Starting Point for Real Estate Capital Raising
Dodson Legal Group
Specialties: Contract Law Business Development Real Estate Syndication Investment Opportunities Wealth & Succession Planning
Regulation D Resources
Douglas Ruark is Senior Principal for the Denver, Colorado office of Regulation D Resources, Founder and President of Regulation D Resources Enterprises, Inc. Mr. Ruark began his career in corporate finance in 1992 with Heritage Financial, Inc. a company he co-founded that specialized in sourcing commercial real estate and corporate debt financing for commercial borrowers. In 1994 Heritage Financial was merged with InvestCap Partners, a Washington DC based corporate investment banking firm. Mr. Ruark assumed a partnership position in InvestCap Partners and was tasked with managing several areas of corporate finance for the company including real estate syndications, transactional risk assessment, Federal and State securities compliance, and investor relations. In 1999 Mr. Ruark served as a primary founder of Regulation D Resources. The Company was formed for the purpose of providing private placement offering advisory services to corporate clients. Regulation D Resources currently provides SEC Regulation D exempt and Regulation A+ exempt securities offering preparation and execution services. The Company also provides custom software solutions for management of investment compliance processes. Regulation D Resources has provided advisory services for over 5,000 securities offerings since 1999. In 2015 Mr. Ruark was instrumental in leading the team responsible for development of Regulation D Resources Investor Portal Compliance Management application. The web application provides for public promotion of Regulation D 506(c) and Regulation A+ exempt securities offerings and handles all compliance, subscription, and investor verification processes. The critically acclaimed software is now on build v2.3 and has been used to manage compliance processes for hundreds of private placement securities offerings. Mr. Ruark holds a degree in Economics from Elon University in North Carolina. He is regularly scheduled as an expert speaker at various venture capital, real estate and corporate finance conferences with regards to private placement offerings and the syndication of investment capital.
Vice President of Investments
Vice President of Investments
Douglas Ruark 01:19
All right, well welcome everybody. We have a panel here, right now we have the best of the best. We have Chris Norton, with AI Bankers Direct, one of the premier broker-dealers in the space. Then we have my good buddy, Nate Dodson, Nate Dodson, one of the most experienced securities attorneys in the country, he is really going to be bringing some fantastic expertise into this discussion. And I believe we might have Frank Bellotti on the 21st Century Capital joining us, as well. But we’ll go ahead and get started with Chris and Nate. Gentlemen, how are you today?
Nathaniel Dodson 01:57
Doing good, thanks for asking. So trying to figure out this whole techie, make my camera work, but working on it.
Douglas Ruark 02:05
You know Nate, thats funny, because I had to go in and use Google on mine. I was using Safari, and I hadn’t had a couple of issues so I had some issues as well with it. But well, what I wanted to start off with gentlemen is, you know, obviously, we’re going to be talking about real estate, we’re talking about the JOBS Act. And obviously, we’re talking about then adding in tokenization. And I think ultimately, you know, as Oscar had said, kind of in the opening, you know, ground zero is essentially the regulations. Whether you’re going to sell traditional security, whether you’re going to hybrid security, there’s a date, you know, it really does come down to the regulations. First and foremost, because that’s the vehicle that you’re going to be using to go to the market and offer the securities. And, you know, in general, there’s really kind of three primary programs available that most people would use Regulation D Regulation CF, we’re actually seeing real estate operators use ever since they took the limit up to 5 million. And then also Regulation A+. Nate, why don’t we start with you? Do you want to just give us a quick rundown on those three programs? And just kind of the benefits and disadvantages of them. It doesn’t need to be super in-depth. Obviously, you could, you could speak for hours on those three programs. But just to kind of give a little bit of a background to the audience as far as what are the options there because that is going to be the starting point. That’s the vehicle they’re going to use to offer the securities.
