60 years of Capital Raising Wisdom with Sam Freshman

This episode features special guest Sam Freshman, longtime investor, syndicator and the author of “Principles of Real Estate Syndication” (more than 50,000 copies sold). What a treat for listeners, to be able to learn from one of the leading syndication experts in the country. We urge you to tune in so that you, too, can benefit from his wisdom.

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Edited transcript of the teleseminar, ‘60 Years Wisdom in Raising Money for Real Estate Investments’

With special guest Sam Freshman

Kim Lisa Taylor:

Good morning, everyone. This is Kim Lisa Taylor from Syndication Attorneys, PLLC. Welcome to our monthly teleseminar, where we give our callers the tools they need to be able to raise money from private investors legally, ethically, and profitably. All of our calls will be recorded and maybe used for future promotion, posted on our website, or broadcast in a podcast available to the public. If you don't wish to have your voice recorded, please schedule a one-on-one consultation instead of asking questions during the call. The information discussed during this brief teleconference is of a general educational nature and should not be construed as legal advice, which may only be sought after establishing an attorney-client relationship and consideration of your specific spec or questions. The attorney-client relationship does not begin until we have a fee agreement in place signed by all parties.

So today, we are extremely privileged to have our esteemed guest, Sam Freshman. I've known of Sam for years. He has written a very famous book called “Principles of Real Estate Syndication.” When I was first starting out as a securities attorney, I read Sam's book and I thought it was wonderful. I learned a lot from his book, a lot of really practical advice, information on deal structuring, raising money, just all different aspects of syndication. So I highly recommend that you read his books, too, and when you're done reading his book, if you get it from Amazon or even if you don't, go on Amazon and give him a review. This book has withstood the test of time and we don't mind at all helping him promote it because it's really good, solid advice.

Sam is also the retired Chairman Emeritus of Stanford Professionals in Real Estate, which is the official Real Estate Alumni Association of Stanford University. Additionally, I was looking at his resume the other day and I was pretty astonished to see that he has been an expert witness in about over 100 real estate litigation matters. Hopefully, you'll never need an expert witness but if you do, I would certainly call on Sam for his expertise if I ever needed somebody in that capacity. So, Sam, how are you doing today?

Sam Freshman:           

Doing fine.

Kim Lisa Taylor:

Welcome.

Sam Freshman:

Just ready to get going.

Kim Lisa Taylor:

Yeah. Welcome. Thank you so much for agreeing to do this call. I know you've been on some other calls and of course every interviewer, I'm sure, has their own take and what they'd like to learn from you so I encourage listeners to look Sam up on the internet and listen to some of his other recorded calls as well. He's just a wealth of knowledge and we're going to try to abstract a little bit of that today. So, Sam, can you just tell us how long have you been buying real estate?

Sam Freshman:

I've been buying and syndicating real estate for over 60 years. I graduated in 1957 from law school and I asked my dad what I should go in to and he said go into real estate, that's where all the money's made in California. So that's what I did and I practiced law and did that on the side until about 1982 when it got to the point where I was making in one year more money than I made in 25 years of practicing law and gave that up and switched over. I probably should've done it a lot sooner.

Kim Lisa Taylor:

Yeah. I have a saying there's no old syndication attorneys because we all watch our clients get very wealthy and then they jump ship. We should be doing what they're doing. All right. So how long have you been syndicating real estate with private investors?

Sam Freshman:

Well, I started out almost right away because of course in the beginning I didn't have too much capital. And after, I think maybe two or three properties, I started syndicating, then I discovered that syndicating was just carrying the leverage one step further. All you're doing in syndicating is leveraging the equity. We're all familiar with using debt for leverage and how that increases the percentage return on the equity. And after that, I think very seldom would I buy something without syndicating a portion of it so I keep capital free for the next deal. I've contended that capital that you have, the cash, you want to keep that going because the first question the investor asks you is how much of your own money are you putting into the deal. And if you're putting in a reasonable amount of money depending on the size of the deal ... A very large deal, it could be only five percent and a smaller deal may be 25 percent.

They get comfortable and that's 90 percent of the sale. More important than anything else is to be sure that when you're approaching private investors on a one-on-one basis that you have some skin in the game.

