Legal Must Knows for Passive Investors

All right, welcome to our monthly meetup. This is April 28, 2025. This is going to be going over legal must knows for passive multi family investors. Our meetup is a place where we talk about the good, bad and ugly of multi family investing with a big focus with passive investors really trying to educate and grow their knowledge so they're comfortable in in investing in commercial real estate investments. We just finished up our networking breakouts and we're about to go right into our guest presentation for tonight. But we meet on the fourth Monday at 7pm Central Standard Time. So a couple slides about myself and the team before we go over to our speaker. My name is Wayne Courageous. I am an active general sponsor or general partner with CREI Partners. We founded the company in 2019 and we've scaled to about 50 million assets under management primarily in Texas, Alabama and Louisiana. We have a wide variety of properties on our portfolio. Heavy percentage of those are in multi family but we also have a build to rent community and RV boat and business storage and some retail. We're also about to launch some multifamily development here in Bryant College Station and a little bit of retail as well. So we're super excited about that. But prior to going full time with CRI partners, this company that I started in 2019, I was with CBRE for about 16 years, was in Washington D.C. houston and Austin where most of my background experience came from working with the big dogs over there at cbre heavy on asset management. And so right now we are, you know, going full steam ahead on our investments and growing wealth for our investors. We also have a great team member, Shelby Whitaker. She's also based here with me out of Central Texas. She handles a lot of our investor relations and the experience for our investors. That was one thing that I really wanted to elevate in our company was having somebody that would be more hands on with our investors and really guide them through the process and answer any questions throughout the the investment. And so she's not here this evening, she's out for today, but she is someone who would love to connect with any of our investors and anyone who's thinking about investing with us and hopefully build that relationship with you. So wanted to also do a plug here for Passive Investor coaching dot com. This is a free resource. I spent about six hours of doing many modules to go through investing passively. I find that a lot of people want to learn quickly and want to get as much knowledge and so I just did it. I was like let's just do you know A free passive investor coaching program where we go everything from analyzing a deal, location, the financials, but also the deal sponsor and what to ask. There's no gimmicks, no like sales pitch or anything like that. It's just education and knowledge. My biggest passion or one of my biggest passions is just helping investors ask the right questions and make sure that they feel comfortable in investing. There's always risk in investments, but you reduce that risk when you're building a team that you know you've asked the right questions and they have the right experience, et cetera. So with that said, enough about me and our company. I want to introduce our speaker this evening, Jonathan Taveras. Jonathan is a dedicated attorney, real estate professional and business leader focused on empowering real estate operators to raise capital while navigating the complexities of securities law. He's got over 15 years of hands on real estate experience. The managing partner of Premier Law Group, he's also a licensed real estate broker in Massachusetts and his prior experience was also as an investor, land developer and as a vice president of operations for Tavares Home Solutions Risen. Why I wanted Jonathan to come speak to us is because he also handles our private placement memorandum operating agreements and subscription agreements. And so having someone like him who can sort of open the playbook of like what passive investors should be asking, what they should be looking at and then obviously if there's any questions in this live audience, definitely want to take that time and open up for Q and A. But with that I will stop screen share and turn it over to Jonathan. Thanks for being on, Jonathan.