Nathaniel Dodson 03:38
Sounds real good to me. Well, at the end of the day, we’re all here and learning about this because of the general solicitation, the marketing options that are available under the regulations we’re going to talk about with kind of the most classic one being Regulation D. Traditionally, now the rule 506 C which allows the advertising and marketing everywhere as long as you’re only working with the verified accredited investors. So definitely a nice way to get to the closing table on real estate because you can get there quickly and easily but you have a very small pool with the accredited only. You’re you expand the pool a little bit with Regulation CF, quite literally that regulation crowdfunding, that allows you to now accept capital from everybody accredited or nonaccredited, subjected to some limitations. But now you’re dealing with the limitation of only being able to raise up to $5 million. Great for the little deals. But if you’re looking to do the $20 million $50 million fund capital raise, then you’re really probably targeting more the Regulation A options which again, you can accept the capital from the accredited or nonaccredited investors, you can generally solicit market everywhere. But now you’re capped at $75 million in total, and you go through a much deeper dive qualification process with the SEC that costs a little bit more and takes a little bit longer. But ultimately is setting up more of a long-term, larger platform compared to the Regulation CF. And more versatility than the RegD is quite often.
Douglas Ruark 05:35
Yeah, and you know, actually to jump ahead real quick, Nate because I’m kind of interested to hear your thoughts on this. So with RegA+, the RegA+ does have to pass a qualification process with the SEC. So you are gonna have an SEC examiner reviewing the form A, reviewing the exhibits? Do you see any kind of situations where selling a token might increase? Or create some complexities there? Like maybe increase the potential for comments or what have you? What do you what are your thoughts on that?
Nathaniel Dodson 06:10
My thoughts are what’s been going on in the tokenization world is not gonna go on in the future, because of exactly what you’re you’re nailing with. The SEC is hyper-interested in tokenization. And what’s going on in the crypto world? They’re interested, but they’re still trying to figure out really what’s going on. And I don’t think they really understand what’s a security, what’s not a security, the SEC itself, which kind of makes it an interesting perspective that you assume that they know everything, but we see in the crypto markets, they’re just bringing lawsuits right and left, trying to figure out where kind of the end of their jurisdiction begins? And where really the tokenization not as a security really starts?
Douglas Ruark 07:05
Yeah, well, and it’s kind of a maturity thing, isn’t it? I mean, like we, you know, LLCs have been around forever. You know, there’s obviously tremendous backstop, in terms of, you know, legal work for operating agreements, and membership interests and what have you. And in all, that’s very straightforward. And yet obviously, the token stuff is new. So, you know, we see people where they, you know, they kind of big picture, like we want to sell a token. But ultimately, they haven’t really haven’t thought and said, Well, hey, you know, what’s the rights document look like finished? You know, you’re gonna have essentially, a certificate of designation, if you want to think of it that way, when it comes to this, and then that also then is where you really need to have the proper professionals on board. Because if you don’t have a rights document outlining the rights and the terms of those hybrid securities of those tokens, and you’re coming into RegA+, especially, you’re probably going to get some comments. Because those examiners at the SEC, or they’re gonna be asking some questions on that. Chris, so let’s, let’s go to you real quick, Chris. As far as the real estate in the token angle, what do you see a lot as far as a broker-dealer, and the use of tokens with real estate like what type of deals do you guys tend to see there? Is it? Is it existing assets where they’re looking to get liquidity and they want to tokenize but still maintain control of the asset? Or is it more like real estate funds where they’re acquiring assets? I mean, on the broker-dealer side, what do you tend to see?
Chris Norton 08:38
I’m having more people ask me questions regarding, you know, the ability to tokenize to nominate, you know, to denominate out smaller interests on people that are looking to liquidate, but still keep control of the property. And the feedback that I’m kind of giving them to an extent is that you could tokenize, but you don’t know that wherever you tokenize, you don’t know that there’s a buyer on the other end. So until the markets become a little bit more liquid, it may or may not make sense for everyone.
