REAL ESTATE (FINANCE) | Marc Cunningham LLC

Real Estate (Finance)

Consultation regarding the use of Qualified Opportunity Funds (QOFs) to allow venture capitalists to defer and reduce their capital gains tax burden by reinvesting capital gains in startup businesses located within a Qualified Opportunity Zone (QOZ)that meet the definition of a Qualified Opportunity Zone Business (QOZB).

Familiarity with qualified opportunity funds (QOFs) – tax-advantaged investment vehicles created by the Tax Cuts and Jobs Act (TCJA), which added Section 1400Z-2 to the Internal Revenue Code (IRC), through which if an investor reinvests capital gains resulting from the sale of a broad spectrum of capital assets – including aircraft, art, automobiles, bonds, collectibles, digital assets such as Bitcoin, equipment, intellectual property, real estate, stocks – into a QOF within 180 days after the capital gains are realized, such investor can defer recognition of those gains until December 31, 2026 (and if when such deferred capital gains are recognized, such investor has been in the QOF for at least five years, only 90% of the deferred capital gains need be recognized, or if the investor has been in the QOF for at least seven years, only 85% of the deferred capital gains need be recognized, or if the investor has been in the QOF for at least ten years, then any capital gains will be completely federal tax free).

Assistance with QOF-related tasks, such as establishing the QOF (such as forming corporations, partnerships, LLCs, or other entities as may be required based on the particular situation of the investor to serve as the QOF, drafting formation documents with the necessary provisions to ensure eligibility for the program), assisting the investor to fund the QOF using the capital gains to be deferred under the QOF program and other monies, maintaining it within applicable regulations, selecting appropriate properties to place within the fund and improve, working with real estate professionals to identify and assess prospective purchases within the designated qualified opportunity zones (QOZs), then purchasing, improving, and eventually selling the real estate, working with qualified tax professionals to ensure QOF compliance with tax and other applicable laws and regulations.

Assistance regarding the tax-related legal issues in close co-operation with qualified tax professionals, such as advice concerning federal, state and local reporting obligations as related to the project, assisting foreign investors in opening US bank accounts, compliance with the Foreign Investment in Real Property Tax Act (FIRPTA), conducting title search and examination, drafting, negotiating and reviewing required documents (such as attornment and subordination agreements, closing documents, contracts of purchase and sale, deeds, estoppels, purchase offers), due diligence, forming tax-efficient real estate holding entities for domestic or foreign clients, liaison between investors and banks, obtaining US tax identification numbers for purchasing real estate, resolving title issues.

Experience negotiating various real estate lending-related transactions, such as acquisition and disposition of distressed assets, commercial and residential financing, foreclosures, loan workouts and restructuring, mezzanine financing.

Advice for various issues throughout the entire life cycle of an investment, such as angel funding, business structure, buy-outs corporate formation, recapitalization, restructuring, seed financing, Series A/B/C financing, work-outs.

Advice for fund sponsors and managers on formation of venture capital, private equity and hedge funds, all aspects of fund operation, including governance, investments in other funds or companies, repletion, structuring.

Assistance in structuring and forming various alternative financing vehicles, including tokenized and hybrid funds.

Experience with venture capital financing, including drafting and negotiating every document required to complete the transaction, such as all documents required for M&A transactions (such as the merger agreement), amended and restated certificates of incorporation, asset purchase agreement, confidentiality agreements, convertible notes, crowdfunding filings with the SEC, investment contracts and investor rights agreements (specifying founding shareholder rights vs. minority investor rights, reporting and financial disclosure requirements, observer rights), letters of intent (such as outlining a prospective M&A transaction framework and contingencies), stock purchase agreements, term sheets (outlining financing structure, corporate governance, liquidation).

Consultation regarding SEC Regulation CF (Crowdfunding) for corporate structuring, due diligence of crowdfunding intermediaries (registered funding portals), filing required forms with the SEC to qualify an offering under Regulation CF, reviewing issuers’ advertising materials, use of a tandem Regulation D offering to reach the target capital raise.

Familiarity with Regulation CF qualification requirements (including but not limited to: individual investors can invest only up to the lesser of either 10% of their net worth or their annual income; securities purchased under Regulation CF cannot be traded on the secondary market within a year of ownership, except to family members or accredited investors; the maximum amount of investments for a qualified entity which can be raised cannot exceed $1,070,000 in a 12-month period; the offering must be made only through either an SEC-registered broker-dealer registered with SEC or through a funding portal regulated by FINRA; the securities issuer must be a US entity).