Well, good evening everyone and thanks for being here and thanks Wayne for inviting me to speak. It's. It's a privilege and an honor. As Wayne mentioned, my name is Jonathan Tavares. I'm the managing partner at Premier Law Group where we specialize in helping real estate syndicators raise capital, as we like to say, safely and confidently while navigating the complexities of securities laws. As Wayne mentioned, I come from not only a legal but also real estate background as a real estate broker and small land developer in the Northeast, which means I understand not just the law, but the practical realities of building, scaling and protecting real estate syndication businesses for GPs, but also for LPs. So at Premier Law Group, we've supported over a thousand real estate clients over the years and helped syndicators raise over $5 million safely under the SEC's private exemption rules. I'm passionate about simplifying what can often feel like an overwhelming legal process so that Entrepreneurs and investors like yourselves can scale confident. So today I'm here to share with with you guys what every LP, I think should know when you're evaluating private real estate syndications. How to spot quality deals, how to avoid common traps, and how to protect yourself and your capital. But before we dive in, I know some of you might be thinking at this point. Jonathan, you work with real estate syndicators, so why are you here speaking to LPs? And that's a fair question. While we do primarily represent real estate syndicators, as Wayne mentioned, we teach them to structure their offerings through the lens of the lp. Which means for us, building trust, transparency and true long term investor relationships. So we don't just draft documents to check a box. We advise syndicators on how to build offerings that put LP protections front and center because that's how syndication businesses grow sustainably for GPs and LPs alike. So everything that I'm sharing with you today comes directly from best practices and deal structures that we encourage syndicators to use if they want to attract educated LPs like yourselves. So in other words, I'm here to show exactly what you should expect from a syndicator who values their LPs for long term mutual success. So, so let's dive into what I would say you need to know. So this evening we're going to talk about how to invest smartly in real estate offerings as an LP and how to avoid the biggest mistake mistakes that ICLPs make. So, so here's the agenda. We'll, we'll look at private real estate syndication and why it's a powerful tool, how these investments work and what key metrics and terms you should understand. And then we'll look at the big, biggest mistakes that I see LPs make. And then we'll sort of cap it off by talking about how you can protect yourself as an lp. So why private real estate offerings? So first off, why? I'm probably speaking to the choir here, but private real estate syndications provide benefits that public stocks and bonds can't match, right? You get access to generally high quality, often off market deals that you wouldn't see otherwise. And you can enjoy cash flow and appreciation depending on the type of deal. And you've got the opportunity to gain some powerful tax advantages right, through depreciation, maybe potentially 1031 exchanges and all sorts of other creative structures and benefits that investing in public securities typically don't provide. So that's the why? Right. But the question then becomes how do these private real Estate offerings work well. Here's a simple breakdown of how the process typically works. So first, you have a sponsor, like Wayne's Group or other sponsor groups that identify real estate investment opportunities. And depending on the type of real estate deal, financing structure and other factors, the sponsor will raise capital by pooling investor funds into some sort of legal investment vehicle. That's typically going to be a limited partnership or a limited liability company. And in order to legally comply with the SEC's private exemption rules, when you're raising capital from investors, the sponsor must create offering documents and that's going to include a private placement memorandum, an operating agreement or partnership agreement, depending on the entity for the investment vehicle, a subscription, subscription agreement, and potentially other documents, depending on the deal structure, which we'll talk about later on. And you, as the limited partner, invest capital, the investments typically managed by the general partner, who is generally the sponsor, or at least the same individuals that are behind it in some sort of other entity. The GP is responsible for executing the business plan, like by improving, managing and selling the underlying real estate investment. And depending on the real estate deal, you may receive distributions from cash flow on an ongoing basis. But eventually, once the general partner has executed on the business plan, property is refinanced and or sold and the GP and LPs share in the profits, right? So I always like to think of real estate syndication investments like a flight, right? The general partner is the pilot. They're responsible for getting you from point A to point to point B, which is represented by their business plan, to increase the value of the underlying investment from day one all the way up to exit. Then you as the lp, you're the passenger, right? You're not flying the plane, but you need to choose an experienced pilot, right? And there's multiple airlines you can choose from that offer different benefits from the air. Airports they fly out of the cost of tickets, right? Is baggage included or not? Direct versus non direct flights, free snacks, beverages, right, etc. All those things. So similarly, as an, as an LP, you've got to consider the GP's experience, their track record, their investment timeline, horizon, your goals, your risk tolerance, GP, fee structure, and a bunch of other things that you should be looking at, right? So the bottom line is that an LP is a passive party in a syndication providing capital, while the GP is the active party, providing the know how, making decisions and ultimately managing the investment. So what are some specific metrics and terms that you should be aware of, understand and consider before you invest in a syndication? Well, here are a few terms that, that I think you should know and understand, consider before you invest in a private offering. So, so I've written down a couple of these that I kind of want to talk through, and these are things that you want to look for as you're reading through offering documents for any private investment opportunity. So, one is the preferred return. Preferred return is a priority return to the LPs. Think of it as first dibs on all distributable cash. LPs get paid first before the GP receives any profits. So that's a typical structure in many syndications. So. So that's something to look for. Equity multiple. You may have heard that term before. What it means is, for example, if you invest 100,000, you get 150,000 back, that's a 1.5x multiple. If you invest 