As a founding partner of Trowbridge Law Group LLP, Gene’s law practice concentrates on the syndication of commercial and investment real estate, through both debt and equity. Gene has represented over 650 clients in this area of practice. In today’s episode, Gene is going to go over the basics of syndication, and his advice on how (and if) you should get involved with it.
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Syndication 101 – Advice for Rookies with Gene Trowbridge
Shannon Robnett 00:45
Hey, everybody, welcome back to another episode of The Real Estate rundown season two. You know, one of the things that we always get asked when we’re doing real estate syndications is how do you stay compliant? And how do you stay out of jail? Well, you know, that starts with a great team. And it starts with a great attorney. And one of the people that I know that knows the subject really well that I wanted to bring on the show is somebody that a lot of you know, but it’s a guy that’s only been doing this just under 50 years, right. So just a little bit of experience. But I bring to you guys, one of the best syndication attorneys best known syndication attorneys out there, Mr. Drean, Trowbridge. Good morning, Jean, how are you?
Gene Trowbridge 01:28
I’m fine, Shannon, I was wondering what you were gonna say 50, 70, 90?
Shannon Robnett 01:33
Well, you know, 50 is…
Gene Trowbridge 01:36
50 is right about it, combining the a couple of things that I’ve done. That’s right. Right.
Shannon Robnett 01:42
You know, the thing is, I mean, that’s, that’s used to be the way it would go. Right, you would, you would start something and you would be in that profession your whole life. Right? Like, I mean, I’ve been in construction development, my whole life right? Now we see a lot of people doing 2, 3, 4, or five careers. You know, and, and millennials not doing any. So, you know, you wind up with this, this experience level, that is really hard to beat, because you’ve seen you’ve seen some of the actions. I think we’re seeing it right now. Like I remember when Enron happened, and all the regulation came out there. And in 2008, we saw the mortgage meltdown, and we saw everything happen there. And now we’re seeing what happened with FTX. And we’re, you know, see what happened there. I would think that with your level of experience, you’ve seen why a lot of the SEC regulations are what they are because of the results that have happened because of the lack of regulation.
Gene Trowbridge 02:42
Well, I think that’s the truth. And you know, I had basically two careers in my 50 years. The first part was being a commercial real estate broker, which led me into being a syndicator myself. You said you’re in construction, well, I built 32 self storage facilities in and throughout Southern California, through syndications in the only thing we…our goal was to build them, get them 50% occupied and then sell them to long term operators. We were never going to be a long term operator, the Self Storage properties, but somewhere along the line, I decided that I’d had enough of that. And at 45, I decided to go to law school. So the last 30 years of my career, have been being an attorney and I went to law school to only be one type of attorney. I was going to be a real estate securities attorney. And I never did divorces or family law or criminal law or anything. This is the only thing. The only thing I’ve done and yes, I’ve been, you know, I’ve been through it 78 and 86 and 91 and 94. I’ve been through all of them on different sides.
Shannon Robnett 04:01
You know, not to say that syndicate there’s been some syndication deals that have caused divorces, but you’ve never officiated the divorce as well.
Gene Trowbridge 04:10
I’ve never been involved in one type of law. I think people get shot in family law court. I don’t think too many securities attorneys actually get shot.
Shannon Robnett 04:20
No. So why was it that you did syndications and then went for your real estate securities law degree? What was the what was the connection…
Gene Trowbridge 04:32
It’s really good news. The good news is my business had grown. The last year that I was raising money I was, I was servicing between 850 and 900 investors, and we sent out about 2,000 K1s that year. But there are no back office companies to help us with that. Everything was in house. And maybe if I had been smart, I would have invented some back office companies like there are today in business. But I, because I was successful, I had been challenged by the my broker dealer community, I raised all my money through the broker dealers, which wouldn’t happen today, because of the REIT industry. Because our you know, our syndications are a little longer term because they’re real estate. And the minute the REITs came out with their liquidity provisions, the broker dealer community pretty much stopped raising money in this area. So I thought, Okay, that’s good, I’ve got some money in the bank, I’ve got some equity, I’ve got some income coming for the next five or six years. And it’s a great time to go to law school, my wife was working, my kids were in grade school, and I just thought, well, this would be perfect. And it turned out to be a good thing, it wasn’t quite as easy as I thought I do. It’s a good thing, you know, I was good enough student to pass the bar the first time and take off running.
