Tilden Moschetti: The private
placement memorandum, also

called the PPM may be one of the
most daunting hurdle for

syndicators. Now, why is this?
Well, it's because they tend to

be really long, dense,
confusing, they repeat

themselves, but it actually
doesn't need to be that way. So

let's take all the mystery out
of it. Because if you're looking

online, it's probably confusing,
because the information you see

is either vague or most of the
time you see how it says

something about how you need
one, but just talk to a

syndication attorney.
Unfortunately, you're talking to

a syndication attorney right
now. But actually, obviously,

we're not really talking. So
what I'm saying is, take what

I'm saying here with a grain of
salt, because I'm being general

rather than specific. I don't
know your exact situation. But

what we'll discuss here, I think
will make it clear for you about

how to do a PPM, why to do a PPM
and the different ways to go

about it, and it'll get you
started in the right direction.

So let's first start with how
you can get it done. Basically,

I see three ways that
syndicators do this. So let's go

and get started with that.

So the first way that I see
syndicators try and get their

PPM done is well, many
syndicators, not my clients, but

many do. They just don't do a
PPM at all. Now, you may be

asking yourself what I thought
you said we needed one. Well,

actually, if the syndicator is
doing a 506c offering, then the

regulation actually doesn't
require it. Now 506b does in

506b, the regulation itself says
that the offering must be

compliant with all of another
section, section 502. But in

regulation 506c, only. It only
needs to be consistent with 502

as it relates to subpart 502a,
which talks about integration,

and 502d which limits the resale
of securities. That said my

advice is you do a PPM and we'll
talk about why that is in just a

little bit. The second way that
syndicators get their see their

ppm is done is they try and find
a template on the internet, or

they borrow a friend's and they
try and do a find replace or

something like that, and ends up
being this sort of weird

patchwork of a PPM. And there's
repetition and there's weird,

contradictory things. Trying to
go on the cheap is like trying

to find property insurance for a
commercial building from a guy

sitting on a bus bench. You're
not spending money in the right

kind of place. One roll of that
ppm is your insurance. We're

going to talk about that in just
a minute. But it is critical to

have it because the ppm is I've
seen from syndicators who try

and do it on the cheap. They're
making a really, really terrible

mistake, when the slightest hint
of trouble comes, they would

have been much better off not to
have had a PPM at all than to

have a bad one. Seriously, yeah,
if it's a 506 C offering, where

it doesn't technically need a
PPM, it wouldn't be better to

not have one at all than to have
some sort of really bad errors

that I have seen in some of
these templates. It just does

not behoove you to try and find
a template on the internet. Or

just try and do it. Cobble one
together. There are too many

times where I've seen trouble
happen as a result. The third

way to get a PPM done is to hire
a lawyer who regularly does

this. Does it have to be a
lawyer? Well, again, not using a

lawyer is kind of like going in
for surgery with someone who

isn't licensed to do medicine.
Is that a good idea? Now it's up

to you because you'd be paying
the price of things fall apart.

Okay, so let's take a step back.
Because I recognize this whole

section may seem a little bit
self serving. Full disclosure, I

am a lawyer who regularly writes
PBMs for my clients. Now my firm

does a great job and our fees
are oftentimes a little less

because we do so many PPS we're
just really efficient. But you

absolutely do not need to hire
us. Not that you did not sign

any agreements with my firm to
hot that you must hire us. It

doesn't exist. So there are
quite a few excellent firms out

there that do a very, very good
job with PPS, they care about

protecting their clients. And
they're certainly firms that you

should consider. There actually
is also a fourth way to get a

PPM done. And it's kind of
related. And I should mention

it. As part of the altitude
syndication founders club, we

give our members the tools to
build their own in detail, and

then work with me to make sure
that it is perfect. That way,

they get that as part of their
program, they get as part of

their membership. So there's
really no added cost for that

package, they end up with a
terrific ppm, or two of them or

five of them.

Alright, so now we've talked
about how to get the ppm is

done. Let's talk about why we do
a PPM. So the first there are

really three reasons why we do
ppm, and one of them is

absolutely critical. And the
other two are really, really

important on why you should
spend the time to do a PPM even

if you're doing a 506 C. Now,
the first reason that we do ppm

is we explain the operating
agreement in plain language that

gives investors a sense of
confidence about what is in this

crazy contract. That is an
operating agreement. We'll talk

about operating agreements in
the next module. But for a PPM,

it does the plain language
explanation of that operating

agreement. It talks about the
way voting works, it talks away

distributions work, it talks
about all those kinds of things.

