenarios.

 

1 (20m 35s):

So that really is the best of both worlds with that. But it

 

2 (20m 37s):

Is. It’s crazy.

 

1 (20m 38s):

Yeah. That’s, that’s pretty wild. So with, yeah. Cause I remember when we were kind of getting into the minutia of like the deal, it was okay, how does the GP know this person? How long have you this? But we’re, we’re, you know, you really, it’s not just like, okay, it’s a friend. Don’t worry about it.

 

2 (20m 52s):

Yeah. I know you have to, if you’re doing a 5 0 6 B, you must, it’s your burden to show that you had a pre-existing substantive relationship and there’s a bunch of steps you’ve got to go to, to, to prove that you had a substantive relationship and that’s a kind of a prerequisite for five or six BS. Now, if you’re going to do a five or six, see where you can advertise, you don’t have to worry about that. You don’t have to worry about having pre-existing relationships if you’re doing the sea variety. Right. And that’s why you can go advertise and go on podcasts. And I literally, if I had a deal on defined one 60, I could be like, Hey, Jesse, if you don’t mind, I’m going to just last it right now and say, Hey, I’ve got a deal email. I’m doing a webinar tomorrow, come join us. I wouldn’t be able to do that under a 5 0 6 B. Right. And so it used to be kind of pick your port, not pick your poison, but you got to pick one or the other.

 

2 (21m 33s):

Now we have the option of really doing both under the same deal, which really does open up your world if you need it to. And some people don’t need it to me. Some people don’t want to deal with not a credit is because they feel like they’re kind of, you know, kind of a pain to deal with. And so they only want to have that credit investor. So, but it does give additional optionality for, for those that want to bring in both.

 

1 (21m 52s):

So when you’re doing these, like I imagine you’re structuring a lot of these limited partnerships, the, the, the type of models. So for, for us in a, from a Canadian context, the LP is the most logical way to, to structure these a general partner with multiple limited partners. I take it that’s, it’s the same in the U S I’m not sure, you know, offhand what the governing laws are, but for us, there’s, there’s Canadian, the CBCA Canadian business corporations act is kind of like the big thing. And then there’s actually a limited partners act for each province states, you know, our equivalent of states when it comes to limited partners in the states, is, is it still governed by, by, from a state level?

 

1 (22m 37s):

Or is it common law? How does, how does that, how does that work for, for what actually governs it from a legal perspective?

 

2 (22m 44s):

Yeah, it’s all state. So each state has their own limited liability companies, rules or limited partnership rules. We actually, in the United States, primarily, I would say 90, maybe 99, but 95 to 99% actually use an LLC a limited liability company, which I know that you in Canada, don’t recognize that, which is, which is an issue that pops up when there’s a lot of Canadian investors. But if there, if there’s no Canadian investors and it’s purely a us raise the most likely, you’ll see an LLC, a limited liability company, and those rules are governed by the particular state. So if the property is located in the state of Texas, for example, well, Texas has its own limited liability company rules. If it’s in Arizona, there’ll be the Arizona limited liability statutes.

 

2 (23m 25s):

Everybody has their own, their own version. But yeah, generally speaking, we don’t, even though it’s funny and I go with it, cause I get it right, but we use the Burnett. We always use the vernacular of GP and LP, right? The general partners are the people putting together, sponsors putting this deal together. And then the limited partners are the passive investors. But in reality, we don’t use limited partnerships. So technically it’s really managers and members because that’s really what we’re using, but you know, I get it. So we go with the vernacular, but it’s all state stuff, but we have that issue. So sometimes I do the times I do use limited partnerships are when I know I have clients that live in Canada or are from Canada, there’s other raising money from both places. And if we’re expecting a large amount of Canadian investors, then we will create an limited partnership to accommodate, you know, their taxing issues that they have because otherwise it defaults my understanding is that defaults to a corporation.

