Bad Real Estate Deals Stay Bad: Securities Attorney Explains Syndication Risk

Steve Rinaldi (00:00)
best inspirational topic I can give anybody, and this is probably what you say all the time, is a bad deal is a bad deal. Right. If you’re getting into the syndications business, you own a few homes and now you run up to the multifamily, check out that building. Look at what needs to be repaired. Look at the vacancy rate. The most successful syndicators and most of my clients, they always buy properties that are renting a little below market value.

When the vacancy comes in that unit, they fix it up and they get it up to market value or even a little above.

Quentin (02:06)
Hello everyone. Welcome to the Real Estate Pros podcast. I am your host Q Edmonds and I’m excited to be here today. I have another fantastic guest. Listen, many years in this field knows exactly what he’s doing. So we don’t have a novice here. We have someone that know how to navigate the space that he’s in. So I’m going to him tell you all about it, but I’m so excited to introduce you all to Mr. Steve Rinaldi. Mr. Steve, how you doing today, sir?

Steve Rinaldi (02:11)
Okay. uh

Very, very good. Thank you for having me on the show, Quentin.

Quentin (02:37)
Absolutely, man. Well, I’m so glad that you’re here. And Steve, I’m the type, I like to dive right in. So I would love for you to tell the people, what’s your main focus these days? If you don’t mind, give them a little origin story, kind of how you got into the space that you’re in. And then let them know what part of the world you’re in. If y’all can see this big old smile, should kind of let you know, y’all know I get a little really happy when people are close to me. So again, Mr. Steve, tell them.

Steve Rinaldi (02:44)
Okay.

you

Okay.

Quentin (03:03)
what you’re up to, your origin story and where you are. Sir, you have the floor.

Steve Rinaldi (03:07)
Great.

I’m Steve Rinaldi and I am a business attorney. And one of the primary things I do is private offerings of securities, of which I’ve been handling now for my gosh, 37 years. I’ve had all types of private offerings from real estate syndications, app offerings, oil and gas.

one restaurant, above all things, startup drug companies. So I’m very, very familiar with the private offering space and I love to handle clients in that area. It’s like really almost my sweet spot.

Quentin (03:47)
get into it man? How did you get into becoming, know, into law and the private office space? Yeah.

Steve Rinaldi (03:54)
Just kind of a backwards way, I interviewed for my first job and I was interviewed by people who were litigators and lobbyists and they wanted nothing to do with business transactions. So they said, here, you want to be our transactional attorney because we always get these agreements and we don’t want to spend our time handling them. Yet somebody’s got them. I said, OK, I’ll do it. Came down to DC.

Quentin (04:05)
Yeah.

Steve Rinaldi (04:18)
Wanted be with my fiancee, we were going to get married. I was looking for job. I yep, I’ll do that gladly with a smile. And I loved it.

Quentin (04:26)
definitely thank you for letting me know where you are, kind of how you got into this space. And I heard you’re in a private offering space. We love being in this space. mean, interview for your first job. And Libby is like, we really don’t want to do this transaction. So they kind of like pondered it off on you. Like, here you go. You take this space.

Steve Rinaldi (04:30)
Mm-hmm.

You had found it off on me, exactly.

Quentin (04:47)
And he was going to get married, know, had a fiance at the time. So this is kind of how you kind of got into this space.

that’s kind of like the journey that led to where you are now. And so Steve, I always like to say destiny has no wasted moments. You know, meaning, you know, what we go through in life, the road kind of leads us to where we are now. And we’re building on the moments. And we learn from our lessons. We learn from our losses. So for you, the road, the journey.

Steve Rinaldi (05:42)
Yeah. ⁓

Quentin (06:03)
What has it taught you about yourself? Has it revealed discipline, resilience? What has it taught you about you,

Steve Rinaldi (06:09)
⁓ Probably a combination of three things. Do what you like. And obviously the Congress said don’t do what you don’t like and aren’t good at. As they say in the law firm world, do not practice buck law or door law. Don’t handle everything that comes in the door. There are plenty of other solo attorneys, plenty of other solo and small firm attorneys out there I make referrals to outside of my area.

Quentin (06:17)
Yeah.

Hmm.

Steve Rinaldi (06:34)
Classic example of that. I had a client doing a syndication in Memphis, Tennessee. Okay. I’m setting up the Delaware LLC, writing the operating agreement, writing the prospectus and filing the form D. I got a local real estate attorney to do the title, the survey, the purchase and sale agreement, and the local Tennessee LLC that was going to be owned by the Delaware LLC. The investor money went to the Delaware LLC.

Perfect. He loved doing that and I love doing this. And the thing went off without a hitch.

Quentin (07:05)
Yeah,

Steve Rinaldi (07:08)
So don’t

do what you’re not good at, do what you’re good at, and clients will love you for it. That’s the first thing. The second is be resilient because I’ve had long-term clients for 20 years. I’ve had many long-term clients for 20 years, but there are some people who come and go and come and go and come and go. So you gotta always be out there marketing and promoting and looking for more.