Shannon Robnett 06:04
You know, and that’s not, that’s not an easy thing to do…is, is, you know, pass the bar and pass it the first time.
Gene Trowbridge 06:12
Especially the California bar, the California Bar is, is tough. I took it in February in the statistics in February and kind of, they’re kind of skewed, because the pass rate in February is only about 30%. But people who fail it in July, you get out of school in January, you take the bar in July, and that people fail it, rush to take it in February. So more than half of the people who were taking it had already failed the first time…say we’re ever going to ever going to pass but it was my first time and it’s not graded on a curve. It’s just what it is. And so I thought that was, that was good. Someone now I did that. And then I started out, you know, practicing law myself, which I thought I would do. And then over the years, I’ve had a couple of partnerships, and I’m in partnership today Trowbridge Law Group and, and doing the same thing and seen a lot of interesting things. You know, during COVID we actually had a couple of our sponsors die. And why I bring that up is the most important thing I think a passive investor should ask…and I guess if you’re a syndicator, you probably should know how to answer this question, because you should get it. The most important thing is Shannon, I like your deal. I’ve got the $50,000 I’m going to invest. But tell me Shannon, what happens if something happens to you?
Shannon Robnett 07:50
Wait a minute, Gene, would you would you hear what’s going to happen to me?
Gene Trowbridge 07:56
It that’s that’s a that’s a stopper of a question.
Shannon Robnett 08:00
And you know what’s funny, Gene? Now that you say that I’ve only been asked that question about four times. And the reality is you know, we’ve raised over almost $60 million. And I’ve only been asked that question four times, right?
Gene Trowbridge 08:14
Yeah, but you probably have a you have a continuity…
Shannon Robnett 08:20
I do, but but I’m going to tell myself a little bit because I didn’t have that until the first person that asked me that. And he was an attorney. And he said, I’ll invest in your deal. But we got to fix this. And we got to fix it now. Right?
Gene Trowbridge 08:35
I won’t write an offering. I won’t write an offering. Shannon, if you came to me, and you said you’re going to be the single the single investor, you know, and the more I think about that, the more I understand that so important. Yesterday, I did a turn around flight from Orange County here up to San Francisco and back. And you know, there were two pilots. Yeah, two pilots in the cockpit.
Shannon Robnett 08:56
Gene Trowbridge 08:57
It just wasn’t on … I think other people know that. That’s quite, that’s quite important. So that it came to fruition in in COVID. So…
Shannon Robnett 09:11
Well, that’s interesting, because, you know, those are the kinds of things and again back to the experience, right? I mean, everybody wants to see, wants to see the experience of the of the sponsor, right. They want to see the experience of the guy that’s or the gal that’s doing this, the underwriting and the syndication. But they don’t often ask, who’s your attorney?
Gene Trowbridge 09:34
And I go, Oh, I don’t think any of my clients are asset. I don’t put it in my documents. I started out a long time ago, when I was on my own putting it in the documents and, and I decided against that. So I don’t don’t do that. But you know, I was interviewing a potential new client two weeks ago where the syndicator and his registered investment advisor has all the money. Were sitting there interviewing me. And they asked me if something happened to me while we were in the middle of drafting documents, how would those documents get? get finished? And of course, I have a partner if six people in the law firm so, so it would get finished. But he he just simply turned the tables right on me. And I thought, Oh, that’s a good question.
