1972, September, Pg. 1. Representing an Investor in a Real Estate Syndication.

• Author: by Richard G. Wohlgenant

1 Colo.Law. 1

Colorado Lawyer

1972.

1972, September, Pg. 1.

Representing an Investor in a Real Estate Syndication

1Vol. 1, No. 11, Pg. 1Representing an Investor in a Real Estate Syndicationby Richard G. WohlgenantRichard G. Wohlgenant, Denver, is a partner in the firm of Holme Roberts & Owen. In 1970 he was a panel member of The Practising Law Institute Workshop on Real Estate Acquisitions held in Boulder, Colorado. In April 1972 he addressed members of the Denver Bar Association on the subject covered by this article, and in August 1972 he was a faculty member in a Buying and Developing Country Property Workshop in Aspen, co-sponsored by the Aspen Law Institute and the New York Law Journal.

Over the last several years the number of real estate syndications being offered to prospective investors on both a public and private basis has increased dramatically. The impact is being felt throughout the United States and especially here in Colorado, where population increases have been sharper. The growth in the number of syndications and the interest in real estate as an investment vehicle are evident from the variety of new real estate periodicals that have sprung up, the number of real estate institutes and seminars that are available, and the attention being given to the subject by the regulatory agencies.(fn1) Many lawyers are finding that real estate matters take an increasing percentage of their time, and this article suggests a brief check list of items of concern to a lawyer who is representing an investor.

Know the Profile of the InvestorIn order to advise a client properly concerning a possible investment in a real estate syndication,(fn2) you must know a good deal about his investor profile. This profile includes information concerning his financial resources, his investment objectives, his knowledge of the real estate business generally, and his idea of what the proposed real estate syndication will offer.

Most real estate syndications are highly nonliquid, and investments in them should be made only by persons who can afford to wait for some period of time for their reward. Consequently, funds invested in a real estate syndication should be funds that are largely discretionary. That is, the client should not make the investment if there is a reasonable expectation that he will have to liquidate the investment within the near term. Furthermore, because many syndications require payment in future years of deferred installments or assessments, you should carefully examine your client's ability to meet such future payments.(fn3)

Determine what the investment objectives of your client are with respect to a

2real estate syndicate. He may be looking for a steady income stream, for capital appreciation, or a potential combination of both. Normally, income objectives can be realized only from syndications purchasing or developing improved properties; capital appreciation is the usual objective of a syndicate acquiring and holding unimproved properties.To know how broad a role you are to play, probe your client's knowledge of the real estate business. If he is experienced in real estate transactions, many concerns can be left to his good business judgment. If he is inexperienced, you may wish to recommend that he discuss the business aspects of the proposal with a respected real estate acquaintance.

Lastly, find out what your client thinks is being offered to him by the syndicator so that you can determine whether his picture is a true one.

Know the Profile of the DealThe deal which is being presented to the investor will come to him as either an offer registered under the federal securities laws or qualified under a state securities law, or both, or an offer considered to be part of a private offering.(fn4)

It is important that the syndicator's views on whether he is making a public or private offering be known for several reasons. First, a casual attitude by a promoter toward securities law questions may indicate a lack of sophistication on his part, which constitutes a red flag for the investor. Second, if registration or qualification of the offer under either the federal or state securities laws is required and has not been done, the failure may give the investor a right to rescind the transaction--- but this may be an empty remedy if the syndicator is unable to honor the rescission. Furthermore, other investors will have the same ability to rescind and the existence of this right could jeopardize a worthwhile project. Third, the public or private character of the offer frequently determines the completeness of the disclosure package that is made available.

The Disclosure PackageAn investor seeking counsel should have available the essential elements of a disclosure package for your review. Regardless of whether the offer is being made as a registered offer or as a private placement, the package should include as a minimum a prospectus, offering circular or private placement memorandum fully describing the deal and the qualifications of the...