100,000, get 200,000 back, that's a 2x multiple. So this is a term that you might see used in a pitch deck presentation, a webinar or some other, you know, GP marketing materials. So that's a term to be aware of. Another thing you want to look at is the waterfall structure. So the concept of a waterfall is how profits are split between the LP and gp. So sometimes a GP may set up multiple tiers of profit splits, right, that are triggered by different hurdles that the GP must deliver to the LPs if they want to continue to earn higher rates of return. So, not to get too in the weeds on this, but, for example, if a gp has a 70, 30 profit split split with the LPs until, say, the LPs receive a 1212 return, they may have a second tier that's a 5050 split. And this incentivizes the GP to perform as well as possible so that they can participate in the higher profit split. Waterfalls can be very simple or they can be very, very complex. The waterfall should be disclosed, though, in the PPM or the partnership agreement or both. So make sure you take time to understand how they work and any opportunity you're evaluating. Here's another really important term that you should look for is the capital call. So make sure you review the partnership agreement to understand what happens if the deal is short on cash. Right? So a capital call means that the sponsor is asking the LPs to put an additional capital that's needed to continue to manage a syndication. And so you want to make sure that you understand the terms of the partnership agreement. Are you required to contribute more capital in the future? What happens if you don't? How does that affect your investment? These are important questions to ask because many deals often don't go perfectly. Right. And sometimes that's by no fault of the gp. It can simply be market factors or external factors, right, that are outside of the control of the gp. So be prepared and understand what your options are if things do go sideways. So that's very important. Another important concept to understand and make sure that you're reviewing the offering documents is the GP fee structure. As an lp, it's important to understand that gps shouldn't work for free, right? So charging fees like acquisition fees, asset management fees, et cetera, they're not only reasonable, I think it's necessary. These fees compensate the GP for significant, significant time, expertise and operational work that, that they're putting into a deal, right, to source, manage and execute on an investment plan. So you want the GP to be fully engaged and financially motivated to oversee the project's success, because a distracted or underpaid GP puts your investment at risk as the lp. Right? So that said, GP fees must also be reasonable and aligned with market standards. So excessive fees can erod investor returns, while fair fees ensure that the GP remains committed to delivering performance over the life of the investment. So there's a fine line there and there's a sweet spot. So, so you want to make sure that the GP's fees are again in line to motivate them to, to do the work that needs to be done to generate the projected returns, but also not too high, so that you know it's out of line with what you would typically expect for that sort of deal. So, bottom line is, if you don't understand some of these terms and key metrics, you can't really properly evaluate a deal. So make sure you take some time to understand how all these terms and metrics work in a specific investment opportunity before you invest. And these are just a few. I mean, other deals may have very specific concepts or terms that you want to make sure to look at and understand as you're, as you're reading through the offering documents. So let's turn to the next topic. And, and that's liquidity, or I should say lack thereof. Unlike stocks, you can't just cash out of private real estate offerings when you want. You're typically locked in until the project sells or refinances. And that could be three, five years, seven years, even 10 years, right? That's going to depend on the project. As we all know, real estate by nature, it's, it's not a liquid investment. And on top of that, you as an lp, own a share in a company that owns real estate, which adds another challenging layer of illiquidity. This is one of the biggest differences I think between investing in public securities versus private securities. Right? If I buy a share of Apple stock, there's an extremely liquid secondary market for me to sell that share in a matter of seconds. Right? However, buying shares in a private company that owns real estate with no secondary market creates liquidity challenges. So only invest money you can afford to tie up for four years, right? bare minimum, at least the sponsors expected timeline for exiting the investment. So for example, that might be a minimum of three or five years, right? Okay, so now let's shift gears to the biggest LP mistakes that I see. And I thought about this and I went through five so I've listed five that, that I want to talk about. I for sure there, there are probably others that I could have thrown in here, but I wanted to focus on some low hanging fruit things that, that can easily be reviewed in documents by, by LPs to make sure that you're investing in a solid deal. So, so for my experience, most LPs and real estate syndications, they don't lose money or have bad experiences just because an underlying real estate investment was bad and underperformed, right? It's typically because they overlooked or, or missed other yellow or red flags potentially often before they even invest in the first dollar. So let's walk through the biggest traps LPs fall into and how you can avoid them. Number one, I wrote Chasing high unrealistic returns. High returns look amazing on paper, right? A 35% IRR. Amazing, right? Well, not necessarily. Let me explain. So for example, if a GP needs rents in a value add multifamily property to grow, let's just say 10% every year for five years to hit those targets or some other unrealistic metric, that's a house of cards. But for example, in a land development deal, a 35% IRR might be completely realistic based on strategy and the projected returns. So generally speaking, however, the land development deal is going to have a much riskier profile than a value add multifamily investment. I just picked these two different asset classes to, to make the point. But in real estate the highest returns often have the highest risk, right? So if it looks too good to be true, dig deeper. So that's number one. I'd say number two is not vetting the GP team. This is a really important piece I think to your due diligence as an lp. Real estate investing is as we as we all know is ultimately about people, right? It's not just about property. So as we discussed earlier, the GP runs the deal, but if they fail, you fail too, as the gp. I'm sorry, as the lp. So before you invest, it's important to ask questions like, what's the sponsor's experience in real estate? Right. What's their track record? How do they plan to communicate to their investors? How often are they investing any of their money alongside