Kim Lisa Taylor:

So one of the things that I tell a lot of my clients is some of your skin in the game is all this money that you put at risk while you're putting up your earnest money deposits, you're doing your due diligence because if that deal doesn't close you're not getting that money back. And those are the costs you have to absorb up front out of your own money and so that's part of your skin in the game. So it's important that you don't put all your money into your deal so that you don't have any money to go forward into the next deal. Has that been your experience?

Sam Freshman:

Yeah. Although, if this is your first deal, you may have to do that. But after you get going, you want to keep as much liquidity as possible on your financial statement. And when you get enough on there that you can get a line of credit from the bank, then you know you've arrived. And the line of credit means that they'll lend you on your signature, not requiring a mortgage. That's very important because today the acquisition market is very competitive and the seller wants to know that you can perform. So our single most important asset is our line of credit because we can tell the seller the property, "Listen, you're concerned about our ability to pay, just call the bank and they'll tell you. They'll give us the money." And that's probably on the larger properties a necessity.

Kim Lisa Taylor:

Well, that makes a lot of sense. And I've seen several of my clients go through that process where they've started out and they were scraping together their own funds and maybe even credit cards or whatever they needed to do to get the deal to the table. And then after having done a few deals and made some money off those deals, then they all of a sudden are able to start sponsoring their own deals, they're able to get lines of credit that they don't have to keep using their own cash in order to get these deals to the closing table. But they're not using investor cash either because I always tell them, "You can't use your investor's money until you got a deal. And you don't have a deal until you're getting to closing. Anything before that is money at risk and that needs to be your risk or somebody within your management team has to be putting up that money." That's sage advice, I think.

Sam Freshman:

Right. One of the things you could do starting out, because I get this question all the time, "Well, how do I start? I don't have very much money," is to start out with a partner that is already in the business and has got all those other things that we were talking about. And maybe on your first three or four, you're sharing the sponsorship profits with someone that's already got that because the investor when they ask, they don't ask whether you personally have it in there, they're asking how much does the sponsor have. Let's say you have $50,000 but you know a guy who's got several hundred thousand (dollars), everybody's looking for a deal today. When I started out, there were lots of deals. I wouldn't look at anything less than a 10 cap but nobody had any money 60 years ago.

Today, there are very few deals that make sense, but everybody's got money. So if you're one of the few that doesn't just hook up with somebody that does enough that may help to grease the wheels to get started.

Kim Lisa Taylor:

That's good advice, too. And that's one of the things that I always try to get my clients to do, is if you don't have the money to get the deal to the closing table, partner with somebody that does and you're going to have to find somebody that can guarantee the loan even if it's a non-recourse loan; there's a carve-out that’s going to have to be guaranteed. So the bank always wants to have somebody with enough financial wherewithal that they could look to if the deal went south in certain instances. That's great advice to make sure that you're partnering with someone that has those skills. And also, experience. If you don't have experience, you've never done a deal before, partner with somebody who's done a deal before and leverage off their experience.

Sam Freshman:

Right. That's absolutely right. We've actually gone into once we got rolling, we've done a number of deals where we would come in simply to be the signature on a loan because the guy was able to raise the money from investors and their relatives but he didn't have much of a financial statement so to get over that loan signature he'd bring us in and we'd get a part of the promote for cosigning the loan.

Kim Lisa Taylor:

Mm-hmm (affirmative), yep. That's one of the keys. Few things that everybody needs when they're first starting out. All right. So do you have any idea how much money you've raised from private investors through syndication over the years?

Sam Freshman:

Well, I would say in terms of equity collectively — this doesn't mean that we have this now because of course we've bought, sold, and traded and we can talk about that a little later maybe in the discussion — but I would say collectively we've raised maybe a billion dollars of equity. Most of it in the last 10 years when prices were going through the roof, so to speak. Once you get going and get a track record, it's going to be a lot easier. The first deal's always the hardest.

Kim Lisa Taylor:

Right, right, yeah. I've always thought the first deal's the hardest, second deal is still challenging, by the third deal it's a lot easier, by the fourth deal and beyond it's not a problem. You've got people waiting. Although, I'll have to say that I still have some seasoned clients that have done six, seven, eight deals and they still have a hard time raising money. So I'm not sure what they need to do differently in order to be positioned, to be able to have a database of investors to call on, I guess. Would that be your suggestion?