But how what happens in capital
calls just in case that your

investor doesn't want to read a
very, very dense operating

agreement. So that's the first
reason is explain the operating

agreement in plain language. The
second reason we do one and this

one is the number one why it is
so critical to do what is a PPM

is your shield. A PPM gives your
disclosures, your disclaimers,

and identification of every risk
that you can possibly think of.

This is why you need to do it.
Because you don't want at the

end of the day to have an
investor come to you when

something's going a little
amiss, or they just need their

cash or something like that.
They're nitpicking about one

particular thing that they're
not very fond of, or they're

looking for reasons to get out
of it. Where they say to you,

Well, you never told me that.
Because if it's in the PPM, yet

told them that because as part
of their subscription agreement

that we'll also talk about in
our next module. It says they

got the PPM they reviewed the
PPM they had an opportunity to

discuss it with their lawyer. So
everything was this close

disclosure, disclosure,
disclosure, it is your shield

should anything happen? First
thing that's going to happen if

the SEC starts an investigation
is they're going to look into

what information was provided
with to the investor. And if it

becomes a he said she said
argument, the onus is going to

be on you to prove that the
investor is not telling the

truth. But it's in your PPM and
they've sworn that they've read

it. They've sworn that they've
read it, I mean, it's there. So

as far as the SEC is concerned,
you told them so definitely,

definitely do a five, do even
your 506 C's with a PPM. The

third reason to do a PPM and
this is hardly ever talked about

and I can't imagine why. And
it's apparent that nobody talks

about it because when you see
these VPNs so many of them are

not paying attention to this
third point. The third point is

a PPM is also a marketing tool.
The PBM is your opportunity to

show up and at the most critical
time. The investors already said

they're interested they've
already begun this conversation

with you. The next step for them
is to see the PPM this is an

opportunity for you to say I am
absolutely a professional I show

up like no one else. You can
trust me with your hard earned

money and you're likely to make
it back and a lot more. It is

your marketing material. So the
way that we show up with a with

a PPM is we have it looking good
We have it thorough, organized,

good content nicely printed,
just looks like something really

nice and quality. That's also
another reason why we don't just

use a template because that does
not say quality anywhere on it.

That's a duct tape. So

that's why so Third reason
marketing. First reason, again,

is to explain the operating
language and agreement in plain

language. Second, and most
critical is disclosures,

disclaimers and identification
of risk. And third reason is

that marketing reason. So let's
talk about some of the common

sections of a PPM just to kind
of give you a flavor of what all

goes in it. Now, first off, I
said that one of the most

important thing is that
identification of risks. So we

put all the risks of investment.
Now I actually put in my ppm is

I put this in two places, I put
it right at the front, right

after the cover page, I put a
big disclaimer about risks. It's

not very specific, but at least
calls out risk risk, risk, risk,

risk, review more risks inside,
because then the second part

place I put it is inside my PPM
further down, pretty much

somewhat near the end, but I
like to identify the risks.

Next, I like to summarize the
investment, I want to give kind

of an executive summary of what
that investment looks like. So

that a an investor who doesn't
have a lot of time can read it

really quick say, oh, yeah, this
was the deal where they're

buying for buildings, and it's
gonna be a seven year hold and

the expected return. Oh, yeah, I
remember talking about that. So

it just reminds them of it, and
gives them sort of just the

taste of it. So that way, they
can decide whether they want to

read more or not. It I like to
also talk about how the

investment functions. So I like
to go through, you know, who

manages it, who How are boats
done all those kinds of rules

that are in the operating
agreement. Remember, the first

reason that we do this to
explain the operating agreement

in plain language. It I want to
give as much like general

detail, but in a clearly spelled
out way about how it actually

functions and what those
different sections of the

operating agreement are. Now,
probably the most important

section of a PPM is
identification of the terms. And

what your investors really
looking for is distributions and

how they happen. So there's a
lot of terms that we put in the

term section, but the most one
that they always, always, always

turn to first is distributions
and how they happen. They want

to know when distributions are
happening, is it monthly,

quarterly annually? What does
that look like? They want to

know if it's a waterfall, what's
that waterflow file structure

look like? If it's a preferred
return? What's the preferred

return rate? And how does that
break down? Is it a hybrid

between those two? How's it
actually happen? Because they

want to know if I give this guy
$200,000? When am I getting

money? And how much money in Am
I Am I getting? They also want

to know about how just generally
the whole deal works. They want

to know, okay, if I give you the
$200,000, what happens next?