 

2 (24m 14s):

So they get double taxes, LLC pops up. They don’t know what an LLC is. And so they’ve got the rules up there, just say, oh, we’re going to treat it as a corporation. And so you have the double taxation problem, but otherwise you’ll see a, an LLC and the other, oh, the other time I’ll do a limited partnership is if I have oil and gas deals, which I, I have a couple of lagging ones from a company. We don’t do those anymore. But in that case, in order to get a particular tax benefit, you know, the investor has to be a general partner. They have to have unlimited exposure in order to get the tax benefits. But if it’s just a, if it’s neither one of those, we’re going to create an Ella limited liability company, an LLC, that’s going to be governed by the LLC act in a particular state.

 

1 (24m 51s):

Yeah. I, I blame the late night infomercials for Canadians investing in structuring and LLCs. They’re like invest in real estate in the states. And then I think our, I mean, our corporation, I think would probably be most equivalent to your C Corp, but yeah, it’s there, I think there are, there is some maneuvering because there’s so many treaties between us that, that you can kind of get the credit for that double taxation, but it is a kind of a, yeah.

 

2 (25m 14s):

You know, we, I just talked about this early this week on one of my shows, but you literally so important. We talked a little about before, before we came out. It’s so important to, especially if you’re, if you’re Canadian and you’re investing in the us, or if you’re in the U S and you have Canadian investors to make sure that you’re both working with CPAs that are well versed in these cross border transactions, because, you know, the U S per USCPA doesn’t necessarily know that, you know, what the tax structure looks like in the thing. So it’s super important. And in fact, you know, I have a great joke. I think it’s a great joke, but it’s against CPAs, but it ended, applies to, it applies to lawyers as well, which is, Hey, you asked us the same. You asked three CPAs, the same question, you get five different answers, right?

 

2 (25m 54s):

And it’s the same thing with this issue. Like I’ve talked to CPAs and Canada that say, look, here’s how you get around this issue. The S the, the Canadian investor creates their own limited partnership or limited liability partnership in the United States and invest through that and to almost like a blocker entity to fix that problem. And then I have other, other CPS they do not, that doesn’t work. Right. So it’s, that’s why it’s so important to just make sure you’re talking to a professional, you know, certified public, whatever you guys call them up there, but a tax professional that can advise you and legally represent you and say, look, yeah, this is the structure we should use to minimize your taxes. That’s not going to be, you know, as a us attorney or as a us client, you know, we’re not going to have that information for you.

 

1 (26m 33s):

Well, we actually had it from our brokerage. The, we did a, an apartment fund. I think it was around 70, $75 million apartment fund, but it was primarily, I think, exclusively investing in the states and the, the Canadian aspect of it was, I think what they did was create a, a limited partnership in Canada or a corporation in Canada that was an investor in a U S LP. And then they they’ve structured it that way, but you’re right. I mean, our CPA said, that’s the way to do it, but who knows?

 

2 (27m 1s):

And I always tell people we’re going to do, cause I have this issue in other, in other areas like, you know, some tax deferred exchanges and some things. And I say, look, we’re going to do whatever your CPA says. So if w if, if there’s disagreement among CPAs, if your CPA says we can’t do it, then you’ve got two options either. We don’t do it. Cause I’m not going to stick my neck out. If you’ve got your CPA saying, we can’t do it, or we’re going to go find yourself, another CPA is going to allow you to either way I’m going to, I’m going to punt to your CPA because that’s not, I’m not, I’m not licensed to give tax advice or I don’t know enough about it. So we’re always going to defer to whatever your tax professional is is, is advisor.

 

1 (27m 36s):

I didn’t realize how much hot potato there is between lawyers and accountants until I start, you know, raise money for the first time. You know, no, this, this guy, he wants it in a corporate name. Ah, no, that might be a transfer. You should ask your lawyers what the definition of transfers are. But yeah.