Sam Freshman:

Well, part of it is psychology.

Kim Lisa Taylor:

Okay.

Sam Freshman:

We'll probably get to that as to how we bring the original investors in. One of the things is, like in any business, promise less and deliver more. So many new syndicators are so anxious that they'll overpromise on returns. If you promise somebody $110 and you only give them $100, then they're not very happy. And if you're substantially less, it could mean a lawsuit. On the other hand, let's say your projections are that you're going to make $110 and you promise them that you're give them $90 and then give them $110, you're a hero and they go out and tell everybody else. So I would say one of the biggest mistakes beginning syndicators make is they think it's necessary to make promises that may be a stretch to perform. It's really not today; everybody wants to buy real estate. We started originally years ago offering 10 percent; we could buy property at that, dropped it to eight, seven, and now our preference to the investors is five or six.

Kim Lisa Taylor:

Are you buying properties mostly in California?

Sam Freshman:

We don't find anything in California. Pretty much off our radar except for the places like San Joaquin Valley. Bakersfield, yes, Fresno, Stockton, Modesto, we have a big center in Modesto but as far as the major cities — San Diego, Los Angeles, San Francisco, Oakland area, Bay Area —  we're not buying anything in those markets. We're buying mostly right now in Nevada, in Colorado, I think you mentioned Tulsa's all right, we have property in Oklahoma. I've owned property in about 16 different states, 21 metropolitan areas. We started out in California but that again was 60 years ago, probably stopped looking at the major cities in California about 10 years ago.

Kim Lisa Taylor:

Mm-hmm (affirmative).

Sam Freshman:

They're in what we call the secondary markets.

Kim Lisa Taylor:

Right, right, yeah. I actually lived in California, San Diego area, and my husband and I moved because we wanted to syndicate and we were looking at properties clear on the other side of the country and finally said, "Why don't we just move there instead of keep flying there?" So that's why we went. That's how we ended up in Florida.

Well, so tell me about how did you get started? How did you meet investors? How did you develop a group of investors that you could call on when you had a deal?

Sam Freshman:

It was personal networking. That's been one of my hobbies from the beginning because, again, as a lawyer when I started you weren't allowed to advertise so you really had to perfect networking techniques. And so the same techniques — join organizations, join the men's club of your church, join in those days they had something called Junior Chamber in a lot of cities, I joined the Junior Chamber, and other special interest groups that were well established and had older people who had money and meet them. My wife would meet ... I started with young doctors because they were the only ones that had money where we lived that had been out, say a year or two, and were now making in those days they made a lot of money. And my wife, particularly when we had our first child, would meet them in the park and they'd take the kids in the stroller and we'd invite them over for a card game or something like that. And I would say probably half the money I raised in the beginning was from contemporaries but certain professions where they had excess cash.

And then of course, your professional advisors, your attorney, your accountant, and so on. They were also big sources, for me anyway, in the beginning.

Kim Lisa Taylor:

How did you meet …

Sam Freshman:

I never did any public advertising.

Kim Lisa Taylor:

Okay.

Sam Freshman:

I've never used a broker to raise money. It's all been personal contact.

Kim Lisa Taylor:

How did you get to know professional advisors? Did you go to their events or did you …

Sam Freshman:

Well, I would speak, for example, at the local CPA Society. I'd pick a topic they were interested in or I'd speak at the local bar association. I did a lot of public speaking and I wrote articles for the state bar and the local bar, the Beverly Hills bar. They both published magazines and I'd write articles. So I did a lot of writing of articles on unique subjects. I'd get a case and say, "Gee, nobody really knows much about this and now I've just spent a lot of time learning about it." I'd write articles about how to structure the deal from a tax standpoint as you're putting it together, how to maximize ... I called it “how to soft-dollar” syndication. How to position your expenses to get maximum early write-offs. I'd talk about the different kinds of deeds, most lawyers all they know is the major deed that's used, like in California it's called a grant deed and some states it's called a limited warranty deed. But there are other kinds of deeds as well. California, I think, there's about 11 different kinds and so I wrote an article about that.

And then when I'd run into lawyers at speaking engagements, they'd say, "Oh, I have your article on my desk. I keep it handy so I make sure I use the right deed." And it was not only how I got my investors but it was also how I built my law practice.

