Time for some proper due diligence/ independent auditing in our communities

[knowitall]

If someone were to take money from LPs for a fund. And flip the contracts to the fund and take a million or two out at closing for themselves, you would say that is ok?

Of course not! He took money from investors who are trusting him to find deals, and negotiate the best possible purchase price.

But that’s not how syndications work. In a typical syndication, he finds a deal, then figures out how to structure the debt, equity, terms, etc. He has no responsibility to investors until he takes their money. So often syndicators will say “If investors will still go for this deal with a 30M purchase price, let me flip it and we’ll get investors at the 30M price. Investors will see 30M and get 30M.

Again, I don’t like this, I hate when those that take OPM aren’t transparent, but I don’t know if we can call this “stealing from investors”.

P.S.- a syndicator once told me “The good deals I keep for myself. The bad ones I syndicate”🤣🤣🤣

[SPOOGER]

Yes- contract flipping, self-brokerage, etc are VERY common.
Though there’s an argument to be made that if investors are ok going into the deal with a 30M purchase price, does the syndicator need to tell them that he really got the deal for 29M?

(I’m not addressing the legal side, and what constitutes loan fraud.)

The question is why would you NOT just tell investors about the previous flip. I can’t say specificity why it’s not disclosed. But there is deliberate concealment of these facts. If I had to guess the reason it’s because investors would be wary of this deal. If that’s the case how can you conceal information that can affect the investors decision.
 Another point is. When someone pockets money on the deal the person has “negios” something he shud disclose

[shlomoandtam]

https://forums.dansdeals.com/index.php?topic=16578.msg2779027#msg2779027

[DaasTora]

New scandal brewing in Brooklyn. Involving art “investments”………..

[yawn]

New scandal brewing in Brooklyn. Involving art “investments”………..

Is it this?
https://www.imamother.com/forum/viewtopic.php?t=541294

[jye]

Is it this?
https://www.imamother.com/forum/viewtopic.php?t=541294

Maybe you can merge the two threads and take shadchanus.

[lcm]

Maybe you can merge the two threads and take shadchanus.

That's not where most of the ddf wives go?

[dealfinder11]

By the H3 conference (in Chicago) this past Thursday, R Ari Marburger, a dayan in Beis Din Meisharim in Lakewood made a passionate call to action to the attendees to create some standardized requirements for any investments in our communities. In his words "We have the rabbanim, the askanim, the syndicators, and the investors all here".  Let's see if something materializes

[jye]

By the H3 conference (in Chicago) this past Thursday, R Ari Marburger, a dayan in Beis Din Meisharim in Lakewood made a passionate call to action to the attendees to create some standardized requirements for any investments in our communities. In his words "We have the rabbanim, the askanim, the syndicators, and the investors all here".  Let's see if something materializes

I imagine it’s kind of like the tznius asifos. The ones that are eager to attend often aren’t the ones who need to hear it, and the ones need to hear it aren’t the ones who attend.

[thaber]

I’m on the fence with this one, hence why I wrote “There’s an argument”, not “I think it’s ok”.
I generally dislike shady tactics like this, as I want to see transparency, but I do hear the syndicator’s argument why it’s ok.

We aren’t reffering to a fund model, where you are giving a syndicator your money, then he needs to go find the best place for it. Deals are typically done standalone, with the syndicator finding the deal, structuring it, then raising equity for it. If a syndicator presents numbers to investors, and they like them, they don’t need to know the numbers could have been better.

Again, I’m not saying I think it’s ok, just spelling out the argument.

Let me repeat, I dislike this type of syndicator who isn’t being transparent.

But I am not discussing a case where the syndicator found some deferred maintenance during DD and negotiated a seller credit that he kept for himself. Of course there’s no justification for that. What we are discussing is a case where he flipped the contract to himself or a JV between him and another partner and he’s keeping the spread. He will still do the same DD and if he can get a seller credit, that would flow through to the deal.

As a real estate professional, Unless fully and clearly disclosed (meaning telling your investors that you are pocketing 1mm on the acquisition) this is outright geneiva and illegal.
You work for your investors, and get them the best deal and the best vendors and the best prices on everything. That's your job. And anyone who doesn't feel that way should not be syndicating or touching OPM

[dealfinder11]

I imagine it’s kind of like the tznius asifos. The ones that are eager to attend often aren’t the ones who need to hear it, and the ones need to hear it aren’t the ones who attend.

This wasn't an asifa for fraud prevention. There is a ton of gray area in these deals. You don't need the "bad actors" to be on board for these measures to have a positive effect on raising the standards. There was no lack of incredibly influential business leaders at the H3 Summit. Sorry i don't see the analogy whatsoever.

Regardless, time will tell. Obviously its going to be challenging to get done.

[jye]

This wasn't an asifa for fraud prevention. There is a ton of gray area in these deals. You don't need the "bad actors" to be on board for these measures to have a positive effect on raising the standards. There was no lack of incredibly influential business leaders at the H3 Summit. Sorry i don't see the analogy whatsoever.

Regardless, time will tell. Obviously its going to be challenging to get done.