 

2 (27m 52s):

And you’ve got to ask the protection considerations too, in the United States. You know, some CPAs will, again, what’s the joke I hear from, oh, that’s right. It’s a taught my no, but the attorneys likes to make fun of CPAs and say CPA stands for can’t protect assets. So a lot of like a funny go back and forth between attorneys and CPAs around here.

 

1 (28m 11s):

Fair enough. So before we, we started here, you talked about a couple of these lies, and I want you to explain that to listeners for listeners in a second. But first of all, I have a lawyer here. I, I’m always curious when you are raising money and you’re seeing these structures in the states, in, in these syndications, do you find that your investors are putting the, the, on the topic of asset protection, putting the actual properties in nominee corporations or, or nominee companies LLCs that you know, for anonymity or is it just they’re investing directly?

 

2 (28m 44s):

No. Great question. So, so the, the, the syndication itself, we don’t, we don’t deal with the anonymity piece at that level. So if you’re raising capital to buy, like my example in Dallas, Texas, then we would create a Texas LLC to own that property now at your individual level. Right? So how, so you’re a passive investor. How do you take title to your 2% interest in that Texas, LLC? Right? That’s where the asset protection comes into play and the privacy, if you want that, that’s not going to be my responsibility, but if you’re looking for privacy, there’s ways to do that. My favorite one is simply, you know, yes, you can do sort of a nominee service like you mentioned, but the easiest way, honestly, for privacy is to create it in the state of Wyoming, which is why Wyoming is such a prevalent state, along with Nevada and Delaware, Wyoming, they, the state of Wyoming doesn’t know who you are.

 

2 (29m 32s):

Like, there’s no requirement to put your name of the owner or the manager in those documents. And even if you, I always joke if you, if you drove up to the, to the, to the counter and threatened the Wyoming secretary state person to give you that information, they don’t have it, right? So now the registered agents have it. And so you obviously don’t want to be your own registered agent. You probably can’t, but so there’s going to be a professional registered agent that’s listed, and they do have a requirement to keep your information at their offices. So if for whatever reason Wyoming needs it, for whatever reason they can get it, but it’s not publicly available. So from an anonymity standpoint, I love creating structures in Wyoming, because even if I were to create something in Texas, for example, an LLC in Texas, most states don’t require you as the member of the owner to list your name.

 

2 (30m 17s):

And it, it, maybe half of them require that the manager manager be listed. And so we just create a management company in Wyoming. So that way on the filing, we have a Wyoming LLC as the manager, and then there’s just no way for them to, to make that connection. And that’s just a privacy thing again. And a good asset protection structure doesn’t have to rely purely on privacy. We always talk about the idea that if a good asset protection structure, you should be able to unfold. It, show it to a judge, show it to anybody. It’s not, it’s not based on smoke and mirrors and a good structure should be able to maximize your protection. I’m not going to say any, any protection is, is, is Bulletproof. If anybody tells you that it was Bulletproof, I’d probably run, but to maximize your chances of, or to maximize your chances and minimize the chances of somebody coming after getting your assets, if something were to go wrong.

 

1 (31m 3s):

That was good to know. I was always curious because we would have companies, maybe not like the Blackstone’s or the Brookfields up here, but we would see these nominee corporations. And for us, you know, we just pull a corporate search and then, okay, there’s another corporation. You just pull another corporate search, but that’s a, I guess there’s, you know, those few states where they didn’t, you know,

 

2 (31m 21s):

Yeah. In Wyoming, you ultimately come to a dead end. And so now granted, if you’re, if you’re signing the documents, you’re not going to really want to go next level. You’re obviously signing the paperwork. You’re the manager of the manager. So that’s where you could have somebody, maybe your attorney, you know, sign on behalf of the managers. So that, again, your name isn’t popping up. You certainly wouldn’t have your home address as the, as the address, or you have a professional, you know, address as well. So there’s ways to become anonymous. And I’m all, I’m all for that. So I’m, I’m a big privacy guy and there’s a, there’s a lot of ways to do that for, from a privacy standpoint.

