securities, real estate

1. CAPITAL FORMATION – A PRIMER ON
SECURITIES REGULATIONS AND FUND
FORMATION

2. Speaker
KEVIN KIM, ESQ.
Partner at Geraci LLP
Expert in Private Equity /
Debt Funds, Syndications
and Securitizations
Formation with primary
focus in the Real Estate
Finance sector.

3. INVESTOR CAPITAL
Common Misconceptions:
• Capital from “Friends & Family” ≠ Securities
• Less than 10 Investors ≠ Securities
• Promissory Notes and Warrants ≠
Securities

4. SECURITIES
Commonly Offered Investments:
- Equity
- Membership Interests
- Limited Partnership Interests
- Corporate Stock
- Debt
- Bonds, Debentures or Convertible Debt
- Participation Interests in Debt
- Borrower Payment Dependent Loans
- Other:
- Warrants & Options

5. SECURITIES
QUESTION: ARE THEY SECURITIES?
- Is there an expectation of profit / returns?
- Does this expectation arise from the efforts
of you the sponsor?
ANSWER: YES THEY ARE SECURITIES

6. RAISE CAPITAL CORRECTLY
RULE: Register or Find Exemption
- State Securities Exemptions
- Ex: California Corporations Code 25102(F)
- Federal Securities Exemptions
- Ex: Regulation D, Regulation A+, Regulation
CF,

7. SECURITIES EXEMPTIONS
INVESTORS IN
STATE
INVESTORS
MULTIPLE
STATES
ADVERTISE NO
ADVERTISE
ACCREDITED
INVESTORS
ONLY
NEED NON-
ACCREDITED
INVESTORS
State
Exemption
X Depends Depends X
Reg D
Rule 504
X Depends Depends X
Reg D
Rule 506B
X X X
Reg D
Rule 506C
X X X
Reg A+
Tier 1
X X X
Reg A+
Tier 2
X X X

8. VARIOUS MODELS
DEBT OFFERINGS
- Convertible Debt, Unsecured Notes, Participation Interests
- Borrower Payment Dependent Notes
EQUITY OFFERINGS
- Funds
- Syndications
- Securitizations

9. ABC FUND MANAGER,
ABC FUND, LLC
(owns Multiple /Pool
of Assets)
ABC MORTGAGE
FUND, LLC MEMBERS
(INVESTORS)
Manages Assets / Services/
Brokers Investments
Points, Management Fees
& Profit Split
Fund Structure

10. OTHER MODELS
DEBT OFFERINGS
- DEBENTURES: Unsecured Notes to Investors at structured
rates
- Trending Upwards in Private Lending
- Pro: Create your own Leverage. Earn Spread.
- Con: Lack of collateral; Typically lower rates of return for Investors
- HYPOTHECATIONS: Loan secured by Loan secured by Real Estate.
- Popular for those Lenders that want to hold onto paper, but reduce credit exposure
- Pro: Create your own Leverage. Earn Spread. Offer secured investment.
- Con: Hard to understand for less sophisticated investors. Not as conducive to
passive investors as Mortgage Fund Investment.

11. HYPOTHECATIONS
INVESTOR
Issues Note &
CSA
Issues Note &
Mortgage
Lender Distribute $$
to Investors
Borrower makes loan
payments to Lender
BORROWER
Hypothecation Package
1. Hypothecation Note
2. Assignment of Mortgage to Investor
(subject to CSA)
3. Collateral Security Agreement
(securitizing the Note & Mortgage)
LENDER

12. Securitizations

13. COMMON QUESTIONS
• ALL MY INVESTORS ARE ACCREDITED. I DON’T NEED
OFFERING DOCUMENTS DO I?
• MOST OF MY INVESTORS ARE FAMILY AND FRIENDS,
DO I REALLY NEED TO DEAL WITH THESE
FORMALITIES?
• CAN I OFFER MULTIPLE FUNDS AT ONCE?
• WHERE CAN I RAISE CAPITAL FOR MY INVESTMENT
VEHICLES?

14. COMMON MISTAKES
- “GENERAL SOLICITATION”
- SIDE DEALS / LETTERS WITHOUT ADEQUATE DISCLOSURE
- CUTTING CORNERS
- NEED FOR A TEAM: LEGAL (Lending & Securities) & ACCOUNTING
- INADEQUATE FLEXIBILITY IN BUSINESS MODEL
- DISREGARDING SECURITIES REGULATIONS
- BROKER DEALER REGULATIONS; INVESTMENT ADVISER ACT; INVESTMENT
COMPANY ACT, ETC.
- INADEQUATE PREPARATION / PROTECTIONS

15. FOR MORE INFORMATION
Kevin Kim
k.kim@geracillp.com
949-379-2600