Shannon Robnett 10:28
Yeah. There you go. Well, for the guy for the RIA that was there was asking that question you just became mentioned here. But you know, it’s, it’s it’s funny, too, because everybody, you know, and that’s often what causes more regulation is just these kinds of scenarios where all you’re really thinking about is today, getting the PPM done getting the deal under contract, getting the deal bought, getting, you know, the plan started, you never look at the what ifs.
Gene Trowbridge 11:00
Right, and you know, all the securities laws, Shannon came out after the crash. Yeah, they always do. They always came out, oh, my gosh, you know, and Congress, and the SEC still says the same thing. We are here to protect, to protect the passive investors who can protect themselves. Yeah, meaning the non accredited passive investors, because all the way through, and even up until 1981, when reg D was passed the rules that we’re working on today, it’s always been well, the rich and smart people don’t need protection. But we need to protect, we need to protect everyone else. So if you know, in in the offerings that we’re doing today, and I use these terms, because a lot of people have already heard him 506 B or 506. C, you can have as many accredited investors as you want. Because there’s they’re supposed to be rich and smart enough to ask the questions they need to get an answer to, and then they can make up their own mind. But in one of those kinds, you know, there’s a limit. Congress and SEC’s method of managing risk is to limit the number of sophisticated investors to 35. Right? Yeah. So you know, 35 people lose all their money. Okay, fine. We can’t protect everyone from everything, but at least limited to 35.
Shannon Robnett 12:40
Yeah. Well, and, you know, when you look at that, you know, some of the regulation comes to protect, from what should be common sense, which the more you are in business, you know, the more you know, that common sense is anything but common. And, you know, but you see that so, so when you’re when you’re dealing with rookie investors, you know, what are some of the things that as syndicators, let’s flip the table again, right, let’s flip the script. What are some of the things as syndicators that we need to be asking, in your opinion of our rookie investors to make sure that they have an understanding of what they’re getting ready to do?
Gene Trowbridge 13:24
Well, I think product knowledge is important. Okay. The term that I think we we see used is we need a a sophisticated is one of the words a sophisticated investor who, through their business or their education, is able to read, understand the documents understand the investment cycle, and make a decision for themselves that or with their advisor, that the risk is something they can they can deal with. And so I’m gonna answer your question, but I gonna expand it. So you know, I don’t know if you built multifamily or whatever. But that’s, that’s been the real big syndication product in the last six or seven years, it’s multifamily. So my sponsors, my syndicators are sophisticated in multifamily. Their investors are sophisticated in multifamily, and everything’s going along well, but here comes a sponsor who decides that for better cash flow, we’re going to go into mobile home parks.
Shannon Robnett 14:39
Oh, yeah. Everybody loves mobile home parks.
Gene Trowbridge 14:42
And who and so my first question is, well, what do you know about mobile home parks, Mr. Client, and then we’re gonna raise some money. Well, I got all these investors who’ve invested in my apartment buildings. And I’m saying just because they’re sophisticated with an apartment building investment, doesn’t mean they’d be sophisticated in mobile home parks. I took a three day course on mobile home park investing and happened to have been offered by one of my clients. And one of the things they did is they showed us a three hour video that was taken inside of a manufacturing facility for the coaches. And I’m telling you, mobile home coaches are not built like apartments are? No, you don’t have any idea about the construction of coaches in a mobile home park. Don’t buy a park where you own the coaches. Yeah, I the dirt in the slabs, but don’t be getting in the business of coach ownership, because it’s so totally different. Yes. So, you know, that’s, that’s what I think you should do. We should, we should the investors should have some knowledge of what they’re going into. And here’s where it gets tough. I’m not sure Shannon, that the sponsor of the deal, my clients are in the business of educating the investors. Right? I’m not sure they are. I think investors should come to them with some education. And if they aren’t educated right now, the sponsors can tell you there’s probably 20 groups out there, that you can take a weekend course on apartment building, investing, investing in analyzing apartments, go out and get some knowledge. Yeah, then come back to me because I can’t train. You know, my 40 investors, I can’t do that. So what do you think that’s, you think that makes sense?