What do I have to do? So it's
clearly spelled out for them.

Another section that is
important in there, and this

relates more to marketing than
anything else is a section on

the company, the management and
the BIOS. So I like to use this

opportunity to really say, Hey,
I know how to syndicate I'm

experienced, I'm good at it.
Now, even if it's your first

deal, that's okay, you can still
use this section to really

promote yourself. You got
experience coming into this, if

you've been a real estate
professional for any period of

time, you have that, that
experience, this is your

opportunity to not brag, but
just put down what those facts

are, but who you are and why
somebody should trust you with

that money. What's your special
sauce, put it in your bio. So

it's really clear and it seems
like hey, you really are the

kind of person that that can run
the money well.

Then I like to go into detail on
risks. So I like to identify

different categories of risks.
First off, I like to talk about

general investment risks. You
know that it's a speculative and

the investor knows that they
there's a possibility that

they'll lose all their money.
Now, it may seem like as you're

doing this section or reading
this section that your lawyer

wrote, or whatever, that it's
way too negative, this is the

place to be negative, not being
negative, makes you look like an

amateur, being negative. And
being really, really specific

about every kind of risk you
could possibly imagine, makes

you look like a pro, if you go
into any hedge fund or any like

very large well known company,
stockbroker, or whatever,

they've got pages and pages and
pages of risks, that the

investors are used to seeing
investment professionals talk

about the risks of investment,
if it's not there, they're going

to be suspicious, and they
should be, I then like to go

into very specific risks that
are related to just real estate,

in general, real estate runs on
cycles, that there are different

sorts of there may be financing
on it, and that imposes certain

risks, I like to go through
those kinds of risks. Another

kind of risk, I like to category
that I like to go into is risks

related to tenants. So
specifically, if you have a if

you're doing an investment or a
syndication, where there's like,

say it's a single tenant triple
net, there is an inherent risks

that the that you are taking on
from the tenants business in

order to do your deal, right,
because they're relying on their

cash flow in order to pay you.
So I like to put that there. And

there's a couple other sections
that are always just sort of

they're a any kind of
syndication. So to be compliant

with Regulation D, you're not
really supposed to be doing

these kinds of deals, in order
to sell, you're not doing some

end run in order to basically
become a public company, that's

not really a public company,
investors aren't really supposed

to be able to just sell their
shares. In fact, most of the way

you will, if you end up pricing
it for something, it'll be

priced at a discount, and they
will lose money on that part. If

they need to get out sooner than
the investment term. I also like

to put my projections in here,
and I put a section in the body

of the PPM itself on
projections, just to make sure

they understand what I'm saying.
And again, this is another good

marketing opportunity for me.
Lastly, there are a bunch of

attachments that I like to make.
Now, typically, the words is the

number of pages in a PPM that I
put together, it's somewhere

around 50 to 60, depending on
the investment and now

complicated. If I'm doing
something super, super

complicated, it may be 70. I've
even done one that was 100

pages. But those are much, much
more complicated than probably

you'll be starting out with. So
but that's just the meat of it.

In my attachments section. Now
we're talking some real page

count here. Because first off, I
like to attach the operating

agreement, it's important that
it's part of the investment. My

whole theory on attachments is I
want to have something that is

so complete, and has everything
in it, that if there was ever a

complaint, and if there was ever
an investigation, I could give

the SEC and just say here, this
was what they said they got,

here's where they signed up on
their subscription agreement.

And here's the whole thing right
now, that has everything in it

that I told them. So I like the
operating agreement, the

subscription agreement, I like
to explain the verification

process. If there's a purchase
and sale agreement, I like to

include that as well. I like to
do at my business plan and any

marketing materials that I've
done. I like to include that as

well. I include details of my
projections. And if there's

leases already, I like to
include those to the reason

again, because I want them all
in one solid thing that I've got

that really shows it's complete.
It also looks to your investors,

like you've got your stuff
together. So hope that helped.

In the next module. We're going
to go and talk about the

operating agreement and the
subscription agreement, what

they are and how they are
constructed.