Douglas Ruark 09:08
Yeah, and I guess that’s a good point, too. Right. Is the attractiveness and the sales aspect of this. Ultimately, if you have a token that’s going out? Is that going to be the right fit? For the audience, you know, is the audience that you’re going to as far as the investor audience so they can understand that token? Are they going to feel comfortable investing in it? And again, that drives back to, you know, back to the work that Nate would do, right? I mean, you got to make sure all this stuff is backstopped properly. So do you have any feelings about that? Chris? I mean, if someone wants to execute a token offering, I mean, it are you seeing these kinds of deals where they are, they are being sold and people understand the securities or is there still some hesitancy there because it is new?
Chris Norton 09:55
I think there’s still some hesitancy there because it’s so new. I think it’s more when people adopt in the market becomes more and more liquid, and more people understand what they’re, you know, signing up for getting themselves into when they purchased the token. I think that barrier to entry will be reduced. But as far as like right now, it’s still super new. So if you’re gonna go in and do one of those offerings, you know, you really need to educate, you know, the public to be able to get them to be interested in it. So I think that there’s still some, you know, some ways to go on it.
Douglas Ruark 10:31
Nate, as far as when we look at these, look at these deals, when you start looking at doing tokenizing real estate, you know, what, what are some of the challenges there that are there? Let’s just say a property owner, let’s go ahead and put an example on the table. I’m a property owner, I own a multifamily property, and I would like to get some liquidity in. I’m gonna go ahead and tokenize the asset and sell these tokens. What are some of the challenges that I may face? In I see challenges? Maybe what are some of the advantages that have of the tokens as compared to say, a traditional structure? Let’s start with challenges. What challenges what I face? I’m sitting in your office, Nate, I got this real estate asset. I’ve heard about this token stuff. What would you tell me as far as look, Doug, here are some of the challenges you might face going this route.
Nathaniel Dodson 11:23
You know, the way that I really coach any of our clients is starting with, well, why do you want to tokenize? And what do you think the benefits really are? Because I think there’s a misunderstanding at the end of the day, with the vast majority of people in the market, they hear tokenization, they hear crowdfunding, they hear cryptocurrency, and it’s just buzzwords, buzzwords, buzzwords. And I really want people to kind of understand that there are some benefits to the tokenization in terms of the ease of transfers and the possibility for secondary markets, that really still need to come to fruition. But what’s the token? If you ask me? Well, it’s as great as this old stock certificate that we used to have around a lot. And now, you know, very few deals end up being certificated. And now we’re talking about Well, now it’s a token? Well, really, what’s the benefit of that it’s the same kind of benefit, at the end of the day, at least in my perspective, as having that stock certificate, it’s nice to be able to hand over some sort of representation of the interest. And the tokenization very much helps that now all of a sudden, instead of saying, hey, I want to buy your stock, will you mail me their certificate, that never really actually happens to now we can create an online secondary market or a trading platform where I can put that same certificate, that same token on there, make an offer for people to buy in. And now it’s just more of a seamless process compared to what happened in the past.
Douglas Ruark 13:10
Yeah, well, and I tell you one of the things that I think is interesting is that you know, at least from what I always heard that you know, the benefit of the token angle was that there would be, you know, secondary markets where you could gain liquidity. But you know, what’s interesting is, with the advent of all these ATS systems now, you know, there’s there is that liquidity option for membership interests or limited partnership interests. So, so there’s a bit of a leveling of a playing field there, I think, as well. As far as the, you know, the sales aspect. I mean, I do think one of the things that’s interesting, and I’ll kind of kick this over to Chris to get his thoughts. But, you know, one of the things that I’ve always seen and I think part of the reason why I’m seeing a lot of people gravitate towards CF and RegA+ for these real estate transactions is that everybody can get their arms around real estate investing. You know, when you start talking about, you know, biotech companies doing offerings and stuff, you know, you kind of run into a little bit of a risk that these concepts are going to fly above the head of some of the people, myself included. Real estate’s different, you know, real estate, people can understand these things. I mean, I’ve got guys coming through doing, you know, vacation rental funds, where they’re buying properties at, you know, beach resorts, lakes, and out by, you know, ski mountains. And it’s like when you think about it, you know, those are places where people are going to vacation, but they’re also places where there’s only they’re only building so much coastline. For example. So I think when you look at the use of CF and RegA+, and being able to access the entire investing public, real estate kind of is a bit of a natural fit there because of that, Chris, what are you seeing there? I mean, when you have clients that come through, do you kind of prefer them to be in those programs where they can access the entire investing? In public, and then you know it. Do you feel like as far as being a broker-dealer, that’s extra sophistication that’s in a RegA+? Do you feel like that benefits you as well, that you’ve got some backstops there that may not be in a RegD like audited financials or the requirement for a transfer agent? What have you?