Shannon Robnett 16:37
Oh, yeah. I mean, it really does. Because when you’re talking about, you know, the other thing that that would do to Gene just like for you, when you saw that video, it really let you understand the difference in the construction types. Right? Yeah. And, you know, probably took you a little bit back more towards your Self Storage days that it felt like the walls were that thin, right. But, you know, the reality is when the benefit of that would be, you know, now when you hear an investor or a sponsor talk about what he’s going to do with catbacks. And how he’s going to do this and how he’s going to do that. The more knowledge you had, the more easily you’d be able to spot the ruse, if there was some sort of, ah, you can’t, you know, we’re gonna go in and we’re gonna do a complete makeover, new kitchen, new cabinets, new countertops for 3500 bucks, well, there’s no way you’re going to do that in an apartment. But you know, you or or we’re going to take and get the expenses down to 13%. Oh, you know, you’re not going to do that. And that comes from knowledge. And knowledge usually comes from experience. And that experience is best given hands on. Right.
Gene Trowbridge 17:48
All right. You know, I taught I don’t know if you’re familiar with what is what the CCI M program is? Yes, sir. I thought CCI M courses for 40 years. And so I have plus having been a broker in a syndicator I have a strong real estate background, probably stronger than my legal background. Right. I when I was syndicating the good attorneys, I use drafted all the documents for me. And when I went off to be an attorney, I took all the documents I had combined into one really good set. And I’ve been making upgrades and changes on them for the last the last 30 years. But so that’s very interesting. And you’re you’re right, you’re you started this part of the conversation with how to the securities laws kind of get where they are, well they get where they are when government identifies that they need to make a change. And the most recent change in that area was Dodd Frank, when they took the equity from your house out of the calculation of your million dollar net worth, right to determine you were an accredited investor, I live out here in Southern California, and they’re all sorts people up and down the coast. That time, you know, had bought a house when they were 35. Now they’re, they’re 60. And they’re retired and they’re living on Social Security. And their houses were $3 million. And we considered them accredited. Yeah, no.
Shannon Robnett 19:28
No, those are things that hindsight would have told you to do that. But it needed the practicality. You know, and that’s and that’s the one thing that you know, unfortunately, we live in a society where, you know, people prey on other people, they they take advantage of other people. That, that doesn’t help that. But, you know…
Gene Trowbridge 19:56
I think another one of the things that they’re, your passive should investors should be concerned about is if someone that they barely know or don’t know, it all starts to pitch them on a deal. Yeah. And I don’t you know, you’re sitting alongside of someone on an airplane and they say, What do you do? I’m a real estate syndicator Oh, and you tell them about that, that’s fine. But if if they’re reaching out to you aggressively reaching out to you through postcards, or mailers or telephone calls or anything like that, and you don’t know them, you should, you don’t need to know the law. But you should know that’s not who you’re going to invest with. You’re gonna send a $50,000 check to some guy named Shannon, who you don’t know. Right? You’re just like, yeah.
Shannon Robnett 20:45
Well, and, you know, that’s, that’s another thing that you see that a lot of people don’t take in the… I mean, most people would think that would be common sense, right? How do you I mean, you have to have… in a 506. B, you have to have a substantial relationship with someone. I don’t understand why more people don’t have a substantial relationship, even as accredited investors. I mean, I would want to spend some time getting to know the syndication team. I mean, I’m not talking about spending the same amount of time it took me to make the 100 Grand I’m going to invest, but maybe at least an afternoon, maybe maybe a couple hours session, maybe. I mean, I’m I’m literally also Gene all the time shocked and blown away by how few people are willing to come visit me. See my daily operations, meet my team of wonderful staff. Before they send me a check for $500,000.
Gene Trowbridge 21:46
Yeah, I think that’s important. And I think that when people come to me and say, I’m going to use a 506. C, because I want to advertise to raise money from people. I don’t know, it… legally. Yes. marketing wise, tell me about your track record. Yeah. Tell me about your team. Yeah. Because no one’s going to send you the money until they at least see some something about those two things. Right. Right. Just not gonna work.
