On this episode, Blake is speaking with Mauricio Rauld, Founder and CEO of Premier Law Group. Mauricio is a syndication attorney, which means he knows all about legally structuring documents for investors in order to best protect their investments. Mauricio will go over just how important it is to know all of the ins and outs about the regulations of investments before going into any deal, as well as some other key information that is often overlooked.
Today, Blake is speaking with Mauricio Rauld, Founder and CEO of Premier Law Group.
Mauricio is a syndication attorney, which means he knows all about legally structuring documents for investors in order to best protect their investments.
Mauricio will go over just how important it is to know all of the ins and outs about the regulations of investments before going into any deal, as well as some other key information that is often overlooked.
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Key Takeaways:
Mauricio explains what makes his job so fun (1:33)
How does Mauricio, as a syndication attorney, protect your investments? (3:21)
What information needs to be disclosed to investors in order for them to make an educated decision? (6:55)
What is a PPM? (9:57)
What are the public market prospectuses missing? (14:35)
Why is the private market safe? (18:06)
Another important aspect of regulations on this industry (22:53)
How long has the private market been available to investors? (24:43)
Final thoughts from Mauricio (27:35)
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- Hey guys, Blake Templeton here. I've got an exciting interview for you with the number one syndication attorney in the country. We're going to be talking through how to protect your investments in 2020 from a legal perspective. Look, this is something no one's talking about and so what you're going to have to know in 2020 if you're going to be investing. We're about to begin, but before we do hit the like button and then hit subscribe. I want you to have access to every single interview and podcast that I have on building wealth today. I've got new videos coming out weekly, and so make sure you hit the like button and then also hit the bell icon, so you're notified every single time a new video comes out. With no further ado, let's roll. This is a "Solomon Investor" podcast. I am your host Blake Templeton here to help you protect your money, but I've got a special guest who's going to help you protect it legally. Mauricio Rauld, founder and CEO of Premier Law Group is actually my attorney. 20 years of securities experience and he actually is the one who I would say is the premier syndication attorney in the country. Mauricio, welcome to the show.
- Thanks really Blake. I really appreciate it and looking forward to talking to you.
- I love talking about the syndication side. A lot of our investors don't get to see that side, they don't get to see behind the scenes. And you and I have been working together what, three, four years, something like that.
- For sure.
- We've done lots of deals together. And one thing that I can always say about you is that you're always consistent in what you do. Not only do you love what you do, but you know your stuff and I can't say that about all the syndication attorneys.
- That's actually a lot of fun. I've gotten to the point now in my career, doing this 20 years now, is that, I know the stuff, I know the rules, I know the law, it's in the back of my mind here, a little bag where I've got it. So, I don't have to worry about knowing what the answer is, which is, if you don't do this full time and you just kind of dabble in it, that's what happened. You got to go and look it up or you're not quite sure. I've gotten past that, and what's cool about that is that now I get to really kind of be creative and really work with the clients on structuring and if the client has an idea that they want to do, I don't have to go look it up and we can literally have a conversation about strategy, which is the fun part of all this. The fun part is putting these deals together and can we do this? Can we do that? And as I usually say, as long as we're disclosing everything to our investors or this 'cause your investors, we can be pretty creative because at the end of the day, our job is to make sure that we put together the best package for our investors because at the end of the day, that's really who we're trying to help is we're trying to get those investors to invest with us so we can all gain together in this wonderful world of real estate.