 

1 (31m 52s):

Okay. Maricio a couple of these lies. Maybe you can tell a listeners, you know, what they are and, and, and talk about a couple of them.

 

2 (31m 60s):

Yeah. So we, we started about three months ago, a series called real estate syndicator lives. We really started community real estate, syndicator community. And we started doing these lives every, every week, every Wednesday. And it’s literally just me and my partner, Bethany, we show up, it’s not super structured. It’s basically, you know, whatever’s on the top of our mind, we pick a topic and we speak for like 5, 10, 15 minutes. And then we open it up to Q and a. And so we have a bunch of questions on that particular topic. And then after we kind of exhausted those questions and it’s like, Hey, just ask me anything. Like whatever’s on there. And they’ve been pretty popular. You know, the first one we ever did, I did pick the controversial topic of going from a five or six B to a five and 16, which we talked on earlier, then didn’t want to fund a funds.

 

2 (32m 41s):

We did one on, on establishing substantive relationships, which we talked about, you know, last week we had, we had it on international investors, you know, things to common mistakes when accepting international investors. And then every so often we’ll, we’ll, we’ll, we’ll drop a guest in that we’re, we’re lucky enough to have the great Ken McElroy, rich dad advisor joining us next Wednesday. So that’s going, gonna be a good one, Kenny. And I become really good friends. And so he was gracious enough to come by. And, but it’s, it’s fun because, you know, it’s really easy to, because you know, there’s very little prep for me. It’s like, I just talk about whatever’s on my mind for 10 minutes. And then I open it up to Q and a. And so I just love the Q and a format. And so we’ve done, I think, 11 of those right now, they’re all housed on, I think on YouTube right now. And so you can just go on the YouTube channel and look at them other, all along there.

 

2 (33m 22s):

I mean, they sometimes laugh like almost two hours because people just, I guess they like free legal advice, but just come on and ask around. But, but that’s been a lot of fun. I’m turning that into a podcast and it’s just, it actually gives me a ton of energy, interestingly enough, you know, when I’m done with those lies, I’m exhausted, but I dunno, I just feel really good about it. And, you know, you’re able to sort of help people and answer their questions. So a real estate syndicator alive, but every Wednesday at four 30 Pacific.

 

1 (33m 49s):

Yeah. Well, I mean, it probably pulls information out of you that may, you know, you know, you have, but it’s, I’m sure there’s topics where like, oh, you know what? I do know the answer to that question because that’s what I do

 

2 (33m 60s):

A hundred percent. And so like, I, and what’s been great for me is exactly like, I, you know, there are things I don’t even think about that are interesting to people. And I keep talking about kind of the same things. There’s probably five or six or 10 topics that I’m always talking about. Like what’s an accredited investor or the new rules are five or six, but then there’s all these little nuances and I’m like, oh wow, that’s right. That’s that’s, that would be interesting to talk about. And it wouldn’t even occur to me if it were not for, you know, getting peppered with 25 questions every week. And then that, that helps me create more content and add more value to more and more syndicators, which is ultimately what I’m trying to do. What can I do to add the most value to real estate syndicators out there? And that’s kind of how I, that those are the, the rose colored glasses that I look, I look the world through is, is, is that for that pyramid?

 

1 (34m 40s):

Yeah. But it’s also one of those things where for youth, the same thing keeps coming up over and over again. And I think it was two podcasts ago. We had Rosa Lupo. Who’s, she’s a partner at one of our, the law firms in the city here. And she, what we talked about was the five top five things that, that get left out of commercial real estate leases that are critical. And it’s things that she has done over and over again. But when you can package it up and I’m sure on the lives, you know, something similar to that, you know, if you look at an hour of content, you could probably package up, here’s four things of one particular topic that’s probably boring to you, but for other people, it’s just like, wow, those are, those are huge.

