The work of a real estate syndicator involves more than just finding the right property and securing funds. It also requires careful legal guidance. When you handle investors’ money, you need to understand the distinct roles of two essential professionals: the real estate attorney and the securities attorney.
Real estate attorneys specialize in the specifics of property transactions, from drafting and negotiating contracts to closing documents. Securities attorneys, however, deal with the complexities of securities and SEC regulations, ensuring your investment offerings comply with federal and state securities laws.
Both types of legal counsel help you comply with various legal requirements and ensure your transactions are legally sound and transparent. Each plays a unique role in safeguarding your investment and provides documents you need in order to successfully complete your real estate project.
The Function of a Commercial Real Estate Attorney
You will need a commercial real estate attorney to draft and review contracts that certify all terms are clear and legally enforceable. This includes negotiating terms to protect your interests and verifying every document complies with laws and regulations. Commercial real estate attorneys also review the property’s title and survey, negotiate closing documents, and close the transaction.
When you’re buying or selling property such as apartment buildings, office buildings, shopping centers or industrial properties, a commercial real estate attorney will draft and negotiate the purchase and sale agreement. The commercial real estate attorney also will examine the property’s title to confirm it is clear of any liens or disputes, review the loan documentation, and handle all matters pertaining to the escrow and title company.
If issues arise, the commercial real estate attorney will address those promptly to keep the transaction on track. They also coordinate with other key players, like lenders and inspectors, to facilitate a smooth closing process. Their expertise ensures that every aspect of the real estate deal adheres to legal requirements, preventing any costly mistakes or delays.
The Purpose of a Securities Attorney
A securities attorney’s main job is the compliance of investment offerings with securities laws, which protect investors and maintain market integrity. During the planning stage of raising funds from multiple investors, their expertise becomes indispensable. They prepare essential disclosure documents that outline the investment details, risks, and terms with utmost transparency.
Your securities attorney will also assist in setting up your companies, structuring your investment deal, and ensuring compliance with securities regulations. These include registering your offerings with the necessary authorities, whether at the state or federal level. To meet all legal requirements, this involves a thorough understanding of both sets of regulations.
Additionally, the securities attorney will provide an organizational chart for your lender’s approval. This details the legal entities used to hold the property’s title and your management team members to ensure only the relevant parties are underwritten and required to sign the loan documents.
Once your lender approves the organizational chart, the securities attorney will work on your securities offering documents. First, they will help you understand the rules of various securities exemptions and decide on the right one for your syndicate. Based on this, they proceed to form your legal entities and draft their respective operating agreements.
Next, they will prepare a Private Placement Memorandum (PPM) disclosure document and a Subscription Agreement for your investors. Once these are completed and signed, your securities attorney will submit a Form D with the Securities and Exchange Commission (SEC) and the necessary “blue sky” filings required by state securities agencies.
Throughout the entire process, they simultaneously coordinate any required legal opinions with external corporate counsel and assist with corporate resolutions or closing certificates your lender requires.
Finally, securities attorneys provide strategic advice on minimizing legal risks, including drafting contracts that clearly outline the rights and obligations of all parties involved. Their role also extends to ongoing counsel on maintaining compliance as your investment progresses to protect you from potential legal challenges.
Attorney Licensing Prerequisites
Real estate attorneys need to be licensed in the state where the property transaction is taking place. This ensures they are familiar with local property laws and can provide the most relevant advice.
On the other hand, securities attorneys may need to be licensed at both the state and federal levels, depending on the scope of the investment and the investors’ locations. Their duties often require a broader understanding of federal securities regulations, so having the appropriate licensure is essential for compliance.
Optimal Timing for Engaging Legal Experts for your Real Estate Syndication
Involving legal experts at the right time can make a significant difference in the smooth progression of your real estate transactions.
Hiring a real estate attorney early on, ideally before you even make an offer on a property, allows them to guide you through the complexities of drafting and negotiating contracts. Their expertise ensures all terms are clear and legally enforceable, preventing misunderstandings and legal hurdles down the line.
If this timing is too soon for you, then you shouldn’t wait later than upon receiving an accepted letter of intent, when you will need a real estate attorney to craft a purchase agreement with suitable terms for the property acquisition. They will also review your loan documents and gather all the necessary paperwork from the seller, the lender, and the title company.
Similarly, bringing a securities attorney on board as soon as you begin planning to raise funds from investors is preferred. Their involvement in the initial stages of your project helps you structure your investment offerings correctly. It will also guarantee that all necessary legal documents are in place before you approach potential investors.
Being proactive not only minimizes the risk of legal complications but also enhances the confidence of your investors in the legitimacy and transparency of your offering. However, if it’s not possible for you to have a securities attorney before you have a signed purchase agreement, it is advisable to hire one shortly after. They will help in structuring your deal and drafting the necessary offering documents.
Retaining these attorneys expeditiously gives you the advantages of timely advice and thorough preparation of legal documents that help avoid potential pitfalls and keep your investment journey on track. It also fosters a well-coordinated effort among all parties involved, ensuring that each step aligns with financial objectives and best practices.
Achieving Real Estate Syndication Success by Using Competent Legal Counsel
Real estate syndication requires a strategic partnership with both a real estate attorney and a securities attorney. These professionals each bring unique expertise that is crucial to navigating the complex legal landscape of property transactions and investment offerings.
A real estate attorney who is also a corporate securities attorney with malpractice insurance and experience in drafting securities offering documents and PPMs is rare. Investors and taxes are riddled with tricks and deceptions, and only an experienced securities attorney can help you avoid these pitfalls.
The collaboration between these two types of attorneys is not just beneficial but necessary. Their coordinated efforts help prevent costly mistakes and delays, allowing you to focus on other critical aspects of your investment strategy. By letting them play their respective roles, you create a solid legal framework that supports a seamless and efficient transaction process.
Ultimately, the right legal guidance empowers you to move forward with confidence, knowing that you have a robust support system in place.
Need expert legal counsel for your real estate syndicate? Contact us! Shams Merchant is the leading real estate private equity and syndication lawyer in the nation representing clients in award-winning real estate projects. Specializing in real estate syndications, fund formations, securities law, and private placements for commercial property investments and development, Shams has been featured in publications like Law360, The Business Journals, BisNow, and The Real Deal.