Chris Norton 15:19
I do think that you know, the barrier to entry in terms of launching a RegCF, or a RegA+ for real estate, I think is a lot easier than you know, like you said, a biotech a technology company, because like you said, people do understand real estate. And it’s not going to fly over the head of a lot of people. And then and then from the due diligence perspective, it’s nice to have the audited financials that you get along with the Reg A. Whereas, you know, a lot of companies at that stage don’t necessarily have that yet. It’s definitely a nice component of it, that you have that with the RegA+, you know, to fall back on in terms of the due diligence perspective.
Douglas Ruark 15:58
Yeah. We’ll kind of pop in and do a couple of these questions here, just because a couple of these are pretty good. So, my good friend, Laura had a question about a reduction in the timeline for RegA+ qualifications. You know, look, I think, ultimately, on the real estate side, at least from what I’ve seen, and on submitting these filings, you know, real estate stuff tends to be pretty straightforward. So as far as the qualification goes, you know, when you’ve got a good firm on board, and you got Nate Dodson on board, I mean, you’re probably not going to run into comments on a typical real estate deal. It’s not a guarantee, obviously. But the real estate stuff tends to be pretty straightforward. So you could see anywhere from a three to five-day turnaround from the SEC if there are no comments or no reviews situation. If there are comments on a RegA+, it might be about two weeks before you get that comment letter from them. And then as long as they’re pretty straightforward, you could turn those around in a day or two and usually get it back over to the SEC. You know, I think, Nate, when we start looking about and looking at, you know, where do you start on this that, let’s say you got a real estate developer, he needs to raise some outside capital for a development project. And he knows how to develop real estate, but he doesn’t really understand how I go syndicate capital has given me my first syndication. He may not even have an entity formed yet for this thing. So where do they start? I mean, obviously, the first thing is, is they need to pick up a phone or call someone like you, that is going to be able to get that vehicle in place for them and do it properly. But where we’re really kind of should they start? And what would come the pieces of putting one of these offerings in place look like? I mean, there’s no deformation, you gotta choose an exemption, there’s going to be filing work and offering docs drafted. But where does that start? If I’m a syndicator, sitting here, and I’ve never done this before, how do I What’s my first step? Nate?
Nathaniel Dodson 17:57
If you reached out to crowdfunding lawyers, we always start with just some information gathering that is really more than, hey, what securities exemption? Is it? Well, I kind of take the approach that most people really don’t know. They have their ideas of where they’re gonna find their investments, they have their ideas of how much money they need, and they may even have their plans. We got to have it by this drop-dead day to get through the closing table. But they don’t really understand the different strategies and timelines that are available to them. And I love that people are asking about, you know, how the timelines working with these Regulation A+ offerings. And Doug, you’re spot on, if you get these no-review letters, or if there are no comments, things can turn around relatively quickly. But if you start to get comments back, and generally with Regulation A+ as an example, if you’re looking at 75 million, you’re usually not doing like, we’ve got to get to the closing table, and within the next 90 days type transaction, it starts to more or less limit what regulatory options you may have of when you need to actually close, as well as a course of you know, by the time you get to the closing table, how much money do you need, which also helps define the does a Regulation CF work? Because of the $5 million cap? Or are you really almost stuck with the RegD because you don’t have a lot of time and you need a bunch of money? You can’t even make it through the Regulation A+ process. So getting to know really what the goals are and where a client believes that they’re going to get the capital from is a lot of the first steps of getting to know really the planning the structure of what goes on out to the market.