Shannon Robnett 22:16
So that’s where, you know, the common sense has had to be regulated? You know, because because it would seem, you know, pretty, pretty common sense thing. I mean, yeah, we got Facebook, now we’ve got Instagram, we’ve got all these different mediums that people can advertise on, which maybe means that you can get somebody that doesn’t have the money to market to you like Charles Schwab does or something like that. But the reality is, what is the track record? You know, I mean, you got a pretty picture and some numbers on there. What what does that really amount to? And and why would you? Why would you think that an advertisement is going to lure that investor? That’s a really good point that I don’t think a lot of people think about, they go, Oh, I’m going to do a 506 C, because that allows me to advertise. But without a, without a great track record, a good resume, you know, advertise all you want, I guess.
Gene Trowbridge 23:09
Well, that’s why some of the crowdfunding portals are are very beneficial. The ones that, like I’ve signed up for several of them, because they want to see what offerings are, are out there and how they work. But they vet, they don’t, they don’t advertise it, they vet the sponsor, but you’re not going to get on their platform. Unless you have a track record. You’ve been interviewed, they’ve done background checks, they have their real estate experts look at the deal. And so I think you I think you can take some satisfaction, or some comfort from an offering that’s on Realty mogul, or Crowd Street or something like that, as opposed to just you know, GeneTrowbridge.com. Facebook, okay. It’s gonna work.
Shannon Robnett 24:03
Yeah, yeah. No, that that makes a lot of sense. So what are the some of the things that you see that, that, the regulation is really helping investors to get? Right?
Gene Trowbridge 24:18
One of the things that we saw when in two years, two years ago, they changed the definition of accredited investor. And I didn’t think that was going to be very major because of how they changed it. But there were three things that came about that I thought were good. They didn’t change the million and the 200,000. But related to the million and the 200,000. They brought in the definition of spousal equivalent. They’re all sorts of households in the United States, where there are two people living together with jobs with net worth, whatever, but they’re not married. Right. And the original rule was you could have as income, you could have $300,000 a year to qualify as accredited if you’re married, filing a joint return. If not, it was 200,000 per individual. Okay, so now we have the all these households that you really have to have 400,000. And each person is going to have your have to have their own two. And so now they said, Well, I mean, I know I’m a little older than you are. And I know a number of people who live together who are older, and collectively, they qualify, and collectively, they’ll invest. And then there are all sorts other types of relationships that are out there that aren’t married. And I think that was an action on the part of the SEC to help to help capital formation, I think that was then the other one was that oh stockbrokers, people who are licensed and educated and all that stuff, to work in the securities industry, they don’t really need to need to know how much money they make. They’ve already been tested, and fingerprinted and all that. So we’ll just let them invest. Right. And then the third one was really opening up the entity world where there’s a family office and all the people in the family office, you don’t know if they’re individually accredited or not accredited, or a minor, or whatever. And so they, they tweaked the rule a little bit and said, if an entity has assets, not net worth, which I thought that would it used to be, but it now just came to assets. If you have assets of $5 million, we’re not going to worry about who the members are, the entity is accredited. If it’s less than 5 million, and the entity wants to invest, you have to go through the entity and check each individual to see if they’re accredited or sophisticated. But with $5 million, which isn’t all that much in today’s economy are accredited. And those things. I think I see those all the time. And I know that that’s helping capital formation.
Shannon Robnett 27:21
Yeah. Well, and I think, you know.
Gene Trowbridge 27:24
That’s all that this is about private placements. Right? Where are you with some just statistics. Every year, the SEC comes out with research, and they come out in March. So the last one I’m dealing with was last March. So in the 12 months leading up to that the private placement industry generated according to form DS, filed with the SEC $2.2 trillion. That’s more than Wall Street raised on all the IPOs in the same 12 month period. And 95% of the money that’s raised in the private placement industry, is raised in 506 B.