- I love that. And the majority of people nationwide, they were thinking about investments. They call it the public market, a stock market, stocks bonds, mutual funds, ETFs and what we're seeing is a massive influx of people moving into the private market into commercial real estate. And I'm sure you're seeing from the investor side of individuals, the people. The people who are creating paperwork just like us, we're seeing that, specifically, people don't understand how regulated and how tight and how black and white the actual behind the scenes processes. I mean, I had a guy the other day just tell me, "Isn't the private market, isn't real estate, "isn't going in that world, "isn't kind of like the "Wild Wild West." "Like you're just going to shake hand, the actual paperwork?" What we do is, my goal is to help people better understand how we protect their investments. And this is a kind of a fun podcast show for us because now kind of flipping the script and I would love to show them how you help protect their investments. And so, we protect their investments as you guys know through collateralizing your principal So you put your money into the tangible and it collateralize as your principal. We protect your investments by controlling the assets. On the public market, you can't control the stock market, but we control the actual asset. So we drive traffic, we can lower expenses, we can raise rents, we actually can control the vehicle. And so on that, now we're going to flip it and Mauricio, share a little bit about how you, behind the scenes, all the stuff we do before we even have the investment, how that helps protect their investment.
- I mean, one of the things we do to protect investors, just start to the beginning with the structure, right? I mean, the way we put these investments together, typically using entity structuring and really segregating the liability. So just from an exposure standpoint, to the extent something were to happen, let's say you're buying a building and something were to happen that building. Well, you're not going to be personally liable, or personally responsible for anything that happened in that particular investment. Similarly, I guess if you if you own a stock, if you own Apple stock or Microsoft and something were to happen to Microsoft, they're not going to be coming after you. So we do the same thing in the private market where we structure things in such a way that we make the investors, as you probably heard the term, a limited partner. And that essentially when it says limited, it means two things. Number one, yes, they are limited in the sort of the decision making and sort of day to day activity, but more importantly, the reason they're limited there is because they're also limited on the exposure, they have limited liability. Essentially the maximum exposure they have is really the amount of investment they make versus the sponsor like yourself. Many times, you're the ones that are really kind of absorbing all that risk because you're signing the loan or you're the general partner and then you're responsible. So just from a structural standpoint, we help out the passive investors that way. And then of course from a regulatory standpoint, what I really do, my job, let's just boil it down to its essence, my job is to make sure that we create documents, disclosure documents that disclose all of the potential risks and benefits obviously, but primarily on my end, what are the potential risks of the investment that Blake is putting together so that the investor can review those and make an intelligent decision, whether this is a good investment for their particular scenario or not. It's not like where, here's an investment, just give us 50 grand or a 100 grand, 200 grand, and we won't tell you all the skeletons in the closet, we disclose everything so that you go in there with an open mind and you can make your own decision, whether this is an appropriate investment and in your portfolio or not.
- Yeah, that's a really good distinction. As a Solomon Investor, we process through mental frameworks and three of them to be exact, being God directed, you've got to have wisdom and Mauricio, from the behind the scenes, you actually help us have wisdom, ensuring compliance on all the federal and state security laws and actually making sure we know what's the upside. You do actually look at that, but what's the downside and can we live with the downside? How, if there's a downside, if there could be a downside, what is it and how do we actually protect the investors? I really appreciate that. 'cause that that's not our wheelhouse, our wheelhouse is to actually, the collateral, the property, actual tangible. If there's cash, so how do you make it have revenue? How do we actually create ROI? And so you really help us from behind the scenes actually create something that actually is safe on all sides and I really appreciate that.