Douglas Ruark 20:01
Yeah, well, and I tell you to ultimately, what you’ll find a lot of times is that, you know, if you’re, if you’re coming in under a RegA+, and you don’t keep things straightforward. You’re gonna have data that is obviously when you could start running into comments. So instead of just having physical asset purchases, you want to start trying to mix in buying securities of other funds. And now you’re stepping into investment company considerations and stuff, I mean, all those things start to impact how quickly and if you will get qualified under RegA+. Chris, let’s chat for a sec about a broker-dealer’s role, because I know there’s a lot of people sitting out there. They’re gonna have a pretty good understanding, probably of Nate’s role, because Nate’s gonna be there draft and offering docs and giving them legal advice on these processes. Where does the broker-dealer fit in on this, I think a lot of people, you know, a lot of people kind of just automatically look at a broker-dealer as they’re going to go raise capital. When in fact, a big piece of what a broker-dealer does is they are kind of that compliance backstop. Or at least especially a firm like I bankers, they’re kind of the compliance backstop for the client. So for the benefit of these people on the podcast today can where does the broker-dealer fit into these these these deals?
Chris Norton 21:19
Yeah, the broker-dealer fits in a lot differently on a RegD than they would on a RegCF or a RegA+. On a RegD, the broker-dealer role for the most part would be to go out there and raise the capital for the deal. On a Reg CF or a RegA+, it really changes more to a compliance function to a degree, we were responsible for the I guess, you would say AML, KYC, making sure that the investors coming into the offering. You know, or not doing anything not allowed to come into the offering, you know, for lack of a better term. So it changes from more of a capital raising function on a RegD to on a RegA+ or a RegCF, more of a compliance function. So there are there. I mean, there are some caveats to that, you know, there are some broker-dealers out there that, you know, will help push investors through the pipeline. If they go online, and they subscribe to the invest now button, and they haven’t gone out there and filled out all the forms, there are some broker-dealers that will contact those investors, and reach out to them and try to push them through the pipeline. But for the most part, its a compliance function.
Douglas Ruark 22:30
Okay. Yeah. Well, you know, it is interesting, because, I mean, ultimately, one of the things that are changed dramatically, you know, in the last 10 years has been obviously the Jobs Act. But the technology that’s backstopping these offerings now, you know, we’re really kind of moving into calling it online capital formation, because a lot of these processes that used to happen the old school way, it’s all automated now. And, you know, I see Nate, you know, Nate because Nate remembers those old, old school days of, you know, emailing ppm is back and forth, and you couldn’t generally solicit anything. I mean, I tell people, a lot of times, you know, if I was having this conversation with you in 2005, the options were so limited. I mean, you basically had the old RegD program. And I mean, that was pretty much it. I mean, no one was really using RegA+. Because it was the old RegA+ where he had to qualify at the state and federal level. And so, so I think what is interesting, too, is with this concept of online capital formation, and the fact that everything now is really, it’s very sophisticated. It’s everything’s online. You know, I tell people, when you’re using KoreConX back in as far as their subscription process, I mean, it takes you longer to buy a t-shirt on Amazon’s website than it would be to invest in someone’s real estate fund using this technology. Nate, what have you seen as far as that? I mean, like, it really is interesting, the technology advancements, I mean, you’ve been around this business a long time. You remember the old-school days there, they kind of seem archaic now, don’t they?
Nathaniel Dodson 24:04
I love when I see a PPM and it still has the PPM number. Because you’re supposed to keep up with these things. But now all of a sudden the technology just kind of really handles it all for you. I almost see the broker-dealer role, in general, has gone from financial sales to technical compliance to a large extent. Unless they’re overseeing the sales representatives. But really, at the end of the day, the ability for an investor to find whatever out of the sea of opportunities online to within an hour find it qualified, do your due diligence and invest within. Just how streamlined and simplified it is compared Over the years of the past, not only does it make it easier, but it also has greatly increased the amount of retail and private investors that are willing to get into it and just getting over the procedure. Well, I’m not sure how this takes place, there’s a level of comfort, knowing that oh, there’s this technology behind KoreConX, that is just simplifying the information intake. Plus, from a suitability standard, there’s an assumption that the broker-dealers or other people are actually looking over the information to make sure that standardized processes work, so you don’t have as many fly-by-night guys out there.