 

2 (35m 20s):

Yeah. And what we’d like to do just to make it easier for people is if you go on the actual episode on YouTube, we actually timestamp all the questions. So you can literally glance at my questions like, oh, that I don’t care about. Oh, wait, that’s an interesting question. Let me click on that. And it’ll just take your right to the, to the piece of the content that’s relevant to you.

 

1 (35m 37s):

No, that’s great. Well, I want to be mindful of the time here. Well, I just want to piggyback off of that last one, you did the foreign investors. I’m curious if you ever deal with this because it was something that came up when we syndicated our last deal. And that is, if you see somebody that comes to you to structure a syndication and you start realizing that a lot of the LPs are non us citizens, are you at risk or is there a threshold where you’re like, Hey, we gotta be careful. If this thing is going to continue to be an American entity with 70% of your investors are from, from out of the country. So that’s something that comes up.

 

2 (36m 12s):

No, that doesn’t come up at all. What comes up are the five that I happy to go through real quick, but there’s like these five things that you just got to know, right? So it’s a number one is in candidates. But the big one obviously is, Hey, wait a minute. You’ve got all these Canadians and we have an LLC. That’s probably a problem right there. So let’s make sure that we may have to re redo it and do an LP because otherwise you’re in, or at least disclose to investors that this, this stuff we know, we become IRS agents here in the United States. We have a withholding requirement for anybody, for them, whether it’s candidate, not a 30% withholding. So that’s got to be taken care of. We actually have a specific exemption. We talked about 5 0 6 B five and six C. Those are housed under the bigger reg D exemption, but there’s actually a reg S as in Sam.

 

2 (36m 52s):

And that, that, you know, if, if we’re not really touching the U S and we’re just marketing that particular thing in Canada, we, it’s only the non us persons, non us citizens. Then we have a specific exemption for you guys. And then they always got to worry about the anti-money laundering stuff. Right. So when, when money’s coming in from another country, you know, we got to make sure that you know, that person and make sure you’re doing some due diligence to make sure that that’s not some laundered money that they’re trying to get, you know, trying to get clean through your syndication. That’s the last thing you want to do. And then we talk about best practices in terms of just letting you know, the U S bank know that you’ve got this money coming in from like in Canada is probably less of an issue because it’s so common. But if you’ve got money coming in from, you know, the UAE or Germany, or, or African or whatever, just talk to your bank and be like, Hey, heads up, I got this money coming in.

 

2 (37m 34s):

It’s a large amount of money. What do you guys need to make sure you, you know, you need a passport, like, what do you need so that we can clear it so that it doesn’t get frozen? Cause I have had clients, I’ve got horror stories of clients who, you know, $5 million came in and there’s a governmental agency, or it’s sort of the financial crimes division can actually go in there. Like, wait a minute. I don’t know what this money’s coming from. I’m going to put a hold on this. I’m going to do our own little due diligence. And that can take two or three weeks. And in the meantime, you’ve got to close on Monday. So that was a nightmare for one about one of my crimes. He’s literally sweating it out and meeting with the manager of the bank. And then as it keeps getting higher and higher rank until like whatever the level they need to get to get the clearance on the 5 million. So just a little common practices like that. But yeah, so, and, and, and a lot of great stuff came out of that lie that I hadn’t even thought of, that that are potential issues.

 

2 (38m 17s):

I, I knew the answers to, but it’s not something I typically talk about. And so that’s why the lies are so great for me. Cause it, it kind of lets me know what what’s on your syndicators mind. I compares what’s I’m on. And here’s what I, I don’t, I don’t want to talk about what I want to talk about. I want to talk about what’s important to the syndicator community and this vehicle has been awesome for me to get that Intel and see what’s important to, to syndicate as opposed to just what’s on top of my mind.

