LSI 2010 Real Estate Joint Ventures conference materials.pdf

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Erin Joyce Letey of Riddell Williams P.S. Speaker 22: 8 Common Mistakes – Issues in Raising Funds GENERAL SOLICITATION Prohibited activities: Advertising Website posting Purchasing a list of accredited investors Offering by mass email to a certain group or club, even if you are a member and even if you are confident they are accredited e.g., all of the members of your country club, or all the attendees of this conference Asking any third party, such as a finder or business broker, to do these prohibited activities on your behalf. Key: Investors must have pre-existing personal or business relationship with you, your company or your management Relationship must be of sufficient length and duration that you can evaluate their financial position and suitability Riddell Williams P.S. 15 Common Mistakes, Cont. DISCLOSURE ISSUES Need to disclose to your investors all material facts about the investment Cannot omit to state any material facts necessary in order to make the statements made not misleading At a minimum, include: Description and details regarding the property Bios of management Use of proceeds Risks Industry / market information (including a discussion of competitors, if relevant) Description of terms of securities Limitations on transfer Material agreements (and any agreement with related parties) Financial statements If you don’t want to disclose something because you believe it will make your investor less likely to invest, it is material Riddell Williams P.S. 16 Law Seminars International | Real Estate Joint Ventures and Funds | 02/09/10 in Seattle, WA
Erin Joyce Letey of Riddell Williams P.S. Speaker 22: 9 Common Mistakes, Cont. Common items that may be seen as misrepresentations or material omissions: “Guaranteed” return Secured investment Fee disclosures Bankruptcy / defaults by management BROKER DEALER ISSUES Payment of commissions to non-registered broker/dealer Any person engaged in the business of effecting transactions in securities for the account of others is a broker Hiring “finders” or business brokers that are not registered as broker/dealers is risky, and depending on exemption, not permitted Employees of issuer with job of finding investors, who are paid commission for such sales, may be considered brokers NON-COMPLIANCE Failure to file or late Form D Note: Some practitioners believe WA exemption is arguably lost if Form D is not filed timely Riddell Williams P.S. 17 TIC Developments SEC “No Assurance” letter to Omni Brokerage, Inc., Argus Realty Investors, L.P., and PASSCO Companies, LLC, issued January 14, 2009 Involved “sponsor” entity purchasing income-producing real property Sponsor sold undivided tenant-in-common interests to up to 35 individuals in return for cash and assumption of debt on property Investors purchased TIC interests subject to 20-year Lease with Master Tenant, a property management agreement, and asset management agreement. Attorneys for TIC sponsor argued TIC interest was not an “investment contract” under federal securities law – SEC rejected. If TIC interest is a security, it may be a disqualified property for purposes of a tax-deferred exchange under IRC §1031, investors have rescission rights, sponsor and brokers subject to civil and criminal liability. Riddell Williams P.S. 18 Law Seminars International | Real Estate Joint Ventures and Funds | 02/09/10 in Seattle, WA
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L A W S E M I N A R S I N T E R N A
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Monday, February 08, 2010 Real Esta
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John W. Hanley, Jr., Ste
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Table of Contents Topic Speaker # L
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Faculty for Real Estate Joint Ventu
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John W. Hanley, Jr. of Davis Wright
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Steven L. Wood of Century Pacific,
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Tracy B. Edgers of Wells Fargo Bank
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Steven L. Wood of Century Pacific,
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Gregory K. Johnson of Wright Runsta
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Joseph P. McCarthy of Stoel Rives L
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Brian Todd of Davis Wright Tremaine
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John M. Parker of Kennedy Associate
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Quentin Kuhrau of Unico Properties
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Rodney A. Bench of RA Bench, Inc. S
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