Real Estate Syndication: A Guide to the Role of Attorneys

Real estate syndications are an investment model where a lead manager leads multiple investors to pool their resources to participate in larger and more lucrative real estate deals. 

This strategy allows individuals to access opportunities that might be beyond their individual financial reach. It's a powerful mechanism for wealth-building in the real estate market. However, given the investors are then passively investing into the deal - those investments become securities under SEC supervision. This brings you into a new world of compliance and regulation that can often scare away new comings.

This post is going to outline the Vital Role of a Real Estate Syndication Attorneys as well as provide insights into choosing the right attorney, understanding their scope of work, and navigating the complexities of legal compliance in real estate syndications.

The Role of a Syndication Attorneys

At the heart of a successful real estate syndication lies the expertise of a real estate syndication attorney. 

These legal professionals play a pivotal role in ensuring that the syndication process adheres to SEC regulations and minimizes risks for all parties involved. 

The involvement of a real estate syndication attorney is not arbitrary and should be carefully timed to coincide with key junctures in the syndication process. 

From the initial structuring of the syndication to negotiations and closing deals, an attorney's involvement ensures legal compliance and safeguards against potential pitfalls. 

Proactive legal counsel can significantly contribute to the success of a real estate syndication.

What to look for in a Good Real Estate Syndication Attorney

When finding and choosing the right attorney for your real estate syndication - there are several essential qualities that distinguish an excellent real estate syndication attorney.

Defining the Scope of Work for your Attorney

An engagement with an attorney should be seen as a partnership - not a transaction, as there will be things that come up that need to be addressed throughout the process.

With that said, its important to have a clear scope of work on what they should be doing (and not doing). Here is an example walkthrough of a Regulation D, Rule 506(c) investment offering, detailing the involvement of a syndication attorney from start to finish.

Preparation

• Consultation and Entity Structuring: The attorney can consult you on investment goals and structure, and advises on the formation of the appropriate legal entity (like an LLC) for the investment.
• Preparation of Offering Documents: The attorney can help draft the Private Placement Memorandum (PPM), Subscription Agreement, and Investor Questionnaire. Most of these are template docs which are then customized for you, and help ensure compliance with SEC regulations and state securities laws.
• Accredited Investor Verification: Under Rule 506(c), only accredited investors can participate. The attorney assists in confirming processes to verify investor accreditation through investor management software like GP Flow.

Supporting the Deal process

• Negotiating and Drafting the Letter of Intent (LOI): they can assist in negotiating and drafting the LOI for the property or investment acquisition.
• Finalizing Investment Structure: including terms, capital contributions, and distribution plans.
• Setting up legal entities and filings with the SEC: this covers things like Form D with the SEC post the first sale of securities.

Closing the deal

• Closing Transaction: Assisting in closing the investment transaction, ensuring all legal and financial aspects are in order.
• Ongoing Compliance and Reporting: Advising on ongoing SEC compliance, state securities laws, and periodic reporting requirements.
• Handling Investor Questions: Assisting in communicating with investors, addressing concerns, and maintaining transparency.

After closing and throughout the deal life cycle, the syndication attorney can also play a crucial role in ensuring ongoing compliance, protecting the interests of the parties involved, and facilitating the successful exit of the investment as well.

Next Steps

While real estate syndications can be a  powerful wealth-building strategy - they do come with legal and regulatory requirements that make the role of a real estate syndication attorney integral to their success. 

A strong legal roadmap and partner to support compliance, minimize risks, and facilitate successful transactions is a must. 

As you embark on your real estate syndication journey, we hope this helps you make informed decisions and pursue opportunities with confidence.