Kim Lisa Taylor:

Well, that's fantastic advice. I don't know about everybody else on the call but I've been taking notes like mad because I think these are things that all of us need to know. So thank you for sharing them. So when people ask you what you do, what do you say? Everybody learns that they're supposed to come up with some kind of an elevator pitch or magic statement or something like that, but if I met you at an event and said, "Sam, tell me what you do," what would you say?

Sam Freshman:

Well, I'd say I'm not in really the real estate business, I'm in the arithmetic business. The numbers either work or they don't. And it's not rocket science, it's fourth-grade arithmetic. That's my elevator speech and that usually gets them to ask me further questions, piques their interest. And that's true, that's what it is. You make your money not when you sell, you make your money when you buy. I've done maybe 120 deals over 60 years, I don't know sometimes when things are, the market is good three or four a year sometimes three or four years go by and I won't buy anything because the numbers just don't work. So that's what we tell them.

The second thing we tell them, and this gets back to the how much you promise, I lose a lot of possible investors because I believe in being very honest. You come to me and you say, "We heard about you, our neighbor invested with you or somebody else," or "we read your article in Think Realty magazine," by the way is something I recommend that everybody subscribe to, have great articles. Even I learn from them. And if you invest with me today and you ask me, "Where will you be with this property three years from now?" I tell them, "It'll very likely be worth less than we're paying for it now," because we're due for another recession. It's going to come. And they'll say, "When?" And I say, "If I could tell you that, I wouldn't be sitting here talking to you but I know it's sometime in the next three or four years." We'll have a major recession and property prices will drop. However, I've been through six major recessions and they always have recovered and gone way beyond what the property was worth before the recession started. And that's been the economic history of the United States.

We go through these cycles, particularly in real estate, but it always ends up being higher. So at the end of 10 years I can promise you — and go look at our track record — you'll double your money and you'll probably average about six percent cashflow as well. And that turns some of the people that are fix-and-flippers and so on off. They say, "Well, we can't wait that long." And then the other half say, "That's great. We're investing for our grandchildren, we're investing for our retirement, we're investing as a protection against inflation," which is I think the number one reason to buy real estate. All these are in the book that you referred to. And so that's how we sell the deal is to emphasize the long-range aspects of owning real estate and be pretty honest about the short-run aspects. It won't work on everybody but that's what we do.

Kim Lisa Taylor:

Yeah. And I like the fact that you're creating this expectation up front that we're not going to have a home run straight out the door where things are just going to escalate in price and you're going to be a millionaire off one deal. You've got to realize that the market is cyclical and it's going to go up and down and likely it's going to go down while we own it but if we hold onto it long enough it's going to come back up and be better than it was before and then we're all going to be able to profit from that. So knowing that and believing that we might be headed for a recession, what terms, what's the duration of a typical deal that you're doing in today's market?

Sam Freshman:

Well, I would say duration ... When I started, I bought and sold like most people do when they're starting out. I didn't really know, I'd buy something say for a million dollars and have it for four or five years and sell it for two million (dollars) and the investors thought I was a genius. Those buildings, which were mainly the downtown high-rise office buildings from the '20s in Los Angeles, are now worth $100 million. I would've been much better off if I'd never sold anything. Same with any house I ever bought. So after about 10 years, I started around 1960, so by 1970 I was looking back and saying, "God, I am really an idiot. I should've never sold any property I ever bought." So I stopped selling.

So we have some of the properties that we bought in the '70s and '80s, we still have. They keep going up. And others we would trade, we'd trade up but we never just sold out of real estate and distributed cash. So that's another thing. If you invest with us, you're going to get rich in 20 or 30 years, not tomorrow. We can show you the track record. It never fails but you have to have a lot of patience and know that you're there for the long-term. And that's the secret of our success anyway. Out of the 120 deals, maybe we had two that we lost, and those were more in the beginning, where we overbought. Today, you should not buy more than 60 percent or 65 percent even though the lenders often will give you up to 75 percent. But if a recession comes, those are the people that lose all of their investment, whereas those that have not over-leveraged get through the recession and up into the period where they're making a good return again.

Kim Lisa Taylor:

Well, so it sounds like people in today's market have to be really cautious; one, about over leveraging but two, also not getting caught into a short-term loan with a balloon note that's going to come due in five years.