Shannon Robnett 28:11
Right. And you know, that’s the thing too, you know, Gene, most of the stuff I do is 506 B In fact, I’ve only done a couple of 506 C’s for various reasons. But the reason I like the 506 B is for all the reasons that you talked about, it forces people to talk with me, it forces people to get into an intimate conversation with me to understand who I am. But more than that, it allows me to understand who they are, and what better way to meet the need and the want and the desire of the money capital guy than to know what he wants. The last thing you want to do is shove a square peg in a round hole, a guy that only wants self storage, get him into your mobile home park in Kansas.
Gene Trowbridge 28:50
That’s a terrible, that’s a terrible deal. So I think you’re absolutely right. I think that’s important. My and plus check the box. The box self certification, I think is crucial. My most prolific syndicator Shannon since 2014, when their firm became a client of mine has done 164 offerings. Yeah, every one is 506 B. Every one is accredited investors only, check the box right. I would say for the last five or six years his his database is closed. Not taking any new investors got plenty of investors you know as them all Yeah, knows how it works. Yeah, satisfaction that must be right.
Shannon Robnett 29:44
That’s a business run well, right. I mean, those who unfortunately, it’s not businesses like that, that cause regulation.
Gene Trowbridge 29:55
You know, I think the more you do this, Shannon the more at least I learned that it’s a people business really weren’t the real estate business, even though we were building storage, I had a partner who knew how to pour concrete. And we poured concrete to flatten the earth, you know? So, but I didn’t know anything about that. So I raised the money, he did the project, and all my work was with people. So not everyone can do that. And eventually it got to me. It just simply got to me and I said, that’s enough. Well, if, if if you ever took one of my educational programs, when I come down to I come down to a slide that I say, what do what do syndicators say? And I have two things on there. Number one, the care and maintenance of partners can be overwhelming, you’re gonna get there someday, you’re gonna have to figure out what what support there is out there in the industry for you. And there wasn’t any when I was doing it. Many of my big syndicators are using other companies, third party companies to handle and pay for work. And I don’t know if you’re there or not…
Shannon Robnett 31:07
But, you know, that’s where I don’t do partnerships, you know. And I’ve… because the care and maintenance has cost a lot right. There… I’ve done partnerships in the past. There’s currently… I would do, I’ve done partnerships with my family. And there’s one gentleman that I’ve that I’ve had a business partnership with, that I would do a partnership with him again, other than that, they’re not worth the effort. You know, they everybody thinks that, you know, we’re gonna be two and three and four of us and it’s gonna get four times as easy. Actually, you take the number of partners and you multiply the difficulty level, right?
Gene Trowbridge 31:43
You square it, you know, 10 to 100 times more. Yeah. Well, I think that’s really the case. But on my YouTube channel, I have 37 interviews with with clients, and successful clients and a couple of rookies, absolute rookies, I always asked everyone three questions. How did you get started? What do you think’s going to happen in the next three years? And what advice do you have for rookies, and without exception, they all got started, because they didn’t have enough money to buy this first fierce piece of real estate that they ran into, that they needed other investors. So my argument always with people when they when they call me, and I think it’s a homework call, and they just want to talk about the business, right. And if you don’t have to syndicate don’t! If you’ve got enough money to buy whatever you need, you’re satisfied with it. Don’t get into the people business just just fine. And you know, I have some of the groups I’m involved with. They have passive investors who might have invested in 20, 25, 30 syndications, and now they call me and they say they want to be a syndicator. And I just let it go quiet. Then I say, why would you do that? Having 25 deals, you can invade your rich? Yes. Well, let’s just keep going. Right?
Shannon Robnett 33:15
A lot of people want to go fast. Right, they see they see syndication as a way to grow faster. But there’s a lot of times and you know, we’ve had like you mentioned earlier, the FOMO. And the everything has been about multifamily almost, not exclusively, but the majority of the focus, I would say 70% of the of the syndication focus has been on multifamily in the last couple of years. And most of my work has been outside of multifamily. For that reason, because, you know, we’ve done multifamily syndications, because you can make money with them. But it doesn’t mean it’s the most lucrative, right. A lot of times it’s the easiest to sell, because that’s what everybody seems to want.