yours? As the LP's Ronald Reagan often said, trust but verify. That's one of my favorite quotes, and I don't think it originated with him, but it was something that he was fond of saying. And, and I think that's exactly the same perspective that LP should have when reviewing offering materials for an investment opportunity and vetting a GP team, right? Always, you know, trust the things that you see, but. But make sure you verify them, right? And if there are things that don't sound right, ask questions, right? That's. That's one of your biggest tools as an LP is to be able to ask questions before you invest. Number three on list of mistakes here is skipping the legal documents. So we're going to spend a couple of minutes on this piece. The ppm, the private placement memorandum and partnership agreement or operating agreement, they're just paperwork, right? They tell you what fees you'll pay as an lp, what powers the sponsor has, what risks you're taking with a particular investment. And so let's look at these key legal documents. I want to point out a few different things that are unique to each of them. So first is the private Placement memorandum. Think of the PPM as the full disclosure manual, right? It's written to protect the sponsor, technically, not you as the lp, but in protecting the sponsor, it will protect you if you as an lp, take the time to understand, right? It spells out the investment risks, discloses the identity of the GPs. It talks about GP fees and compensation, right? It describes the LP compensation and the business plan. It describes the investment strategy, how the sponsor plans to use the proceeds that they're raising, and also talks about the exit plan. Right? And also all the things that could go wrong in the list of risk factors in the ppm. So in a nutshell, that's what the private placement memorandum is. Now, the second key document that you want to make sure you take a look at, review and understand is the partnership agreement. Right? The partnership agreement governs how the investment vehicle entity operates. It tells you who controls the entity, how decisions are made, how profits are split, how and when you get paid and what rights you do and don't have as an lp. And, and what happens, right, if the sponsor wants to change major terms in the, in the agreement. So one important thing to note here is, is you're, as an lp, you're not investing in the GPS company, right? You're investing into an investment vehicle, whether it's an LLC or an LP that's, that's governed, managed by the gp. And so this, this is the partnership agreement that's really critical and important to understand how that relationship is governed. The third important agreement in this, at bare minimum list of offering documents that you'll typically see right, in private real estate syndications is a subscription agreement. And this is essentially your contract with the gp. You fill it out to officially subscribe and commit to your investment and in it you represent that you understand the risks that are detailed in the PBM that you're eligible to accept to, to invest. And you also accept the, the terms of the PPM and the partnership agreement. But that's, that's the underlying contract, right, for the, for the investment that you're, that you're making in the syndication. And the fourth document is the investor questionnaire. This is typically used to confirm you, you meet the accreditation standards, if that's required for for example, a 506C offering, which I know we didn't talk about the different types of private offerings, but that's, but that's one type of private offering that a sponsor may be doing and it also helps the G compliant with SEC regulations, and that's the investor questionnaire. So what should LPs look for in these legal documents and what questions should they be asking? Right. So in the ppm, here's a few things that, that you should be looking for and questions that you should be asking yourselves as you're reading through the documents. And one is, are, are the risk factors associated with the investment disclosed? Right. Things like market risk, financing risk, GP risk, business plan risks, real estate risks. Right? And so on and so forth. You want to make sure that it's clear that those, that those risks are evident. Now, as an lp, you're probably not going to be privy to all of the risk factors and whether the GP has disclosed all of them. But it should put you in the right direction in terms of looking at what the nature of the investment is and making sure you're comfortable with the risks that are disclosed. Second question is, are the projections realistic or are they sugarcoated? Right. And so this may be in the pbm, this May also be an investment summary, executive summary or, you know, some sort of pitch deck. You want to make sure that as you're looking through projections and this may include, you know, pro forma too, right? Which may be separate or included in any one of those documents. You want to make sure that those, those projections make sense to you, right? So if you're looking at a pro forma, for example, and some numbers don't make sense, don't be afraid to ask questions, right? If it, if it brings up more questions than answers questions for you, then you know, that's, that's, that's potentially a sign that there, there are some other things that, that, that you may want the GP to, to make sure that they're, they're giving you, you know, answers that are satisfactory. Next is the use of proceeds, right? Are there enough reserves set aside? For example, what happens if the GP goes over budget on capital expenditures or underestimates other expenses? You want to make sure that you, you understand where the equity is going, that, that you're contributing to the, to the sponsor or GP team and then also understand whether they've, they've accounted for for overages and in the budget, things like capex and things of that nature. And lastly, is the exit strategy, right? Is it clear? Is it realistic? Is it something that makes sense to you? And you want to make sure that in that exit strategy you're also tracking the timeline, right? We talked about earlier about the illiquid nature of these investments. You want to make sure that, that you can afford to have the, the funds that you're investing into this project in for the long haul, whether it's three year timeline, five year timeline or something longer. So that's something that you want to be really clear on. And next, moving on to the partnership agreement, right? So in the partnership agreement you want to make sure that it's clear what the distributions look like, right? So you want to make sure that any terms relating to the, or any provisions relating to the preferred return in the waterfall, they're clearly explained voting rights, right? You want to make sure you understand the passive nature of your LP interest. Typically in most syndications, LPs don't have a say in major decisions like sale or refinance or, or other major decisions related to, to a private real estate offering. So you want to just make sure that, that you understand that and, and that you're, and