- 'cause one of the issues that popped up and I literally had this. I'll share maybe a little bit of a personal story. But I had a cousin, one of my cousins who owns a business and he was going out to raise capital for his business. Nothing with real estate, but he's looking for some seed money, I think it was like a million dollars, I think it was or something around that mark. And he just put together or hired a regular attorney, he was going to just put together an operating agreement and let's go do this, and somehow it came on my radar 'cause he wanted me to take a look at it. Just kind of whatever, given him once over and long story short, they're selling securities. They're supposed to be complying with all these federal rules and state rules and they didn't have the foggiest idea and the attorney, which isn't uncommon, the attorney was a business lawyer they're not a securities lawyer. And it's no different than when you go to the doctor and you go see your general practitioner. Well, that person's not a cardiologist and your cardiologist is not a gastroenterologist or whatever. Everybody has their specialty. So the attorney didn't know, and so that happens a lot. And so what the problem there is that the investors, the passive investors will simply receive a little package, usually a very glossy brochure that basically focuses on the good stuff from the investment. Hey, you give us a 100 grand, you're going to own X percentage of the company. Here are all the numbers, here's all the money we're going to make next year, and the next year and the next, these are all your returns, but there was nothing in there that first of all provided all the information about how the returns were being generated and the fact that really, they were kind of making it up, 'cause they were just kind of wild guessing but more appalling, none of the risks were disclosed in those documentation. And that tends to happen a lot, which is usually a good red flag for any passive investor. When they start receiving investment materials that don't contain the property disclosure documents. And the key document is this PPM, this private placement memorandum. If you come across investments that don't have a PPM, you start asking questions and they come up with like, "Oh, we don't need one "or I don't know what you're talking about or whatever." That's usually a red flag that they're not working with an attorney and they really don't know what they're doing. Or maybe they're just cutting corners, which is not a good thing, 'cause if they're cutting corners here, well, also they're cutting corners on the investment.
- That's a great point, that's a really, really great point because everything in the private market is not equal. And that's why you've got to actually have what we call three dimensional investments. Got to be God directed, it's got to actually have the wisdom behind it to set it up correctly, it's got to have collateral to, who's ever running, who's ever the Solomon general, you've got to actually control the domain and then it's got to actually create the cashflow, it's got to create the actual appreciation and that's all got to be done. Now with the structure of the foundation of the right paperwork. And so let's walk through that a little bit. You can talk about the PPM, that private placement memorandum. For our investors who are listeners, you guys know it's the stuff that you guys sign. For our listeners who are not quite there yet, and you're ready to jump in, let's break down. What are those pieces of the PPM and what are they actually signing?
- So the PPM is the disclosure document. It's a document that shows you all the ways your investment can go wrong, all the good things, all the bad things. I always like to analogize it to the medical, again, I like the medical field for some reason, the medical consent form, right? If you guys ever have surgery, I just literally a couple months ago, maybe more than a couple months out, I always have to get teeth removed for some reason, I have horrible teeth. I have my oral surgery, I go to a surgeon, they put me under and they take the wisdom teeth out, they pull this, whatever they do. And even when I've had the surgery, they give you that yellow piece of paper, that medical consent form. I know all the ways your surgery can go wrong and even though they're just pulling out teeth, I could have some bleeding, an infection, I could die from this three minute procedure. It's obviously very unlikely, but all those risks are disclosed in a medical consent form, it's the exact same thing. That's what the PPM is for, it goes through all the worst case scenarios that I, the attorney can even think of, I'm like, "Blake, what are all the possible ways "you could lose? "What crazy stuff could happen, "including like a COVID-19 type thing?" I mean, most people wouldn't have thought of a global pandemic as a potential way, but now if you look at documentation, I guarantee you you're going to see disclosures about the global pandemic of COVID. But even if it's unlikely, we want to make sure that the investor understands all the potential, no matter how small that risk is, if the risks exists, we want to make sure it's there. We also want to make sure that we're explaining certain things. If we make certain representations of things that could happen or we expect to happen, we need to make sure that we're fully explaining all the assumptions and all that stuff. So that's in general what the PPM is. And it typically has several parts and so the PPM typically includes that main disclosure document and then it has a bunch of exhibits or attachments. One of them being the operating agreement, for example, which is the operating agreement, which is the governing document over the actual entity. So you're most likely investing in, you're not investing in the stock like you would at Microsoft, a corporation, you're likely investing in a limited liability company, an LLC and that has an operating agreement that shows you how the company is going to be governed. Who has the voting rights? What are the percentage returns? Who owns what? Are there any special allocations? Are you getting a preferred return? All the waterfalls, all the information, if there's ever a question about, well, what do we do in this situation? You're going to go to this particular document that's going to show you, give you the answer to the question that you have about this particular entity. There's subscription agreements, which is actually a document that officially subscribes you to the offering. That's where you're going to actually say, I want to invest X amount of dollars, buy a certain amount of units and here's my Social Security number, my EIN, and all my information. And then there's a questionnaire, an investor questionnaire, because depending on the investment, there might be some limitations as to the type of investors that can be participating, or even if everybody's allowed in the deal, you may be limited to the amount of people that can come in. So for example, you may have a deal that allows you to have non-accredited investors for example, but you're limited to 35. So we've got to make sure we're keeping track of that. So that's what the questionnaire is for. And then usually your business plan is part of that PPM as well. So the business plan is kind of the nice marketing, the pitch deck, or the brochure or whatever you want to call it. The prospectives that has all the pretty pictures and the graphs and the story and all that pretty stuff, that's usually the last exhibit. So you end up with a PPM that's, well, we don't print them out anymore, but they're quite lengthy and surely cure insomnia if you have to go read the 100 pages or so that this PPM is at the end of the day.
