Page 14 - Venture - State of the Market 2020

TOP FIVE THINGS

TO KNOW ABOUT BY REAL ESTATE ATTORNEY

GREG RUSSELL
REAL ESTATE

SYNDICATIONS

1. IS THE PROJECT A REAL ESTATE SYNDICATION?

As the cost of real estate has continued to escalate on the West Coast, and in particular in the great Seattle
area, our clients interested in purchasing commercial and multifamily real estate properties are looking to
use money from investors to provide the capital needed to acquire these properties, and thus get involved,
intentionally or not, in real estate syndications. If a person uses money from investors to acquire real estate,
then that person must be careful to comply with the detailed and complex rules around properly structuring
a real estate syndication. Here is a top five list of legal issues to consider in a syndication.

2. ARE THE INVESTORS ACCREDITED?
One of the key rules around syndications is that the sponsor needs to qualify for an exemption from regis-
tering the equity interests (referred to as “securities”) being sold to investors as a public offering. The most
common exemption that syndicators use is taking capital only from accredited investors. There are specific
guidelines for who is considered an accredited investor and how you qualify someone as an accredited
investor. There are some other exemptions available to sell equity to non-accredited investors but these are
generally more difficult and costly to meet. Failure to follow these rules strictly can invalidate your exemp-
tion and expose the sponsor to personal liability to the investors if the project does not perform to expecta-
tions.

12 VENTURE | 2020 STATE OF THE MARKET