Douglas Ruark 25:48
Yeah. Well, and I’ll tell you why I, you know, it helps in the sales process because it builds confidence, right? I mean, I come to a raise portal, it’s a, there’s a custom raise portal, there’s a broker-dealer on board, there’s a transfer agent on board, there’s escrow on board. There’s kind of that circle of trust there. That’s front and center and makes me feel better. Chris, that technology is probably made your job a lot easier, having it able to track things and get KYC and AML work done and everything and clear securities before someone draws off escrow. I mean, the technology piece has got to have made the broker-dealer piece a lot easier, hadn’t it?
Chris Norton 26:24
Yeah, it’s made the process seamless to an extent where, you know, definitely leaps and bounds from where it was on like an old school RegD, this is much, much different and much more seamless.
Douglas Ruark 26:39
Now, let’s talk about entity types. I mean, you know, this is kind of a starting point for real estate capital raising. So ultimately, I’m going to drive back to be the new real estate syndicator. Well, what are my options there? I mean, I could do an obviously there’s a lot of real estate stuff that happens under LLCs. We still obviously see LP GP structures for real estate stuff. And we see corporations used I mean, I think a lot of times that tend to be if it’s going to be a restructure, but it probably is helpful for everyone to kind of hear from you on that, as far as what are we what am I looking at as far as the entity that I would form? Obviously, a lot of that may be driven by the project, if it’s going to be short-term, and I’m not really looking for, you know, a tax benefit there. For investors, it might just be a simple LLC for an infill site development project. But what do we typically see there, as it relates to real estate and the entities used?
Nathaniel Dodson 27:33
Well, I think it’s hilarious that you bring up the old limited partnerships, the GP LP structures. But at the end of the day, people kind of use those words, no matter what type of entity is. A general partner is the management of a limited partnership. But I don’t know maybe four or 5% of the time, maybe we’ll use an LP, limited partnership structure. Most of the time, it’s using Limited Liability Companies, LLCs. They’re just honestly the easiest to document for people to understand there’s flexibility there. And ultimately, you can pick your tax category, which I think can be one of the biggest benefits of the LLC is where partnership, the GP LP taxation, you can have that if it makes sense to be a REIT. No problem. And people don’t really realize a REIT a real estate investment trust isn’t a trust at all. Generally, it’s a corporation that’s electing to be taxed as a Real Estate Investment Trust, well, we can use an LLC for that as well because we can choose the corporate REIT tax category. So for that reason, for these reasons, as well as some of the asset protection components of it, the LLC is honestly used almost probably 90% of the time. And then of course, we’re still using corporations some if we’re doing more of a JV where it can be a Subchapter S corporation, with the direct part pass through. We don’t see that too often on the real estate side because it takes away the opportunities to have preferred returns, which just kind of create created a standard expectation with real estate investors, however, will still use either an LLC tax as a corporation or incorporation if we’re putting together a REIT.
Douglas Ruark 29:41
Yeah, and it is interesting a lot of people use those terms interchangeably because you’ll get someone that’s got an LLC and they’re there yet they’re talking to their and there, you know, corporate info about you know, the general partner and stuff and like you said. It’s almost kind of interchangeable these days. When you think about it. I mean, a lot of people were really familiar with manager-managed LLCs multiple classes a membership interest in those LLCs gives you the flexibility to create a, you know, a security that’s going to meet the needs of your investors. Chris, on the broker-dealer side, what do you typically see? And do you run into any resistance from investors on any structures? Like would you run into resistance from someone with something like a limited partnership structure where maybe it’s an older structure that maybe they’ve just kind of, you know, they’ve always thought of LPG stuff as being an oil and gas, for example? But do you run into anything like that comments or feedback from investors where they maybe don’t understand the structure like that?