- Hey, thank you for sharing that. But it's important. It's kind of tongue-in-cheek, it's big, but that's what we're missing in the public market. I mean, that's what people are missing. You go on Robinhood app and you just sign up and just put your money in. The average mutual fund has 17 different fees that literally are hidden in prospectives that are actually given to the person and that you might as well find on the stock in some back behind hidden page on their domain.
- That's a great point Blake, 'cause one of the major things that we focus on is the compensation piece. So we, of all the disclosures we make, the one I tend to focus on the most is that compensation model, and we want to make sure we're disclosing not only all the fees, which look, everybody's entitled to fees, everybody working hard and generating the return for everyone, but we disclose all the direct fees, but more importantly, also any of the indirect fees, which are fine. It doesn't mean that they're not earned, but they may not be easily seen. For example, I'll give you a great example and there's nothing wrong with, if you're buying a piece of property and you also happen to be a broker, a real estate broker, and you want to take your usual real estate commission on that transaction, nothing wrong with that, but that's something you would have to disclose. When you look at these prospectives of a lot of these mutual funds, they'll disclose the fees that you typically understand, where it's a 2% fee or whatever the load is, but a lot of those fees are hidden and they're kind of siphoned off from your return. It's like the gambling rules, like they actually make the money when you make money, because instead of, you should be making 10%, but because of all these kinds of hidden fees in the background, you end up making 7% and you may think, hey, 7%, not too bad, but you should've made 10, or maybe you should've made 20 and you got 15. You're thinking things are going well, but those hidden fees that aren't explicitly disclosed or articulated as they are in a private, like in a private placement memorandum, where we be crystal clear, all the direct and indirect fees.
- And that's why people in the public market are actually losing money no matter what. You're always losing. If the market's making money, you're losing money. If the market's making money, you're losing money. But if the market's losing money, you're losing money. And so that is such a valuable piece because that's why people in the private market can exponentially grow their actual return 'cause they've set a hedge in the beginning, they know exactly what they're getting into, they know exactly what's happening in investment and they literally can multiply their investments because they know what the fees are and there's no fees that are just being siphoned out of the actual return.
- Blake, another, man, I never share this many personal stories, but I got my mother out of the stock market. Where her retirement funds, I think 10 years ago now, or eight years ago. But at some point I realized that was when, right after the big crash, the great recession, they had really high numbers. I think the S & P one year was up 20%. I mean, there was like some major gains because it had collapsed down to nothing. But I was looking at my mom's statements, well, the market just went up 20%. I would expect them, there's going to be some fees, I understand that, but her returns were like 8%. So when the stock market was doing 20, she was making eight. She thought that she was doing okay, 'cause, hey, I got 8% return, I'm like the market just hit 20, where's that other 12. And that's all part of those hidden insurance fees and everything. So I got her out of there and now I've got her in the private markets as well.