Quentin (07:33)
Yeah,

Steve Rinaldi (07:35)
that that’s

the marketing and persistence side and the resilience side is you’re going to have setbacks. You’re going to have a negative month or two. Keep going, look for where else you can grow and what you can learn and push forward.

Quentin (07:40)
Yeah.

Yeah, yeah. I love it, man. Again, let me thank you for answering that question with so much reflection and really awareness. Because I asked that question because I want people to kind of be aware of why they do what they do. And sometimes you look back and just take inventory on how you got to where you are. I love the fact that you talk about, I’m kind of synthesizing like this, stand in your lane.

Steve Rinaldi (08:08)
Mm-hmm.

Quentin (08:14)
You know, not doing anything that’s kind of outside of what you want to do outside of your expertise, not outside of what you have already built yourself up to do. And so I love that, you know, knowing your lane, knowing your space. Steve, one of my mentors told me when you know who you are, you know what to do. And so like, you know where your sweet spot is when you know what makes you good. Not trying to do something outside of that is sometimes a very, very brilliant thing.

Steve Rinaldi (08:14)
Yeah.

Mm-hmm.

Quentin (08:43)
And so I appreciate you saying, know, synthesizing that thought. Now, adversity finds everybody within business. So how does adversity look in your world and what have you done when it showed his head?

Steve Rinaldi (08:51)
you

Well, adversity will look like all of a sudden, no clients coming in that month. I meet my expenses, I’ve never gone negative, but say no distribution that month. That’s adversity. That’s why you always got to be out there, marketing and advertising, et cetera, because you’ll always be getting new people in your pipeline.

Quentin (09:03)
Yeah. Yeah. Yeah. Yeah. Yeah.

Absolutely. So what’s next for you in the practice? Like, what are your next real goals?

Steve Rinaldi (09:21)
What’s next for

me? Well, just finished closing a private hedge fund. I filed a Form D last week, so that’s all closed. What’s next is probably, if you look at the statistics, you’re going to see more and more private fund formation. It used to be years ago, when I established my own firm, started doing syndications. It was one-offs.

Quentin (09:47)
Yeah.

Steve Rinaldi (09:48)
I’m buying

this property for 2 million. The bank has given, the lender’s given me a loan for 1.2. I got to raise 800,000.

And the cost of the 2 million acquisition included repairs. Say it was 1.7 for the property and 300,000 for repairs. That was very typical. Now I’m encountering much more fund issues. People want to establish a fund so they have cash to deploy right away.

rather than sitting around waiting for the investor money to come in and even having any investor contingency in their purchase and sale agreement when they’re going to buy it.

The challenge is if you’re doing private funds, okay, it’s a different game from a regular syndication.

You don’t have just three areas of securities law to worry about. Typically in a syndication, it’s like, okay, I don’t want it to be a public offering on the federal level. I’m going to go rule 506B or rule 506C. Either I stick to 35 unaccredited investors or I just limit it to accredited. I’m offering the securities myself. I’m not using a broker dealer. So there’s no exchange act question. That’s your typical syndication.

Well, in a private fund, you’ve got, I don’t want to be a mutual fund. Where’s my exemption? And the big takeaway for some listeners who are moving from the syndication space to the fund space, it’s called 3C1. If you have fewer than 100 people, you do not have to file with the SEC as a registered investment company. You stay within the three. So, so far, so good. The kicker though is,

Quentin (11:44)
Mmm.

Steve Rinaldi (11:49)
If you look at a typical structure with the waterfall, cetera, maybe your investors get 100 % of the first 7%. And the remainder is split maybe 70-30 between the investor and the managing member, or maybe it’s 60-40, maybe it’s 80-20, whatever. But the point is that managing member is getting a performance fee. Wow. If you want to take a performance fee from a private fund,

You are limited to soliciting from qualified clients only. And those are people who have 1.4 million left over after the investment or 2.7 million total in investments with you, or available to deploy in investments, including cash. So it’s a higher standard than accredited investors. So you have to be very careful on the fund formation issues.

Quentin (12:29)
Mm.

Yeah, yeah.

Steve Rinaldi (12:39)
I just looked at the statistics for the podcast and it used to be years ago, most of the regulation defilings were one-off, organizational filing, you typical syndication. Now private funds outnumber that.

Quentin (12:53)
Good stats, Steve.

Steve Rinaldi (12:55)
So

you got some people out there listening who are syndicators and looking to move into the fund space. And hopefully there are the listeners who just, they’ve been fixing flippers or they own 10 properties and now they’re looking to get into the multifamily through syndication.

Quentin (13:03)
Yeah.

Yeah, yeah, man.

Steve Rinaldi (13:13)
that there’s big takeaways for the people who want to go into private fund space.

Quentin (13:17)
Yeah, yeah. Man, good stats, man. I love it. I think you just gave people just some good nuggets right there. Now, I know earlier you mentioned, you you teamed up with a real estate lawyer. Obviously, you have clients. So I want to get your perspective on the word relationship. When you hear the word relationship, what comes to mind to you,

Steve Rinaldi (13:26)
you

Yep.