Typical Regulation CF-related tasks, such as advising on operational issues (working with broker-dealers, funding portals and other crowdfunding intermediaries or service providers), consultation on opportunities for combined offerings to accredited investors under Regulation D and non-accredited investors under Regulation CF, corporate structuring for domestic and foreign issuers (such as incorporating a legal entity in the U.S. or creating a U.S. holding for a foreign company), drafting and filing the SEC Form C offering statement (that includes information about the company owners, directors, and officers, a description of the issuer’s business and an overview of the issuer’s financial situation), due diligence regarding the accuracy of advertising materials and other documents published on the funding portals, the limited amount of information that can be provided to investors outside of the funding portal, and structuring the offering and equity terms.

Consultation for formation of various fund types, such as close-ended, cryptocurrency, hedge, incubator, master-feeder, private equity, real estate, tokenized, venture capital.

Consultation regarding exemption from SEC filing requirements due to structuring the transaction as a private placement, in which the issuer of the security raises a limited amount of capital and then sells to either a limited number of investors or to only accredited investors.

Typical private placement exemption-related tasks, such as assisting in conducting thorough and effective AML and KYC checks and investor verifications, determining the appropriate sales structure and exemption for each investor’s unique situation, drafting a purchase or subscription agreement, investor questionnaires and other offering documents, preparing a comprehensive private placement memorandum that describes the securities and the terms on which they are being offered, informs prospective investors of the risks in acquiring the securities and explains how investors can participate in the offering, reviewing arrangements between investors and third parties in connection with the offering (such as agreements with brokers, consultants and marketing agencies), preparing and filing any necessary SEC documents (such as a Form D for private placements under Regulation D).

Consultation regarding private equity and venture capital investments for individuals, funds, growth firms, startups.

Typical fund formation-related tasks, such as advice on AML and KYC compliance, foreign and US investor qualifications and on marketing of private equity and venture capital funds, advising on the applicability of federal and state regulations, including broker-dealer legislation, FINRA rules, the Investment Advisers Act of 1940 and the Investment Company Act of 1940, defining the fund structure, strategy and associated risks, establishing offshore feeders for foreign investments, guidance regarding relationships with brokers, custodians and other service providers, preparing the required documents (such as “blue sky” state filings, the investment advisory agreement, investment management agreement, operating agreement, partnership agreement, private offering memorandum, SEC Form D, and other documentation necessary for the fund’s launch and operation), review of marketing materials, supervising offshore attorneys, auditors and fund administrators.

Familiarity with the operation of an incubator fund as a cost-effective solution at the pre-launch stage to test the fund’s strategy and viability, relatively quick establishment (depending on the chosen structure, jurisdiction – whether domestic or offshore – number of investors), development of a documented performance metric before attempting to market the fund to outside investors, and subsequent assistance in transitioning to a fully-functional investment fund.

Consultation for the formation of tokenized funds, including AML and KYC compliance, advice about jurisdiction and cross-jurisdictional issues, developing the fund’s strategy and structure, implementing the chosen trust structure and preparing all the necessary documentation (such as private offering memorandum and subscription documents), planning for any difficulty tracking secondary market resales and maintaining capitalization tables due to additional operational complications resulting from increased global liquidity, possible integration of the token issuer into current structures or the creation of a separate tokenized structure for an existing manager, review of foreign and US investor qualifications, token issues (may be subject to limitations on re-sale, number of investors, investor solicitation and acceptance, tradability on secondary markets in the US and foreign jurisdictions).

Utilization and interpretation of data (such as payments, notices, legal documents, administrative communications and various imaged documents) from mortgage loan servicing databases such as Asset-Backed Securities (ABS), CoreLogic, Mortgage-Backed Securities (MBS) and Mortgage Electronic Registration System (MERS).

Familiarity with real estate mortgage investment conduits (REMICs).

Compliance with the Federal documents, guidelines, regulations, rules and statutes governing REMICs, such as the Federal National Mortgage Association (Fannie Mae) Issue Supplement, Fannie Mae Q-REMIC Master Trust Agreement, Fannie Mae RCR Issue Supplement, Fannie Mae Trust Agreement, Federal Home Loan Mortgage Corporation (Freddie Mac) REMIC Requirements, Freddie Mac Securitization Requirements, Government National Mortgage Association (Ginnie Mae) Trust Agreement, Internal Revenue Code (IRC) Form 1066, IRC Section 860B(a), IRC Section 860D, IRC Section 860E(e)(5), IRC Section 860G(a)(1), IRC Section 860G(a)(2), IRC Section 860G(a)(3), IRC Section 860G(a)(5), Internal Revenue Service (IRS) IRS Form 1099-OID, IRS Form 1099-INT, IRS Publication 550, IRS Publication 938, IRS Ruling 201730006, IRS Schedule E, IRS Schedule Q, master trust agreement (MTA), mortgage loan purchase agreement (MLPA), pooling and servicing agreement (PSA), Tax Reform Act of 1986 (TRA).

Last updated 200721_2016