that you're comfortable with the, with the rights that the GPS have and ultimately that you trust the gps, right? Because at the they're the ones that are making decisions in regards to the investment and you want to make sure that they're, they're people that, that you can trust with, with your investment. Right. We talked about this earlier, but another important section of the partnership agreement that you want to make sure that you're on is the capital call provision. Right. Can the GP force you to put in more money? What happens if you don't? Right. How does it affect your investment? These are, these are questions that I've talked to LPs about sort of post documents and sometimes a couple years down the road, once, once an offering is well underway and there's some sort of capital need because they didn't understand what their obligation was as it relates to capital calls. In some cases they've been removed as members, right. Or they've lost, you know, significant interest. In most cases you'll see that, that an LP is diluted if they don't participate in additional monies that are, that are needed in a syndication. But that's not the case in, in every syndication, sometimes the capital call confirmation can be much more aggressive. So make sure you understand what your rights and responsibilities are. There next is the replacement of the gp, right. You want to look at if there's any scenario where LPs can remove the GP for, for bad acts and things of that nature. You want to make sure that there's some protection there. And generally in most syndications, this is one of the really small areas where LPs are going to be able to vote. It's to remove the manager or the general partner, depending on the entity structure, for cause, right? So those are things like fraud or misrepresentation or gross negligence. And lastly, here's the fee structure, right? So in the partnership agreement, you want to make sure that you're looking at the fee structure provisions, making sure they're fair. Right. Or also understanding where potentially the free structures may be sort of heavy and excessive with management fees. I've seen my fair share of private offerings that were very, very heavy on the fee structure and that was a bit indicative of the GP team and where their motivations lie and also a precursor into how they might manage the investment over time. I wouldn't read into it too much, but it's definitely something you want to make sure is fair. And last is the subscription agreement. The subscription agreement is going to confirm how much you're committing to invest. It's going to confirm your eligibility to invest. So when a 506B offering, for example, non accredited investors can invest. But a 506C offering is limited to accredited investors only. And you want to make sure in the in the subscription agreement that you understand you're confirming your understanding of the the PPM and accepting all the offering terms and risk factors as they're disclosed. Other important documents that you might see include the investor presentation, the business plan deck, or whatever other term is sometimes ascribed to this document, right? It gives a high level summary of the real estate investment. But one important note here, always verify that the pitch deck matches the terms of the PPM and partnership agreement. You want to make sure that all of the terms are consistent across all of the offering documents. You might also get a financial pro forma, right? We talked about that earlier. That's the projected income, expenses and returns from the income investment. So check the GP's assumptions, right, from a high level to make sure that the pro forma is realistic. If after reviewing the pro forma, you have more questions than answers, make sure you ask them and you get satisfactory answers. And then lastly, the investor questionnaire. We also talked about this earlier. It's really a due diligence document for the GP that helps them to comply with securities laws. Okay, so last couple warnings for LPs on the offering documents here. One, never invest based on the pitch deck alone, right? I've seen so many investors do this before. They see the pitch deck, they're captivated by the projected returns, they love the narrative and that's as far as they go, right? And they they wire funds. Always make sure you're reading the full PPM and partnership agreement. If you don't understand something, ask questions, get independent advice if you need. And remember, if you skip the documents, you're flying blind, right? You're agreeing to terms that you didn't even read. And that's not investing, it's gambling. Mistake number four. And we'll go pretty quickly here on the last couple is over concentration, right? Don't fall in love with one deal or in one market. So even great deals can have bad timing. And smart LPs diversify across sponsors, asset classes and markets. It's like the age old adage, right? Don't put all your eggs in one basket. And last, again, this is going to tie back to a point that I mentioned earlier. This is mistake number five. And the last one is underestimating liquidity. Reason why I bring it up again is because I get so many questions from LPs and GPs alike about investors exiting an investment earlier. I alluded to this earlier, but if for example, you're planning to buy a house, pay for college, or you need cash in the next few years, a private real estate syndication might not be the best investment option. Only invest what you can leave untouched for the duration of the investment timeline. So that about sums up the top mistakes that I see LPs make. So, to sum everything up, smart limited partners really do five things in my opinion, right? They vet sponsors carefully, they understand the key metrics and terms in the offering documents, and they read the legal documents. They diversify their investments and they really plan for the long term goals. Successful LPs are rewarded by patience, discipline and careful partner selection. That means don't be afraid to ask the hard questions. Right before you wire a penny, ask the gp. How do you plan for worst case scenarios? How much of your own money are you investing in the deal? How will you communicate if things don't go as planned? If they can't answer transparently, then walk away. And final thought here, Being successful as an LP in real estate syndications isn't about chasing unicorns, right? It's about finding steady, well managed opportunities, partnering with experienced sponsors, being patient, disciplined and diversified. So everything that I've said this evening is the advice that I give to friends and family when they're considering investment opportunities and the principles I use personally to evaluate deals. In our world of social media influencers, real estate gurus, this may not be a popular or attractive opinion, but for most people, I'll say wealth is built quietly, consistently and really by asking the right questions and, you know, making the smart choices over time. Right, so, so that's all I've got. Wayne, I'm not sure if we have any time for questions, but if you do, I'm happy to entertain.