Sam Freshman:

We never bought anything less than 10 and today we're buying 15- to 35-year loans. If you borrow high on an apartment project — it's not available on the shopping centers or commercial — but you can get 35 years. There are some problems with that which I don't think we have time to talk about today but I would recommend that if you can do that and have enough capital and lines of credit and so on that you can wait the nine months it takes to process the loan, go hot. Otherwise, look at an insurance company or the agencies, they'll fund it in about two months which gives you time and escrow to do this. But they're going long-term as well, they're going up to certainly a 15-year loan is very common and a 25- or 30-year loan is available today from most lenders. Now when there's a recession, don't drop to say a minimum of 10, but today long-term loans are not hard to get.

Kim Lisa Taylor:

Well, what about keeping your investors in a deal that long? Does there come a point where you're giving their money back?

Sam Freshman:

No, we don't do that. The answer, frankly, is if you're looking for your money back in 10 years, before 10 years are up, don't invest with us. We tell them that outright. Of course, we can afford to be a little bit uppity because we have a good pool of investors and we have a good track record. But we do have a reputation that if you run into trouble …you get a divorce or have a major financial reversal … we'll give you your money back during that 10 years but you're not going to make any profit. And long-term when we do trade up, let's say we got a property that now we've got our program is to get the property free and clear as quickly as we can, get the debt paid off. And as long as we can make the minimum preference, if we're doing well, we pay it off. When we go to renew, if we have a 10-year loan, contrary to what all our competitors do, they'll go and put a new … they'll raise the loan again and give everybody their money back because that's one of the ways they sell.

We don't do that. We'll only renew for the balance. Our goal is to get it paid off, then we can sleep at night and our investors sleep at night. Now we end up with a pool of investors that is probably at least 50 percent the grandchildren of our original investors. But we've got them well trained that this is a better way to go. We don't really have very much risk at all. So when we go to trade up, we give a chance to go out at the price that they would've gotten if we had sold for cash. Nobody has ever taken us up, they've all stuck with us and go on to the next deal.

Kim Lisa Taylor:

And when you say trade up, are you talking about say doing a 1031 exchange of one property for another?

Sam Freshman:

Yes, yeah. Let's say we start out with a $10 million property with a $6 million loan, we get the loan paid off, now we got $10 million so we're going to trade in to a $40 million property.

Kim Lisa Taylor:

Okay.

Sam Freshman:

And it's been 30 ... now remember, that doesn't happen tomorrow. That's a property going for 30 years or longer.

Kim Lisa Taylor:

Right, right.

Sam Freshman:

At that point and time, we show them what we could sell the property for and we say, "If you want out, after a three percent commission and some other closing expenses, we'll give you the cash." Because it's hard to find properties, in the $40 million range we buy outright anyway. So if they want the money, but I think maybe we've had, let's say of the several hundred people that might be the same person five times, of the several hundred transactions, individual investor transactions, maybe two people wanted their money back.

Kim Lisa Taylor:

So when you're structuring your deal, are you structuring it so when you're paying money back out of operations that money comes back to the investors as a return of capital or as a return on investment?

Sam Freshman:

The distributions are return on investment. The only returns of capital are if we sell a property for cash or we borrow money for some purpose. But if it's generated from the operation of the property, that's a distribution of operations. 

Kim Lisa Taylor:

So return on investment.

Sam Freshman:

They still have the same preference. Let's say somebody puts in $100,000 and we're paying 6 percent preference, that $6,000 does not reduce the 100. When we sell, they get the 100 back first even though we may have given them over 100 over the 10 years.

Kim Lisa Taylor:

Mm-hmm (affirmative). Right.

Sam Freshman:

Before we get anything, they have to get their preference. They have to get their six percent on an annual basis and if we don't get it this year then it goes to next ... If I didn't pay them the first year, then I'd have to pay them 12 percent the next year before I get anything. It's cumulative. The preference is cumulative. And this is the way most of them are done. The preference is, which you know from your drafting these things, preference is cumulative but we divide up, distinguish between the monies from the sale of assets and the money from sale of operations. Only the money from the sale of a portion of a property or an asset of the property, we reduce their preference on their capital.

