Forming Syndicate
Hello,
I've got a group of 5 people who want to pool their money and invest in NYC real estate.
I will be doing all the work -- identifying and analyzing properties, negotiating and purchasing, developing, managing, renovating and leasing.
The work is not the problem.
The question is: How best to creat the group? Using a syndicate? Limited partnership?
Besides the legal structure, how to present the setup to them? That is, what is the financial and accountability structure?
Thank you,
Joseph
Do you have all the money situation worked out yet? The percentages of profit, etc.?
No, that's exactly what I need to do.
I've been buying property on my own for the past year and have been approached independantly by a handful of people who want to work with me.
I need to figure out how best to structure it .
Just a thought...but if they want to "work" with you... let them be the silent investor... use their money, pay them well, yet they dont cut into your action....
Okay, sounds good. How do I do that?
They need to know about the deal(s), how they will make money, etc.
So, how do I present it to them? As a strict ROI?
Or, as part of an equity investment along the lines of a IRR?
Okay, sounds good. How do I do that?
They need to know about the deal(s), how they will make money, etc.
So, how do I present it to them? As a strict ROI?
Or, as part of an equity investment along the lines of a IRR?
On the entity situation I would create atleast two entities. One being the syndicate of investors (S, C , LLP, or LLC) hopefully all silent. (I have been in a few bad partnerships Lim. and Gen). Then there is your LLC which is in charge of the mangement of the properties. This is to have a clear trail of the money flowing from the ownership entity to your management co. and try to imply a shield exists between the two organizations.
Just some ideas...
Good Luck
Very interesting.
So, a manager managed LLC (with me as manager) for ownership, and a separate LLC for the actual property management, under contract with the ownership LLC for management with duties, responsibilities and financial compensation spelled out.
That sounds very nice, very clean.
How do I present that as a fair way to the investors -- a way that will protect their $ and create for them a wise place to put their $.
Very interesting.
So, a manager managed LLC (with me as manager) for ownership, and a separate LLC for the actual property management, under contract with the ownership LLC for management with duties, responsibilities and financial compensation spelled out.
That sounds very nice, very clean.
How do I present that as a fair way to the investors -- a way that will protect their $ and create for them a wise place to put their $.
In New York you are a great deal more sophisticated. Here dealing with a large hunk of the movie business whose members are normaly newly arrived to wealth I try to keep it really simple.
The Investors are all in a Limited Liability Partnership which of course limits their liability to the committed funds. My entity The General Partner a corporation .
The Partnership Agreement spells out the duties of the General Partner which is almost everything except giving interviews to the press so they will know you can do more then lift weights,attempt to act and give dialog coaching. That agreement also sets up the accounting.
Thats it. go to work make everybody rich. Absorb all the problems and every year dispurse the profits or decide on carrying them forward as an increase in capital.
As General Partner I usualy have between 25% to 60% interest depending on the kind of investments we are involved with. A buy of notes. I usualy hold at 25% of course I am also receiving a commission from the Note Seller. A buy of land and erection of a commercial building, drops down to about 10% but I also make commissions buy and sell and I am usualy in charge of planning and construction and that also produces revenue.
I have found that as long as the yield on their investment is in excess of 10% it runs smooth. Less, then their Tax Advisors, Agents, and Rented Ladies, start advising them and you have to buy them out. You hope one by one. Sometimes it pays to buy them out as what you are earning for them is chump change to what they make in films. I always get that thrown in my face.
I usualy have a meeting with the investors at least every six months. We sit down and have dinner together. I hand out the statements of earnings and request how they would like it. Checks, Money Orders, Wire Transfers, wraped in a silk handkerchief (Japanese Investors) or a plain brown bag. Whatever. Then they start in telling me how much they made in this film or this deal in which they sold off distribution rights etc. etc.
If it gets too bad I take the check for the meal and pass it to he who bragged the most. Of course sometimes I end up in the washroom getting the check handed back to me cause my picture type guy is really flat broke. I arrange to buy him out. I'd hate to tell you how many checks I have written in a toilet booth cause my client needs money to tip the valet or the Frousy Broad waiting for him at the bar.
You want to feel real silly? Walk out of the toilet booth with your client into the main area of the John and look at the faces of the other guests, just what the hell do they think you are doing in the toilet enclosure? Guess. God I hate working in washrooms, its so undignified.
I hope this is helpfull, I worked for Wild Bill Zekendorff once so I am a bit hesitant to advise New Yorkers in a game invented by them. Cheers Lucius
In addition to creating an LLC, enter into a Operating agreement with all the other partners. This agreement is entered into by the owners to define their duties and responsibilities to each other and to the company. It is like a partnership agreement between the owners.
I would suggest a LLP with you as the managing general partner and the others as limited partners. They would be contributing capital whereas you are contributing the services.
As always, seek competent legal advice so neither you nor they end up at each others throats!
My $.02
Thank you all so very much.
This is a very exciting time for me, and you've all been extremely helpful and generous.
I'll be digesting the advice from both here and elsewhere, putting together the documentation and plans, and moving forward.
Joseph
When you run around offering people pieces of your deals, you also may implicate state & federal securities laws and regulators. What is a "security"? Anything where you put in money and expect a return on your money without putting in any effort (with the exception of banking, which is of course regulated by other laws and agencies).
Am I saying you can't syndicate your deals? Of course not. But you need to make sure that the offerings you make fall within "safe harbors" that allow you exemption from registration requirements ... meaning that you have few offerees, and/or they are "big boys" (wealthy and sophisticated enough that soliciting them is outside the regulations). Casting a wide net for widows and orphans can be a ticket to the heavily-fenced portion of Eglin AFB.
Depending on the amount of capital you are pooling, you might just want to forma simple LLC. If you are talking a large amount you might just be interested in setting up a REIT or doing a Private Placement.
Respectfully,
Phil
Phillip Herrejon
[ Edited by Pherrejon on Date 11/09/2003 ]