Gene Trowbridge 33:59
Everyone’s lived in an apartment building. Right? Everyone has rented community storage. Not everyone is working in a in a Walgreens or right. So it’s just so easy. Well, the other thing I put on my last slide about what what us syndicators say is that the risk is always greater than you expect it to be. And I could make a very strong argument that the risk is directly related to the people. Right, not the property because we can manage the property and we can handle the risks. I mean, there are all sorts of things that happen. But out of the blue, here comes a call from an attorney, representing an investor wants their money back. And how could you have put this little old lady in there, knowing that it wasn’t liquid? Excuse me?
Shannon Robnett 34:49
Right, exactly. You know, and that’s, that’s where a lot of people you know, that’s why I like I love the 506 B. You know, I’ve got the relationhip. I’m, I’m talking to my investors all the time about what are you wanting? You know, we’re not talking about what do I have? You know, and I think that’s a major factor that a lot of syndicators overlook is they’re out there trying to figure out what they have to sell.
Gene Trowbridge 35:14
Well, you know, when I, when I was raising money when I started Shannon, I thought the selling process was, I found the property, I did the due diligence, I went to the attorney, they drafted the ppm for me and I was out selling, right. And someone who is a very successful syndicator, much bigger than I was at the time, sat me down and said, you know, you’re going, you’re going the wrong way. You’re starting at the tip of the iceberg. What you need to do is you need to build a database. Yep. And the database has to be number one, made of people who are interested in real estate, don’t waste your time and a guy today, who’s only a new cryptocurrency, okay? Right, find a group that a database that wants real estate number two, what part of the real estate industry are you involved with? Where you see opportunities? Because see, I don’t think you sell a syndication, I think you take people into a transaction, where they can take part of the opportunities that are available, you don’t have to sell. So you got to find people that let’s say, self storage, so we got to find people who are okay about self storage, and about the construction industry and self storage, by the dirt, we’re going to build it three years for three years, we’ll get it sold. Okay? Do you want you in in the meantime, there’s no checks coming to you for buying? Right, you’re just gonna get you’re gonna build your net worth. So that’s, that’s a separate group of investors. And then I think the third thing you have to do is you have to show the investors that you put together a team, Shannon, you’ve put together a team that can capture the opportunities that you think are out there and sell them on the team. Yeah, and you know, selling them, the deal from the ppm is pretty much an afterthought. If, if you’ve got them, first of all, you have your substantive relationship, if you go through all that is for the securities rule. But secondly, if they’re into real estate, and they’re in the Self Storage and their into the construction, and they think you’ve got a good construction team and investor relations team, to show him the deal. No, you tell him to get that bring your checkbook. Right. But at the bottom, it’s brutal.
Shannon Robnett 37:37
I think that that’s, and I think that that’s an important point, because everybody else is trying to tie up the deal, and then go put it out to a network. And that’s why a lot of newer syndicators think that the 506 C is the way to go. Because now that we have it under contract, we’ve got a couple of pretty pictures, and we got me with a hard hat to set up plans. You know, now we can put it out on Facebook, and it’s going to fill up. Well, no, you know, and it is about that marketing. I mean, you know, I mean, Coke doesn’t continue to market their product, because they need you to understand that Coca Cola is a nice, delicious beverage, they continue to market so they stay ahead of everybody else, they stay top of mind. And I think that a lot of people don’t understand basic marketing. I think you’re very, very right on that. And I think that if they did, maybe there’d be less syndicators because they wouldn’t want to put in all the work up front, there would definitely be less injured investors.