Kim Lisa Taylor:

Right. Okay, yeah. That's pretty consistent with the way that we're structuring deals right now.

Sam Freshman:

I'd say that 90 percent of them are done that way, about 10 percent will say, "We'll give you all the cash flow but once you've got your original money back, then we're going to take 50 percent of the cash flow." But that's a minority position. We say, "You're going to get your preference, it's not going to be reduced. And we have to produce over the preference before we get anything," which is probably the way you do most of yours.

Kim Lisa Taylor:

Yeah, it is definitely the way that we do most of the deals. All right. Let's just say that you've met someone at a social event or one of these organizations that you've joined, how do you follow up with people that you've met?

Sam Freshman:

We have several ways we follow up. We keep a list but we really haven't looked at it very much lately because the market is very tight and we've got a group of people now who have been with us a long time so they get first preference. It'd have to be a big project before we'd put a new person in or somebody that's going to be a fairly big investor. But generally, we have a list and I get on the phone and I have a deal and I just call people down the line until it's full. So if I'm short a little bit, I'll borrow from the bank for a while and sometimes it may, particularly in the earlier days it would take me six months to raise all the money. I may have two-thirds of it when I closed but I might be a third short. So I'd either put it up myself or borrow it from the bank.

Now, we provide funds to other syndicators in our loan operations which we haven't talked about but that's another business that we developed over the years. So you just go down the list and that's it. When we give a talk, for securities of all purposes we can't when I'm giving a lecture or running a conference, I can't talk about specific investments. I can only talk about what we've done in the past. So I have to make a personal contact if I'm going to sell something, run an advertisement ... We don't advertise in any publications, maybe in our own newsletter we'll say we're looking at something somewhere but that only goes to our clients. We watch the security laws pretty closely on that. I don't know if I'm answering your question or not.

Kim Lisa Taylor:

Yeah, yeah. No, it's fantastic advice. Yeah.

Sam Freshman:

We have a newsletter which we do about three or four times a year just telling people what we've done and some of the things we may be looking at on some other, I would say it's about 40 percent promotion and maybe 60 percent educational, put articles in about buying property or managing property, something that we think our readers might be interested in, books to read. And we have a pretty good following on that. If somebody doesn't get it, they usually call us and complain, "We haven't gotten a newsletter in a while. When are you going to put one out?" So newsletters are one thing. We do an annual report which I think most of the successful syndicators of us do. We weren't doing it for a while and then I felt that people look forward to that where we go into some detail. We distribute four times a year, quarterly, but it'll just be a little one-page thing that'll go with it, a letter saying here's the money and here's a few things we did to the property.

But we give them a more detailed report every year with pictures and a little more jazz to it. And then we have the newsletter and then we have periodicals when we're raising money.

Kim Lisa Taylor:

Okay.

Sam Freshman:

Oh, and we do these conferences. But I would say as far as our existing investor base is concerned, which are primarily California residents and primarily from the Los Angeles area, we'll get maybe 20 percent of the attendance will be investors and 80 percent will be new people that have heard about it or read about it or something and come out. So the conferences don't really … I wouldn't say there's enough people come to those to say that produces a continuing contact. It's more the newsletters and the reports.

Kim Lisa Taylor:

And so these reports that you're sending out, are those just to the people that are investing with you or are you sending reports out to your database on the deals that you have?

Sam Freshman:

No. The reports themselves just go to the people who've invested. The newsletters go to the database. After 60 years, we've got, I think it's 11,000 or 12,000 names in the database. I have thought a number of times of converting it to just email because it doesn't cost anything to do that. We'd save maybe $20,000-$30,000 a year because each email costs us about five, six grand to do, but I find they don't read the email, they do read the paper. If we send them something in writing, I'll get comments from a lot of people. I'll meet them at a party or something later and they'll say, "Oh, you talked about this last month” or “That was a great article” or “I really appreciate getting the news." They never thank me for sending them an email.

Kim Lisa Taylor:

Okay. What's your worst experience or maybe the biggest mistake that you've made when dealing with investors?

Sam Freshman:

With investors?

Kim Lisa Taylor:

Yes.