Chris Norton 30:38
It depends on what type of investor it is, if it’s a super high net worth investor, those investors are definitely familiar with the GP LP structure, and they have no problem with it. If you’re targeting like a general, you know, anyone nonaccredited investors, I think maybe it’d be a little bit more complicated for them. So I think it’s based on which investors coming into the deal and how the deal is, is structured, you know, would really determine whether you get pushback on it or not. We have, you know, funds here of venture funds, where we have a GP LP structure. And it’s only from existing clients of ours, that the funds are not generally soliciting to the public. And we haven’t had, you know, issues with it. But I could imagine if there’s an easier way, you know, that you guys would rather go that route, but we’ve been using it and haven’t had issues.
Douglas Ruark 31:28
Named as far as liquidity provisions. So, you know, if you look at putting together something like a real estate fund, you know, there are a lot of times just kind of two ways to look at it, hey, I’m gonna run this fund for five to seven years, we’re going to liquidate assets go to all cash, and that’s going to be the exit, you also have people that really want to run more of kinda like an evergreen fund that funds are going to keep running. But obviously, at some point, you got to provide liquidity. You know, again, I’ll be the real estate guy, and how do I handle that, if I just want to keep running this fund, I don’t want to sell assets, obviously, at some point investors are gonna want liquidity, well, what are those options look like?
Nathaniel Dodson 32:07
And that’s where it gets to be very difficult talking about how you exit a fund that is set up to not just sit on a bunch of cash. It’s a little bit different than investing in an equity pool, or a stock mutual fund where hey, we need liquidity, we can just go out and sell it the next day. With real estate, you have to have a long enough timeline, that allows the GP and the management to sell assets. Or to have another mechanism to create that liquidity like a secondary market. But generally, when we’re working with somebody that says, I want to hold on to these assets forever, and the response is your investors don’t want to hold on to those assets forever. We work through and kind of talk about the pros and cause cons of a redemption or withdrawal policy that maybe it is only once a year. Oftentimes, there may be a four to six-month allowance to get people’s funds out. But it’s not necessarily ongoing hey, you can sell or ask for your money back at any time. One of the biggest issues that I always see in thinking about real estate, is what’s a fair market value. And to really have any accuracy with it, you’ve got to do appraisals, or at a minimum broker price opinions for all these real estate assets to come up with a fair market value. That is just very unreasonable to be able to accomplish that on an ongoing daily basis.
Douglas Ruark 33:50
Yeah, yeah. And that is something to think about too, obviously. I mean, if you want to have, you know, liquidity every six months, and you’re trying to determine a nav and you’ve got to obviously have a valuation on that portfolio to determine that obviously can’t be working hard on those appraisals or broker price opinions. Chris, as far as an asset class, I mean, do you see any kind of preferred asset class at this point from investors? Are people gravitating towards multifamily vacation rentals or single families? I mean, do you see or do you see any trends there? Or is it kind of all over the map right now?
Chris Norton 34:30
I think it’s a bit all over the map. We’re not you know, we do a little bit in the real estate space, but that’s not our bread and butter. So I don’t know that I would be the best guy to give an opinion on that Nathan might be able to offer a bit of a deeper insight than I would but from what we’re seeing, it’s all over the map.
Douglas Ruark 34:45
Okay, yeah. So um, as far as Nate when I’m looking at the kind of the liability protections on stuff so let’s say that I am a syndicator, I’m going to raise money, I’m going to build out a portfolio. And, you know, as far as the management goes, what is the management structure look like? I mean, is it myself and my two other partners personally on that LLC as managers, or are their manager entities involved? Let’s maybe touch on real quick kind of that org chart as far as what that tends to look like. And let’s just keep it simple and say it’s going to be an LLC.