If you have time, I have time. This was fantastic. So, so much great value drop. So, thank you, Jonathan. Feel free to ask questions you can unmute yourself or if you want to put in the chat box, I'm happy to read those questions out loud. Okay, quick question. Sounds bad, but if the GP is.

In Boston on vacation and gets hit by a duck boat, who takes over? Yeah, that's a, that's a good question. And that's going to depend on the structure that the GP puts together. So a lot of times they'll create a separate entity to, to manage the investment. So they may have spring. Yeah, yeah, but it's, it's something that, that they should build into their, some of their, their presentations, but also maybe even FAQs for investors. And that's a question that comes up Chris, quite quite frequently. I'm glad you asked it. But what that might look like in their documents is, is perhaps having what's known as like a springing member, managing member or something like that of, of the entity. So if that they're incapacitated or they're not able to, or they, they pass or for some other reason are not able to, to manage the investment, there's someone that sort of steps in their shoes and, and at that point that's obviously disclosure that would have to be made but, but it's obviously a provision that you have to account for up front. So. Yeah. Okay, thank you.

Hey, but to piggyback on that like for our investments you'll in the ppm you'll see the members of the GP team. So we, we personally wouldn't go on a deal by ourselves because I think that adds the risk. But if you're going on a put on a deal that has multiple members, managers on the GP then you know, if one got hit by a bus there will be more. And then you know, for CRL partners we also have full time employees that are also see like we have one, you know, senior portfolio manager and I purposely hired that position because if something were to happen with me from a CRI partner standpoint we've got a full time senior portfolio manager. So I think just when you're talking to sponsors, see like how, what their levels are within their company and then also as you're reading the PPM understand what other members and what are their experience, you know if that main GP sponsor. So it's a fantastic question and something one of our investors on this call, one of you know, she, she asked that on one of our deals previously and I thought it was a great, great question and something we also had to think about internally as a team.