Sam Freshman:

Well, there are occasions when you shouldn't take an investor. Right now we pull a lot of reports on them, we make sure that they're qualified, they have the million-dollar net worth or $200,000-a-year income. We require a statement from their accountant or their attorney or their banker. We've never had any problem with that but we've become much more careful with it because I guess we have more at stake now than we did originally. And we check them out criminally in some cases if they're major investors. How would I put it? We'll take somebody that's been in bankruptcy if they have a good reputation. In 2007, there were a lot of very good straightforward, honest people that went in the real estate business that got caught, they had over-leveraged or something else. This also applies in our lending business. We'll lend to somebody like that but we won't lend to anybody that has a criminal record or got in trouble with the SEC or that kind of thing. I don't care how rich they are.

They can be worth a couple hundred million dollars but if they've had something like that, a run in with the SEC or criminal record of some sort, that we pass because if something goes wrong, how can I explain to the investors if this happens to be a loan that we dealt with that person? On the other hand, a mistake in business, everybody makes mistakes in business. Even I lost two properties out of 120 in the early days. One of the things that I learned because of the two properties, they were the only two properties out of the 120 that I did not personally look at. I relied on other people. I was busy practicing, this was when I was practicing law. And I learned not to invest in anything that I didn't personally see. We have about 80 employees and a fairly big operation because we manage almost everything that we invest in ourselves.

When I was a partner with Northwestern Mutual, they insisted that they would invest with me if I'd put some of my money in. I didn't have to put in very much. But I had to assure them that I was going to run it myself. I never had any problem with any of those properties.

Kim Lisa Taylor:

Well, Sam, we're starting to run out of time because I've just been fascinated with your answers and we got a little bit off from our list of questions but I think the information that you've given is really something that we all need to take to heart when building our businesses. So maybe just really quick, do you have any quick words of advice for a new syndicator that's never raised money before? I think we maybe already covered that one a little bit.

Sam Freshman:

Yeah. I would summarize it by saying don't be anxious to sell no matter how very good the offer looks. You're making your profit when you buy, not when you sell. I'd say that's the most important thing. Be careful that you know who your investors are, that avoids a lot of problems when you may have problems and have to skip distributions for a while, which we have had. Some of our best properties get into trouble occasionally and it's a struggle maybe to pull them through. We've been fortunate that the market has recovered before we lost them. And some of our worst properties turn out to be our best in the long run. There's one other thing I always say, when you're buying a property, look for problems. If you don't find any, there's always something wrong with a property and the trick is to buy things that you believe you can solve the problems. If you see something that looks perfect, you just haven't done proper due diligence. I guess that would be the summary of my advice.

Kim Lisa Taylor:        

Right. That's great. Thank you so much. All right. Well, let's cover a little bit about what other services does your company currently offer that you might want to inform our audience about?

Sam Freshman:

Yeah. Of course, we buy property for long-term hold. We manage property, we don't advertise it but one of our clients will come and say, "I just bought this 700,000-square-foot mall in Oklahoma City which now has been converted into an office project for government agencies. Would you run it for us?", which we did for seven years. So we'll manage properties for our clients but we don't publish that part of our business. We don't consider ourselves to be in the third-party management business, but we do that on occasion. We lend money. It's called gap and bridge lending. Our private money, I call it soft-tied money, and those are short-term loans, one to five years to people that have good projects, have equity but can't get the bank for some reason right now. We'll be happy to lend out an empty building if we like it. It could be that they have to close in four weeks, the bank takes at least two months do a mortgage.

We do our appraisals, for example, post-closing in many cases because there isn't time to get a formal qualified appraisal. Been in it long enough that we trust their judgment. So lending is a fairly important part of our operation. And then we assist people, let's say they're going to sell a property, hopefully they haven't actually sold it but they've got a buyer and they only have 45 days to find an exchange and we'll look at our inventory that we're buying and sometimes we'll assist them by doing a tenancy-in-common with them or something like that. So those are our side businesses.

Kim Lisa Taylor:

Okay. And you said also that you buy properties. Are you actively looking for properties now?

Sam Freshman:

Yes. We're looking primarily for apartments on the west coast and strong value additives. We're buying a couple of empty office buildings right now in Tucson. I think Tucson is growing, that'll be the next Reno. We made a lot of money in Reno before the Tesla announcement. And we think Tucson, everybody wants to know where's the next market so I'll let them know. I don't think they're all going to rush there anyway.