Nathaniel Dodson 35:29
Well, that sounds good LLC, the top dog of the LLC is the manager, which I always thought was a little bit weird. The manager is kind of like the President of an LLC, it can be a person, it can be an entity we’re pretty consistent with we’re recommending people have a management entity that the investors aren’t coming into. It does allow more flexibility from the management side, oftentimes, you may have GP teams, and management teams that are coming together. And it’s a lot easier for them to come together and have other understandings or agreements that affect management, not necessarily the investment by using a completely separate entity that serves as that manager. Also, if there are any issues, or lawsuits with a property, with investors, it’ll generally contain it a little bit better within the offering entity or the fund or whatever it may be, as well as that management LLC or corporation that ties into it.
Douglas Ruark 36:39
Gotcha. And then that manager, that would be taking things like management fees, the acquisition fees, disposition fees, and then the structure we tend to see is there’d be a different separate kind of sponsor entity that would hold Class B interests, for example in the fund, and that’s allowing them to participate. You know, as far as asset classes, I’ll just talk, I mean, I get a lot of people that ask, Hey, you know, what, what can I raise money for, and, you know, really across all asset classes, I mean, I’ve seen people doing single family, home portfolios. And a lot of times, you know, a lot of these people are coming out of the property management background, where they’ve been managing these properties, they have some expertise, they’ve never done a fund before, they’ve never syndicated capital before, but they want to go in and put their talents to use in that regard. Obviously, you can step into looking at multifamily commercial self-storage, I think what I see a lot is people really looking for niches, you know, vacation rental stuff. I’ve seen a lot of that recently, where they’re buying properties for example, or they’re buying beach properties where, you know, these properties are going to have a better chance of holding value, because it’s a unique place. And so I think, you know, it’s interesting, looking at the different types of even seeing things like, you know, land banks, you know, entitlement type deals. So I ultimately, you know, if you’re out there, and you’re looking to do, you know, syndicate capital for real estate, and you’re curious. Like, Hey, can I do this, you know, pick up the phone call, professional call Nate Dodson, you know, because ultimately, there’s a lot of different ways that you can set these deals up. There are a lot of different asset classes that you can invest into. And a lot of times, it just takes getting one in place. I mean, you know, there’s, there’s always a first step for people, I think one of the key things is put a good team in place. If you have a good team supporting you through this process, it’s going to be a lot easier for you to get through the process with confidence, and know you’re doing things properly. And I think that’s one of the big key things. And I yeah, I know, Nate and Chris probably run into this a lot when you’re doing your due diligence. And that is, you know, Hey, have you sold securities before or you know, have you had any rounds from this company that you’ve executed, and then you find out well, we did have friends and family around that actually was like 38 people and we didn’t make any filings. So I think ultimately that’s one of the points to really drive home here, there are rules that apply to you going and raising money. You can’t just spin up an LLC and go out on LinkedIn and start telling people to come by membership interest in your LLC. There are rules that apply to that, that’s why this ecosystem is in place to get you through that process so that you don’t run afoul of rules and you do everything properly. Because the last thing you want is to do something improperly and have rescission issues happening or obviously have state or federal regulators coming in and looking at you so that that’s one of the big things right, there’s just no the fact that there are rules that apply. If you have any questions on that. Obviously pick the phone up, you know, call me call Chris. But you know, call KoreConX but I mean, you know, I’ve always been surprised how many times, especially in real estate, where operators just didn’t think rules were going to apply to them, and then ended up having a problem. So that’s why these programs are here. And look, they give you the ability to generally solicit I mean, the technology and the programs now are phenomenal. So there’s no excuse not to come through a do a proper offering and do everything properly. We’re at the end here, Nate, as always a wealth of knowledge. Thank you so much for being on the panel. Chris. Fantastic to get your viewpoint from the broker-dealer angle on all this. And yeah, very excited to have you guys on and it was great having a discussion on you know, obviously real estate and these programs and then mixing that token angle in as well.
Nathaniel Dodson 40:45
Yeah. Thank you all so much.
Chris Norton 40:48
Thank you guys.
Douglas Ruark 40:50
All right. Thank you.
Nathaniel Dodson 40:52
Thanks, connect. Yep.