here is MY OPINION (and not legal or financial advice):
Real Estate Syndications are a senior step .. as you maybe selling highly regulated
securities now .. and should be done only after one has done a number
of successful JVs with a few investors. The costs are quite high to set
up .. about $20,000 for an LP agreement .. and another $20,000 or so for an offering memorandum if you intend to sell outside the friends&family, close business associate or accredited investor realm provided as exemption under the securities act (see below) .. so it makes sense only for a raise of well over
$1M. A proven track record in a related venture is a must in my opinion .. ideally with your own money (and that of others
on top) !
To be successful you must have:
a) a proven track
records in the field of consideration (be it multi-family or office or
trailer park or campgrounds or retail or hotel ..) on a smaller scale
b) a proven new project, well explained .. similar to those in the past
c) a sales channel .. ideally in-house (and registered) augmented by an EMD if you must
d) a legal instrument, vetted by a securities lawyer, called an Offering Memorandum (or OM) based on a legal structure (LP or trust or corporation)
An LP comes in pairs: a GP (general partner) that operates the venture, usually for a fee and a share of equity, and one or more limited partners. They are called limited partners as their liability is limited to their investment. They can't lose more than they invest. More on 'What is an LP"
here.
If you do an LP you maybe offering a security BUT there are a number of exemptions !!
Exemption
means "exemption to issue a prospectus". A prospectus is an outline of
your securities terms and conditions that must be reviewed and approved
by the security commission.
Essentially there are 4 exemptions that are relevant to you or any person doing a venture via an LP:
1) you are doing a real estate deal that involve only friends, family or close business associates (see definition below) !
2)
you are doing a real estate deal with accredited investors. Accredited
investors are those that earn over $200,000/year (or $300,000 as a
couple) or have investable assets (alone or with a spouse) exceeding
$1,000,000 . This is besides their home, i.e. net investable !! This is the minimum requirement in Ontario, btw, even if an OM is used.
3)
They invest over $150,000 .. the so called "acquisition cost". People
investing over $150,000 are usually considered "smart" i.e. if they can
write a cheque for that amount the security commission assumes that
they know what they are doing.
4) You offer securities through
an offering memorandum (OM) which is similar a prospectus but has less
financial depth and does not have to approved by the security
commission but just filed with them.
As long as you do 1-3 you are doing OK in Alberta or BC or MB (in your case) without filing requirements to my knowledge.
Once
you do option 4 (an OM) you must file with the ASC or BC or MB or ON Security Commission. Slightly
different rules apply in Ontario. Once you go to the US even more rules
apply. In the OM case you must have a good securities lawyer.
You
may wish to have them sign a document (see content below) that they are
indeed a friend, family or close business associate to cover your butt
.. but you do not have to !
A few posts on my reinspace with related content:
http://myreinspace.com/rein_members_only1/f/85/p/14541/73364.aspx#73364
http://myreinspace.com/rein_members_only1/f/83/p/18722/95728.aspx#95728
http://myreinspace.com/public_forums1/f/62/p/13915/70354.aspx#70354
A definition of the relevant terms mentioned follows:
Accredited investor (as defined in NI 45-106) is :
(a)
an individual who, either alone or with a spouse, beneficially owns,
directly or indirectly, financial assets having an aggregate realizable
value that before taxes, but net of any related liabilities, exceeds
$1,000,000; or
(b) an individual whose net income before taxes
exceeded $200,000 in each of the two most recent calendar years or
whose net income before taxes combined with that of a spouse exceeded
$300,000 in each of the two most recent calendar years and who, in
either case, reasonably expects to exceed that net income level in the
current calendar year; or
.. there are quite a few more groups .. like institutions, banks ...
"financial assets" means:
(i) cash,
(ii) securities, or
(iii)
a contract of insurance, a deposit or an evidence of a deposit that is
not a security for the purposes of securities legislation;
"spouse" means, an individual who,
(i)
is married to another individual and is not living separate and apart
within the meaning of the Divorce Act (Canada), from the other
individual,
(ii) is living with another individual in a
marriage-like relationship, including a marriage-like relationship
between individuals of the same gender, or
(iii) in Alberta, is an
individual referred to in paragraph (i) or (ii) above, or is an adult
interdependent partner within the meaning of the Adult Interdependent
Relationships Act (Alberta);
"person" includes an individual, a
corporation, a partnership, trust, fund and an association, syndicate,
organization or other organized group of persons, whether incorporated
or not, and an individual or other person in that person's capacity as
a trustee, executor, administrator or personal or other legal
representative;
Close personal friend/close business associate questionnaire
_________________________________________________
Name of director, executive officer, control person or founder
___________________
Length of relationship
________________________________________________________________________________
_____________
________________________________________________________________________________
_____________
________________________________________________________________________________
_____________
________________________________________________________________________________
>_____________
Details of relationship or prior business dealings
The
undersigned understands that the Partnership is relying on this
information in determining to sell securities to the undersigned in a
manner exempt from the registration and prospectus requirements of
applicable securities laws. and neither the Subscriber nor any
affiliate or associate of the Subscriber will pay any commission or
finder's fee to any director, officer, founder or control person of the
Partnership or an affiliate, nor to the best of the Subscriber's
knowledge, is any director, officer, founder or control person of the
Partnership or an affiliate entitled to a finder's fee or commission,
in each case in connection with the Subscriber's subscription for Units
hereunder.
(Note: a person is not a close personal friend solely
because the individual is a relative or a member of the same
organization, association or religious group or because the individual
is a client, customer or former client or customer, nor is an
individual a close personal friend as a result of being a close
personal friend of a close personal friend of one of the listed
individuals above, rather the relationship must be direct. A close
personal friend is one who knows the director, executive officer,
founder or control person well enough and has known them for a
sufficient period of time to be in a position to assess their
capabilities and trustworthiness. Further, a person is not a "close
business associate" if the person is a casual business associate or a
person introduced or solicited for purposes of purchasing securities
nor is the individual a close business associate solely because the
individual is a client, customer, former client or customer, nor is the
individual a close business associate if they are a close business
associate of a close business associate of one of the listed
individuals above, rather the relationship must be direct. A close
business associate is an individual who had sufficient prior dealings
with the director, executive officer, founder or control person to be
in a position to assess their capabilities and trustworthiness)
Dated: _______________________________.
__________________________________________________
Print name of Subscriber
By _______________________________________________
Signature
_______________________________________________
Print name of Signatory (if different from Subscriber)
_______________________________________________