Kim Lisa Taylor:

Now you're going to have a lot of competition.

Sam Freshman:

It's almost too late but we're buying some empty buildings there that we think are good possibilities. So it's mostly west coast and Midwest, we know Ohio, Michigan, Indiana, those states, well because that's where I'm from originally. That's where I grew up. And at one time, we were one of the largest property owners in central Ohio so we know that Midwest market as well.

Kim Lisa Taylor:

When you say multi-family, what size properties?

Sam Freshman:

200 units or more.

Kim Lisa Taylor:

Okay.

Sam Freshman:

Because we're not going to buy a Triple X even if it's in Beverly Hills, although we wouldn't buy in Beverly Hills right now where the cap rate's two percent. We like to see an original purchase of at least 200 units if we're going into a new community. We do mostly secondary markets. And as I said, like Reno or Vegas or Denver or Tulsa, they're not considered primary markets because the cap rates are a little better, maybe 100 to 150 basis points better than they are in the major metropolitan markets.

Kim Lisa Taylor:

And what kind of cap rates would something have to be?

Sam Freshman:

Well, I would say in apartments we're looking for five to six. We buy what we call B property, we're not buying the most expensive type property but the schools have to be good. School systems have to be top, the poverty level has to be low, the density we're buying on the apartment side, garden apartments which is no more than 20 units break or 22 units break. So that's what we call our asset test. Lots of parking, adequate parking, 1980 or later construction on the apartments. The office buildings could be 1920s buildings. But the apartments, we don't want to be earlier than 1980 because we want to avoid asbestos and other environmental problems, lead paint and things like that.

Kim Lisa Taylor:

Right, right. All right.

Sam Freshman:

We check this and if they want to get on the newsletter list, they should call Erin Collins or email her. It's ECollins@StandardManagement.com. If they have a property for sale, they should call Elliot Askari, our telephone number is 310-410-2300, ask for Elliot. Elliott Askari or Bill Schuman, 310-410-2300, if they have something for sale. They're in the acquisition department. Also, E. Collins if you have a loan request, same number.

Kim Lisa Taylor:

So you said that you're looking to buy; do you also do partnering or sponsoring of other people's deals? If someone brings you a deal, will you let them stay in it?

Sam Freshman:

Yes. They should have ... We won't do anything where we're a minority partner. And usually we're only interested in properties where we're going to manage them ourselves, but we'll go up to 50 percent, in other words, or more if we like the property. Most of the joint ventures we do are 50/50 and we'll raise half the fund and there's a couple companies that we co-sponsor with and they'll raise half the money. We have one that we work with, they raise most of their money in China. We get all our money locally. But they'll raise half the money and we'll raise half the money. And on the loans, we can go ... Our loans … a million dollars up to about $50 million. We can't really afford to do anything under a million and we prefer, let's say, five million or more up to about 15, then we can respond very quickly. Over 50, we can go higher because we have people that will go in with us, but it will take a little more time. I can't do, say, a $100 million deal in two weeks or three weeks. I'm going to need more time than that.

Kim Lisa Taylor:

Well, Sam, this has just been fantastic. Normally, to our audience, we do go to Question & Answers after the call but I think we've run out of our time just because the information that Sam had to impart was just so valuable. You now have his contact information if you need to reach him. If you would like to reach us, please go to our website at syndicationattorneys.com, just want to point out that under the Resources tab there are many, many articles, there's recordings of these teleseminars for the last 14 months, a lot of frequently asked questions about syndication where you can go and get educated. Read Sam's book and after you're done reading it, make sure you give him a review on Amazon. We love the book and it's been helpful for us. I think it'll be helpful for all of you. And if you need to call our office or you'd like to call our office, you can call 844-SYNDIC8, S-Y-N-D-I-C and the number eight.

Also, on the website, you can schedule an appointment directly with us. So thank you, everybody, for being on the call today. Thank you so much, Sam, for being our esteemed guest. Your information is invaluable to our clients and I know this is going to get a lot of listens probably for many, many years. So thank you everybody for joining us today and we'll look forward to seeing you next time.

Sam Freshman:

Thank you. I appreciate it.

Kim Lisa Taylor:

Thank you.

Sam Freshman:

Enjoyed it.