 

1 (38m 39s):

That’s great. Well, it’s clearly adding value. Well, we’re going to wrap up here. Maricio so we’ll definitely put a link to that. I just want to get your thoughts. We usually ask all of our guests at the end, you know, what, what your thoughts are, the current environment that we’re in right now? I know a lot has happened since we last spoke interest rates, you know, an active war, a pandemic. So a couple of items since we last spoke, but, but generally speaking, you know, how do you feel about the, the short to midterm as it relates to, you know, real estate or your business in general?

 

2 (39m 10s):

Yeah, I mean, I’d be lying if I didn’t say I was a little concerned, you know, the there’s, these are definitely frothy, you know, numbers, the price of real estate here in United States continues to go up and rents are going up. Like there’s no tomorrow somebody markets rents have literally gone up in some markets 50% year over year in the, you know, in where I used to live in, in, in Phoenix, Arizona. I mean, I think they’re projecting 18 or 19% rent growth year over year. And as you guys, you know, as you know, multi-family is based on the rents. And so these keep going up, but it certainly hasn’t, I haven’t seen any slowdown. In fact last month was our busiest month yet even though interest rates are obviously, you know, not quite double, but they’ve increased a couple of percentage points since, you know, last year.

 

2 (39m 50s):

So I’d be shocked not to see some impact, but again, but I think gen to impact a little bit more on a single plan has a much more larger impact on single family homes for, for home buyers who want to buy a house, but now they can’t afford the payment, but with rents going up the way they are, you know, I haven’t seen a slow down now, one thing that does concern me and I’ll throw this out just maybe as a value at two. But what I have been seeing is which I think is very telling is most of the deals I am seeing involve some type of bridge financing. So instead of having your traditional, you know, five to seven year commercial, and you’re having bridge loans, because that’s the only way numbers are making sense right now, if you’re trying to get your traditional, you know, loan out there, they’re only lending you 65% LTV, which to me is kind of like a sign.

 

2 (40m 34s):

Like what, wait a minute, why are the commercial banks aren’t willing to lend you that much money on the valuation of your properties? And that’s forcing people to go do bridge loans. So I think that’s interesting. So I’ve, I’m keeping my eye on that, on that number and see if that LTV goes back as often, it’s a lot of time it’s 75, 80% LTV and things are going well, it’s creeping down at 65 and maybe lower. Now I’ve looked at it in a couple of weeks. That to me is a big sign, but man, in our practice it has certainly hasn’t slowed, slowed down and there are people out there that swear, there’s no deals that Hey, they’re underwriting. And they just can’t find things at work. And they’re, they’re, they’re alleging that everybody’s overpaying. They may or may not be right. And then I got other syndicators who are just finding deals every twice a month.

 

2 (41m 13s):

So, you know, you never know, but I haven’t seen a slowdown at least from my perspective on, on the clients that we work with.

 

1 (41m 20s):

Yeah. We, we haven’t either for the most part, I mean, certain asset classes, especially multi-racial in an industrial have been hotter than ever, but yeah, it’s, it’s one of those things where you, you know, it sounds like you’re doing it and we all need to do it better in the industry to not drink our own Kool-Aid and try to back up every once in a while and figure out, okay, you know, let’s not create the story we want to hear about really what’s going on right now. Mircea, what’s the best place that we can send listeners over as a resource to check out those lives or just in general, try to connect with you, whether they’re in the states or up here.

 

2 (41m 56s):

No, I always appreciate that. Yeah. The lives are gonna be a great introduction if you haven’t seen my stuff yet, it’s, it’s, Maricio roald.com forward slash life. It’s kind of as easy as it gets. And then my website is premier law group.net. And there’s a place that you can connect with me on there as well, but I really encourage everyone to join the lies. I think that gets a ton of value and it’s a good way to connect with me as well.

 

1 (42m 15s):

My guest today has been Maricio robe Maricio thanks for being part of working capital.

 

2 (42m 20s):

Thanks for having me man. Appreciate it.

 

1 (42m 28s):

Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse for galley. If you like the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E. Have a good one. Take care.

 

Transcript