- That's awesome. And I guess let's talk a little bit more about kind of massaging why it's safe. We've got some people who they know they're losing money in the public market. They actually know they're losing, I was talking to a person the other day, I've never gone back and looked at my return, and I actually went back and looked at it, in the last 10 years, I've actually made 7%, after '08 and COVID put together, only 7% broken between 10 years, but they don't know there's another way. And then you have another group of people who would call Solomon Investors to say, "There's got to be another way. "I mean, there's, there's just got to be another way." Where there are examples, maybe some history or some other stories of why the private market is safe and this is your world, this is your wheelhouse. And so 20 years, ensuring the federal and state securities are actually withheld, seeing investors, having people invest over and over and over again in the private market, what are the stories or thoughts do you have on how it's safe?
- Look, I mean, look, first of all, I want to be clear. I mean, all investments have some degree of risks, right? So we're really more comparing, what are the risks of the public markets versus the private? Even though the perception I think is that the private sometimes are somehow riskier or what have you. But I think personally, that's just because everybody with a financial interest, like your stock broker or the financial advisor, they don't get paid when you go buy a private deal, they only get paid when you invest in their mutual fund. One of the nice things, one of the big advantages of the private market is you actually have access to the sponsors, to the team. Whoever's putting this deal together, especially when you're making the decision to invest them, you can pick up the phone, in fact, you're encouraged to, and it's up to your requirement that you make yourself available to answer questions about the particular investment. You don't get that when you buy Microsoft or Apple, you don't get to call up Steve Jobs, well, he's not around anymore, but Tim Cook and be like, "Hey Tim, what's going on here? "I was looking at your financials "and it seems like this at the other, "like what happened here? "What happened there?" We don't get that. So it's nice to have access to the sponsor team on a particular investment. And so I think the understanding of what the particular investment is is much clearer in the types of deals that we do. And really for the passive investor, the main thing they need to do in my opinion, to minimize the risk for them is really just the due on the sponsor team, right? I mean, because that's at the end of the day, what you're investing in, you're investing in the team, you just want to make sure they're able to execute on this plan, because it's one thing to put all these pretty brochures together, but somebody is got to have to have the experience to actually go out there and execute it. But that's really, once you figure out what the team is and again, you can have conversations with them, you can have, you can go out and have a cup of coffee with some of the team members and get comfortable with them and really vet them. And then obviously you can look at their experience and the track record, you can see, look, they specialize in this, I met with them, again, you don't get that in the public market, you're not going to have access to the fund managers and picking up the phone and figuring out what their criteria is or why they're doing certain things. And just that type of environment, I think makes things a lot easier, that ability for you to pick up the phone and talk to somebody about the investment prior to making it, and then getting updated throughout the life cycles, I think it mitigates a lot of the risks because you have a better idea if you're asked the right questions of what you actually are getting into.
- I's a really great point. It's the mindset of looking at people as people, versus a number on a screen and just processing those numbers. Before I forget, guys, if you have not received access to our back end of all of our deals and seeing how the deals work and seeing how to actually activate and protect and cashflow your investments, pull out your cell phone right now, and text 31996 and the word Solomon. So you're going to actually text the word Solomon in the actual number, 31996 and that'll begin that conversation. And I've got also got a book coming out called the "Solomon Way", and then I want to give you that book for free and have you just pay shipping. And so this will begin this relationship. We've got so many more items to give you. So again, 31996 and text the word Solomon. I really enjoy this time because this is really what some investors need. We've got some people who are just like, "Man, I just need to know, "like my i's dotted, my t's crossed. "I just got to see a little bit deeper behind the curtain." And so, you know, this is really good.
- Can I borrow that one real quick thing? 'cause when you just said that, another thing to keep in mind. These are really regulated industries, right? So the SSC is involved and also your state regulator's involved and depending on what you pick, you can talk about these things on podcasts and you on social media and sometimes you can't. And so just to be clear here, you and I having these conversations because we rely on these regulations that do allow us to actually talk about them openly and not sort of really on the private thing. So that's another thing to keep in mind is that not all syndications are created equally and you just want to be aware when you're approached by someone that they're doing it in compliance with federal and state rules.