IME the ones who run to a Rav before every deal to review any ribbis angles, are מוותר משלהם whenever there is a ספק, have firm personal integrity and a value system that values their integrity even when it costs them big time, are generally the ones where you won’t find problematic gray areas that can bite investors. There are some exceptions but there usually a profile that matches up with major gray areas coming out later. It’s not simply an issue of a lack of halachic guidance by the rabbanim.

[AsherO]

IME the ones who run to a Rav before every deal to review any ribbis angles, are מוותר משלהם whenever there is a ספק, have firm personal integrity and a value system that values their integrity even when it costs them big time, are generally the ones where you won’t find problematic gray areas that can bite investors. There are some exceptions but there usually a profile that matches up with major gray areas coming out later. It’s not simply an issue of a lack of halachic guidance by the rabbanim.

כך היא אומנותו של יצר הרע, היום אומר לו עשה כך, ומחר אומר לו עשה כך, עד שאומר לו עבוד עבודה זרה

[dealfinder11]

IME the ones who run to a Rav before every deal to review any ribbis angles, are מוותר משלהם whenever there is a ספק, have firm personal integrity and a value system that values their integrity even when it costs them big time, are generally the ones where you won’t find problematic gray areas that can bite investors. There are some exceptions but there usually a profile that matches up with major gray areas coming out later. It’s not simply an issue of a lack of halachic guidance by the rabbanim.

Ok I guess I wasn't clear enough regarding the specific "call to action". This was not a halachic CTA. This was a communal one. Rabbi Marburger, unfortunately, deals with all the Dinei Torah when deals go south and a lot of the problems stem from the lack of basic due diligence as well as inconsistency in fee structures. Some deliberately so, some just sloppy. The request was to create some standardized list of requirements and standards that the syndicators would have to abide by, and that investors should demand before investing in the deals. At least that's how I understood it.

The premise was that we see Chazal gave more leniency to demand a "shavuos shutfim" than in almost any other area. In other words, chazal was sensitive to transparency is investing.

[knowitall]

From my vantage point, I see RE syndications that come from out of our community as well. Often those OMs have a section that clearly lays out all the fees the GP is charging. I’ve never seen that in our circles.

I don’t know which “best practices” R’ Marburger has in mind. I can imagine many honest and straight syndicators wouldn’t agree to many conditions, such as splitting depreciation Pari passu.

What I propose is as follows: A standardized operating agreement template.
Each syndicator would be free to choose which fees/promotes/structures he wants, but the first page would clearly show investors what’s being charged.

I’d also suggest LPs push hard for a list of all LP email addresses to be sent to each other, if they choose to be included. (You can use a burner email too.) This way if the deal goes sideways, LPs can easily group together to protect their interests.

[jye]

From my vantage point, I see RE syndications that come from out of our community as well. Often those OMs have a section that clearly lays out all the fees the GP is charging. I’ve never seen that in our circles.

I don’t know which “best practices” R’ Marburger has in mind. I can imagine many honest and straight syndicators wouldn’t agree to many conditions, such as splitting depreciation Pari passu.

What I propose is as follows: A standardized operating agreement template.
Each syndicator would be free to choose which fees/promotes/structures he wants, but the first page would clearly show investors what’s being charged.

I’d also suggest LPs push hard for a list of all LP email addresses to be sent to each other, if they choose to be included. (You can use a burner email too.) This way if the deal goes sideways, LPs can easily group together to protect their interests.

Probably aspirational, but it would be a fantastic idea. Some sort of disclosure page or pages with boxes to check with an unambiguous yes or no and numbers to fill in on a beis din template that all rabbanim insist on before signing off on any agreement/ heter iska etc. Perhaps it could be followed by a definitions page and a page highlighting typical structures, and some average ballpark numbers for reference, since so many frum investors tend to be an unaccredited ,SEC or not, or at least unexperienced. To many of them a waterfall means Niagara Falls.

[dealfinder11]

I don’t know which “best practices” R’ Marburger has in mind. I can imagine many honest and straight syndicators wouldn’t agree to many conditions, such as splitting depreciation Pari passu.

True. The adaptation would have to be as a result of a precondition of any investors potential investors.

[thaber]

From my vantage point, I see RE syndications that come from out of our community as well. Often those OMs have a section that clearly lays out all the fees the GP is charging. I’ve never seen that in our circles.

I don’t know which “best practices” R’ Marburger has in mind. I can imagine many honest and straight syndicators wouldn’t agree to many conditions, such as splitting depreciation Pari passu.

What I propose is as follows: A standardized operating agreement template.
Each syndicator would be free to choose which fees/promotes/structures he wants, but the first page would clearly show investors what’s being charged.

I’d also suggest LPs push hard for a list of all LP email addresses to be sent to each other, if they choose to be included. (You can use a burner email too.) This way if the deal goes sideways, LPs can easily group together to protect their interests.

+1 on the whole thing.
I would be happy to get behind this

[gozalim]

Probably a few guys in this thread could put together that template. Once it exists it can be fwded to some of these rabonim, who can offer it/push it

[jye]

A good read

https://lplessons.substack.com/p/top-15-syndication-mistakes