Thank you. Yeah, yeah.

I mean just to kind of add to what Wayne was saying, I mean you get five years on these deals, usually minimum and a lot of things can happen. So I think the most dangerous thing you can do is invest in a small deal where it's like there's one key person or it's a husband and wife team and it's like a 30 unit and they're going to self manage the property and like if something happens to them, what who gets it to the finish line? So you want a team of like, like four or five competent people. I mean God forbid something happens, the other people can step up and, and at least get the deal, the finish line and have a successful Outcome, the small deals are a lot riskier.

Jonathan.

I had like, I'm going to throw like three quick questions and this is all sec. I'm a capital raiser. So SEC developments like what's going on with the sec? So I'll do all three because they're pretty simple. Are they going to put out some type of a testing regiment or license for sophisticated investors to become accredited? That's been rumored for a long time. Is there any development there at all?

I haven't seen anything substantive. I know they've been talking about it for years outside of the channels that exist now for a non accredited investor to become accredited, that's not related to their financial standing, right, like net worth or income. There are others, but I think they're not necessarily low hanging fruit. Right. Like you go and get your series license or you know, go do these other things, but those. Yeah, I haven't seen anything substantive. I mean a couple years ago I think they were talking about coming out with some sort of test, right. That sophisticated investors could take to become accredited. But I haven't seen that materialize and I have never anything further on that recently.

Do you think they might adjust the levels, the financial levels for accredited investors? Because that hasn't happened in a long time. They might move them up.