Gene Trowbridge 38:35
Yeah. Well, you know, in the last five or six years, it’s been pretty difficult to injure an investor. But who knows what’s coming? Yeah. The thing that we see on the forefront is, is those interest rate caps that people invested a lot of money in to protect them in case interest rates went up. But that was okay, if interest rate rates went up one or 2%, but not four, right? And what are we going to do when it’s time to refinance what happens when the bank comes to them and said, Okay, we need more money in your interest rate cap fund. They don’t have it. So I’m thinking there’s going to be there’s going to be a series of capital calls in the next couple of years from some I can just tell you which investors didn’t think they needed that insurance cap rate I can see that that’s that that’s going to happen and then that may very well mean that there’s going to be a no from the investors as far as the capital call. And now we’ve got properties on the market. And I know that’s the thought because I get so many calls right now Shannon about I want to put together a fund because if I’ve got the money and there’s blood in the streets, I can go out and buy something. You know, I’ve been through all those. I’ve been through 86 and 94, where there has been some blood on the street. But not everyone has been successful in raising money for a moment and taken advantage of, but they’re there with capital, waiting for those opportunities. And if you don’t have the capital, you’ll miss them.
Shannon Robnett 40:19
One of the things that, you know, now that you mentioned a fund, we are also raising a fund. But the reason that we’re raising a fund is because we see that with where interest rates are going, we can take first position on properties and provide a really healthy, very secure return to our investors. It’s not necessarily about over leveraging, it’s not necessarily about going out and buying something on the cheap. It’s about, gosh, if we’re going to pay the bank 9%,wouldn’t we like to pay Mr. Smith 9% on a seven…I mean, but those are the things that a lot of people fail to realize, because they’re looking at the fund on something to go leverage more something. But what their struggle is, is they don’t understand how leverage is going to work in the environment. We’re currently in which…
Gene Trowbridge 41:07
We have some clients who are coming out with offerings where it’s some of your cash, it’s in just a typical class A units which buys the equity, and some of your cash goes into a class B unit, which is a preferred return accruing, right, not not a loan against the property, because that wouldn’t work with the lenders. But instead of having to borrow 6 million from the bank, or whatever it is, maybe you can borrow four and a half the one and a half accrues. And a nice, like you said, a nice yield to the investors until there’s a capital transaction. And it’s a good option today, there’s always options. You know, financing has always been the problem. In the securities industry, when there’s 100% financing, you’d think you’d never have to put together a group but that’s not the truth. When there’s only 60% financing, you know, you have to put together so financing is kind of counter cyclical to financing. So that’s, that’s it.
Shannon Robnett 42:13
Yeah. Well, gosh, guys, there’s been a lot of nuggets in here and you can definitely tell that Gene’s got the experience then and that he’s he’s done the deals on both sides, both writing them being the attorneys for them. But yeah, I mean, I’m hearing him talk about and, you know, bringing up his former syndication days. So, Gene, I want to say thanks for being on the show today. I really do appreciate you stopping by. And giving your knowledge to my listeners. Guys, thank you for being a listener of the show tuning in. And be sure to like and subscribe and drop us a review wherever you get your podcasts at whether that’s Apple or iTunes or, or Spotify, but I’d love to hear from you guys. Leave us a review. If you want to connect with me guys. Connect send me an email at [email protected]. Once again, Gene, thanks for being on the show.
Gene Trowbridge 43:12
You’re welcome. Thanks for having me. Happy Thanksgiving!
Shannon Robnett 43:15
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About Gene Trowbridge:
As a founding partner of Trowbridge Law Group LLP, Gene’s law practice concentrates on the syndication of commercial and investment real estate, through both debt and equity. Gene has represented over 650 clients in this area of practice. The median offering size is $3,000,000, but he has done individual offerings of over $6 Billion. His practice writes offerings under Rules 506b and506(c) of Regulation D.
As a former syndicator, who for ten years raised investor capital through the broker-dealer community, he can communicate with his clients on both the technical and the practical aspects of state and federal securities laws.
As a long-time CCIM and CCIM Senior Instructor, Gene has won numerous awards for his teaching ability. His book “It’s a Whole New Business!” is really a “how-to manual” on real estate syndication.
EMAIL: [email protected]