Being able to deliver quickly and accurately and within the budget. I work on a flat fee basis. When I take, when I do client intake, say, this is what’s going to cost for the Delaware LLC and the qualified as a foreign LLC. This is what the operating agreement is going to cost. This is what the prospectus is going to cost. This is what your subscription agreement is going to cost. And this is what the form D is going to cost. I don’t exceed that unless you want additional services.

She said, well, I like that property and going forward on that, no, do a syndication on another. Well, that’s another retainer agreement.

Quentin (14:06)
Man.

Steve Rinaldi (14:07)
So that’s if you deliver,

you know, you deliver the first draft and everything within three weeks, you deliver on budget, you always pick up your calls. mean, is a crazy statistic. One of the most common, if not the most common actions against lawyers for malpractice is the lawyer didn’t return my calls. Always pick up your calls. I don’t know the accountant statistics or the other financial professional statistics, but.

That’s a general takeaway in life. Because you don’t know. don’t know. I never returned my calls and all of a sudden, Maryland’s a small state. If I return somebody’s calls, 50 other people know about it within a week. So that’s no fun.

Quentin (14:46)
So that’s definitely one point of relationships is returning the call, communication. Returning the person call. And like you said, that leads to other things. ⁓ man, that’s, yeah, I did not know that

So thank you for sharing.

Steve Rinaldi (15:39)
Yeah,

if you return the person’s calls, you do the work accurately, you stay within budget, people talk. say, hey, this guy did a great job on this. A lot of people who are getting into the syndication business, their regular attorney does not practice in securities area. They’re looking around for a securities attorney for the first time. And they talk to other syndicators. What do you use?

Quentin (16:01)
Mr. Steve, man, you have given us some great nuggets. Listen, is there any topic that I have not brought up that you would like to bring up? Let’s say if you had some other words of inspiration, education, motivation, or maybe if you came in with something on your mind. I just want to make sure I create space for you to be able to land that message.

Steve Rinaldi (16:09)
Bye.

best inspirational topic I can give anybody, and this is probably what you say all the time, is a bad deal is a bad deal. Right. If you’re getting into the syndications business, you own a few homes and now you run up to the multifamily, check out that building. Look at what needs to be repaired. Look at the vacancy rate. The most successful syndicators and most of my clients, they always buy properties that are renting a little below market value.

When the vacancy comes in that unit, they fix it up and they get it up to market value or even a little above.

They look for multi-family properties that are near major employment centers and stable employment centers like hospitals. Nurses, interns, and residents got to live somewhere and they like to be within a couple miles of the hospital. Every syndication I’ve ever handled that was in near a couple miles of the hospital, the syndicator did fantastic.

everyone that was below value that needed a fix up but it was located in a good location. Fantastic.

Bad deals, just nope, not interested. There are plenty of local commercial real estate brokers who just tell them it’s a bad deal. What else do you have? They’ll take you around and around and around until they find something because hey, it’s their commission. Now they’re not gonna kick you out the door.

Quentin (17:30)
Right.

Steve Rinaldi (17:30)
Just be specific to say I want near a major employment center. Definitely.

Quentin (17:36)
Again, yes sir. Again, Steve, great nuggets, man. Great information. So I appreciate you sharing today, Listen, if someone wanted to reach out to you, connect with you, collaborate with you, learn more about what you’re doing, how can they get in contact with you?

Steve Rinaldi (17:36)
That’s what seems to work.

Oh, there are two ways. can come, three ways. You can go on my website, stevenrinaldilaw.com. That’s S-T-E-V-E-N R-I-N-A-L-D-I law.com. They can call my phone number directly, 240-481-2706. And I always pick up or they can email it at S-T-E-V-E-N-D.

R-I-N-A-L-D-I at MSN.com ([email protected]).

Quentin (18:20)
Well, listen, sir, I want to say three things to you. First, thank you for your time, because your time is your most precious commodity. And as lawyers, you get paid for your time, right? So thank you. Thank you for your time. And Mr. Steve, don’t send us no invoice, man, because I’ll obviously… Yeah. Yeah. Yeah. Yeah. Well, definitely, thank you for your time, sir. Secondly, thank you for your story, man. Thank you for coming on and talking about what you do so eloquently.

Steve Rinaldi (18:30)
Yes.

Nah, it’s gross. The most important thing is I can give people an education.

Thanks

Quentin (18:50)
because I know

Steve Rinaldi (18:50)
for

Quentin (18:51)
you planted seeds that’s really going to help people that literally can change somebody’s course, like literally. So thank you for that. And man, thank you for your mindset, for the way you think. I mean, those years of you had 37 years, 21 years, your process, your mindset. Thank you for bringing that mindset to this platform. I appreciate you coming on, sir.

Steve Rinaldi (18:54)
Thank you.

Thank you very much. I appreciate your time, Quentin. Have a great rest of the day.

Quentin (19:13)
Absolutely. Well, listen.

you too, man. Well, listen. Y’all heard Mr. Steve. His information is in the show notes. Get in contact with him. But definitely make sure you’re subscribed here, because we’re going to keep bringing up amazing people just like Mr. Steve. So sir, I say thank you again. And everyone else, y’all have a fantastic day.