Yeah, yeah, I can see that happening to adjust for inflation and all sorts of other factors. Right. Over the years for sure. Yeah, I could see them increasing that. Although interestingly enough, the SEC did come out with a response to a no action letter. This was probably five or six weeks ago at this point. For what, what constitutes reasonable steps? Right. For, for accredited investors. And they've said a high minimum investment, which they've labeled 200,000 for an individual or a million dollars if you're looking to become accredited as an entity is sufficient. So I mean, I don't know if it means anything or not. I mean tomorrow I think, I suppose they could, you know, go ahead and raise those limits. Right. So now the net worth requirement is, you know, $2 million. Right. Your income requirement maybe is doubled or whatever, but nothing, nothing concrete, but I suspect it at some point that will increase because the number of people that qualify is accredited. Right. Under those numbers is much higher than, than before. I forget the percentages, but I did hear, I think that it might have been in the, in the low double digits or you know, high single digits of who would have been considered accredited at the time the rule came out versus now when that number has sort of exploded. So more people are, are considered Accredited, who wouldn't have been at the time that, you know, this rule came out? Yeah.

I mean, if they raise it, they better put in a test because we're going to have people that were accredited to become easily unaccredited or they got to grandfather people in.

And how you really would do that.

And you answered my third question about the minimum investment of 200 million. I had heard that also. And they're kind of verifying that there's some codification. A person spending 200,000 in. They're pretty much considered to be accredited just based on the investment amount.

Yeah. I mean, the issue there is that the SEC has never been clear about what constitutes reasonable steps. Right. In a 506C offering that's only open to accredited investors, they've said, look, you can go get a third party letter from the investor, CPA from their attorney, or from one of these third party verification companies who hire CPAs and attorneys to write the letter. They review 1099s, W2s, tax returns, all sorts of financial statements. They give the investor the rubber stamp. Right. If they're accredited. But the SEC has said, well, this is sort of one thing that you can do that's considered reasonable. Right. It's not an exhaustive list, but nobody really knows what else is considered reasonable steps. So in the industry, traditionally, that's what people have done, right. To almost treat it like a safe harbor. They figure it's sort of a checkpoint the box thing. If we do these things, then we know we've complied. So in that no action letter, I think it was, yeah, one of the big securities firms approached the SEC and said, hey, look, well, you know, if somebody puts in a high minimum investment, is that going to be considered enough in terms of, you know, reasonable steps? Like, do we have to go through, through this circus of, you know, getting an accredited accreditation letter if we do these things? And the SEC said, well, I guess if they put in $200,000 as an individual or a million bucks as an entity, we'll consider that reasonable step. So. So it doesn't change the definition, but it may make the process a little bit easier and more efficient. When it comes to 506C offerings with higher minimum investment.

It still sounds like it's just an answer to a question. It's not really, they're not really codifying.

Or having any kind of clarity.

It's just like, hey, we think it's okay, but they're not like saying that's a rule. So it's tax.

Right.

So so go ahead and verify.

Probably is the smart way to go. Okay.

I've used a lot of time. That's, that's all my three questions. You knocked it out.

Thanks.

Now this is great. Any other Q A? This is he, he charges a good hourly rate, so if y' all want to ask some good questions. He's doing this from the kindness of his heart, but he, this is a great opportunity. If there's questions out there, just give it up. Maybe five more minutes. I did say I would stop the recording and then do final Q A. So, Jonathan, before I stop the recording, would you please, just for, you know, future listeners, could you say how people can reach out to you, whether it's your website, your phone number, etc. And then from there I'll stop the recording?

Yeah, yeah, absolutely. Our start with our website. It's premierlawgroup.net you can feel free to take a look at that and the resources there. You can reach out directly to me at Jonathan LGLP.com it's J-O-N a T H a N L G L P.com or all our clients have myself you can call it 508-212-1193 and I'm happy to talk about any questions that you have related to, to securities compliance. So similar to you, Wayne, I, I, I share a passion for, for educating and, and I think it's important to, to make sure that we're educating each other in this space as well. So for sure.

Well, Jonathan, thank you for your time and I'll go ahead and stop recording right now.