- It's a great point. And I see that right now, all over the place, people just doing their thing, thinking they can just do their thing and that would literally be like in the stock world before you're publicly traded, if you just start selling shares of something and just start publicizing that everywhere. We go in Mauricio together sometimes six, sometimes eight, 12 months sometimes before an investor... You and I are building a structure, and that's why it's so important that you actually, whoever that Solomon general is, whoever that is who's actually managing your investments in actually helping you build wealth, you've got to actually have one, you've got to have someone who actually knows the securities, who's actually working with the Solomon general, and then that general actually following those securities like he's saying. So that as Mauricio mentioned, we actually can set up a structure so that we can talk about it freely. And then if it's an investment that we've set up where we can talk about it freely, then we know which direction we need to go with that. The private market for some, we truly talk about this new ecosystem, 'cause it's this epiphany. I've been in the public market for so long, I didn't know it existed, but the truth is, I mean, this has been around for as long as you and I added together have been around and it is a normal way of business. And it's really something that was only available to the uber wealthy. It was something that the institutional investors, the large offices, family offices could invest into and the documents in which you provide, you actually put together for us, allow us to engage the masses to allow them to invest into big deals and make larger returns.
- Yeah, you're right. This has always been out there. I think what's happened recently, in 2013, there was a JOBS Act that was passed after the last great recession and there was a lot of, if you can imagine after the last recession, there's a lot of capital constraints, so the Congress wanted to sort of expand this private market and so they came out with this JOBS Act in 2012, and in 2013, these new rules came out and what happened after these new rules is that a lot of people started to be able to, were allowed to advertise or talk freely about the investments they made. So that's one of the reasons you're starting most likely over the past seven years, you've been hearing more and more about these investors. Now, interestingly enough, a lot of those investments technically aren't eligible for all of this advertising, 'cause they're still relying on old rules, but it kind of all got swept in and I think that's the perception is that, oh, this is a relatively new type of investment, it's only been happening for the last five or 10 years when in reality it's been going on for a long, long time. And actually these Securities Act are from 1933 and 1934. So they've been around for awhile and that on there they're heavily regulated. And that's why, fortunately for me, and unfortunately for my clients, there's a high compliance cost 'cause they got to hire an attorney just like when you're doing your tax returns and you're trying to navigate the complex world of taxes, it's so complicated now that you've got to hire a really good tax professional, who can do some tax planning for you and save you some tax money, the same thing happens in this regulatory world, you're kind of forced to hire a securities lawyer to make sure you're navigating the rules legally and avoiding all the landmines, not only at the federal level, but also at the state levels.
- It's so true. If you want to play in the actual private market, you just got to know what you're doing and this type of podcast with someone like Mauricio, again, 20 years of security experience. Truly a premier syndication attorney in the country. You're not going to get any better meat off the bone than this right here. So Mauricio, I really enjoyed this time with you. Anything else that you'd like to share with the investors, maybe something motivational in the private market, something along those lines?
- I'm glad you're bringing this to everybody's attention because it is something that isn't necessarily talked about in the mainstream necessarily, but it's been there for a long time and it's just something that I think everybody should at least take a look at it. And if you've been around long enough, you start realizing that you're just kind of entirely playing the private market 'cause you just look at the public and you see how volatile and how manipulated and how kind of crazy it is looking at it right now that the private market just seems to make better sense. And now it's being opened up to more and more people. And so it's become more accessible than ever before.
- Hey guys, if you want more podcasts like this, like the channel, hit the bell icon, hit subscribe and the more you do that, it helps in the algorithm, it helps me get this message out to other people, just like you who truly know there's got to be another way. You truly know that you can actually make way more money if you actually do it the right way. Mauricio, I've enjoyed it my man, I'd love to do it again soon. Blessings on you guys, this is a "Solomon Investor" podcast signing off to your success.