Samuel K. Freshman - Principles of Real Estate Syndication

PRINCIPLES OF REAL ESTATE SYNDICATION

Samuel K. Freshman

THIRD EDITION

Copyright 2006 by Samuel K. Freshman

[All Rights Reserved]

"This publication is designed to provide accurate and authoritative information in regard to subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services or a competent professional person should be sought"

(From a Declaration of Principles jointly adopted by Committee of American Bar Association and a Committee of Publishers and Associations.)

International Standard Book Number

ISBN-10: 0-9824746-2-8

ISBN-13: 978-0-9824746-2-4

eBook ISBN: 9780982474655

Printed in the United States of America

Published by

Straightline Publishers

Los Angeles, CA. USA.

TEL: 310-410-2300

A BOUT THE A UTHOR

Samuel K. Freshman, formerly a principal in Freshman, Marantz, Orlanski, Cooper & Klein Law Corporation, of Beverly Hills, California, now the Century City office of Kirkpatrick, Lockhart, Nicholson & Graham, has lectured and written extensively on real estate financing and syndication. A graduate of Stanford University and Stanford Law School, he is a general partner in numerous real estate syndications.

As a member of the California Real Estate Commissioner's and California Corporations Commissioner's Advisory Committees, he assisted in drafting state syndication legislation. Mr. Freshman has served as Chairman of the Legal Committee of the California Real Estate Association, Syndication Division; Secretary of the National Real Estate Securities Institute; and Chairman of the Real Property Committee, Beverly Hills Bar Association; as well as Vice-Chairman of the American Bar Association Real Property Section Sub-Committees on Trade Associations and Real Estate Options, and as a member of the Arbitration Panel of the American Arbitration Association.

He has qualified as an expert witness in both the federal and state courts in matters relating to real estate trade practices, finance, syndication, escrow, fiduciary duties, property management, due diligence, lease interpretation, and related subjects. He is a former Adjunct Professor of Real Estate Law at the University of Southern California Graduate School of Business and has more than forty-five years experience in acquiring property, forming syndications, and managing real property.

Mr. Freshman is active in creating real estate financing structuring and solutions, and heads up a property management firm that controls several hundred millions dollars worth of property. He has owned property in 15 states and 24 cities. His investors have included life insurance companies, pension funds, banks, and high net-worth individuals.

P REFACE

Having been successively President of the California Real Estate Association, Real Estate Commissioner of the State of California, a charter member and National Vice President of the Real Estate Securities Institute, and President of the successor to that institute (the Real Estate Syndicate Securities Institute, of the National Association of Realtors), I have had many occasions to work closely with Samuel K. Freshman on improving and developing standards for the syndication industry.

The first edition of Principles of Real Estate Syndication (published in 1971) was extremely helpful to me and I have recommended it whenever asked by anyone interested in real estate syndication for an authoritative work on the subject.

Sam's expertise, imagination, and depth of real estate knowledge comes through even stronger in later editions. It is being used as the basic text by several colleges for courses in syndication and real estate development and is a good, practical working tool for those active in the industry, rounding out and supplementing their own individual experiences.

BURTON A. SMITH

Orange County, California

F OREWARD

I've had the opportunity of learning the principles of real estate syndication from Sam Freshman long before he wrote the first edition of this book.

Up until 1968, my then partner and I were quite content in doing what we had been doing successfully since 1958 - selling apartment houses to individuals using customary brokerage procedures. I recall a luncheon meeting during late 1968 when Sam tried to convince us that with syndication as an additional marketing tool we would be able to expand our sales volume at a much faster rate.

Frankly, we were a bit hesitant in taking his advice; not because he hadn't convinced us that syndication was the right direction but because we were somewhat apprehensive about the unknown. After all, to be successful in syndication required revamping our marketing program -not to mention learning the legal and practical aspects of putting a syndicate together.

Finally, during the early part of 1969, Sam said to us, "Look, you select a suitable property for syndication, and I'll tell you what to do from there even if I have to do it myself." Subsequently, we selected one of our best listings for our first syndication, conducted a meeting in our own office for a number of investors, and were on our way with a marketing process we had long ignored.

Although our initial offering was sold out the first evening, we made a number of mistakes in our presentation and Sam stayed with us at our office until almost two o'clock in the morning following that presentation. That meeting was an example of his in-depth understanding of the practical aspects of syndication because his coaching was directed to the organizational and psychological aspects of the presentation including matters concerning our timing, the content, and the overall selling approach.

You'll discover by reading Principles of Real Estate Syndication that the success of an offering is not necessarily limited to the manner in which the legal material is put together. It takes good business judgment as well. Mr. Freshman's understanding of how to combine legal expertise with that good business judgment is reflected in the material which follows.

NORMAN JACOBSON

Los Angeles County, California

I NTRODUCTION

This work arose as a result of a need expressed by many attorneys, accountants, contractors, investment bankers, mortgage bankers, real estate brokers, and educators for a practical discussion of the basic principles behind real estate syndication to serve as a basic reference and text. It is intended as an over-view of the functions of the syndicator and the place of syndication in the development and operation of real estate. It will acquaint the reader with the economic background and operation of syndication and leaves the discussion of the historical development of real estate syndication to other publications.

The book is written from the standpoint of real estate syndication in California, but the techniques described should be operable in other jurisdictions as well. Many of the principles relate not only to real estate syndication, but have broader application to the general field of syndicating or joint venturing other types of property and businesses.

The reader who intends to acquire an in-depth background may want to review the glossary before reading the chapters, so that he will have a thorough understanding of the terms used. In this edition the text has been expanded over prior editions. The reader who wants to review sample offering circulars and promotional material can get copies of same from any investment banking firm active in the solicitation and sale of limited partnership interests.