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A Check List for "Reasonable" Due Diligence "The Scorecard"
05/07/2016
The year was 1972 and I had been with a real estate syndication firm known as Carlsberg Securities, Inc. for 3 years. I was the Branch Manager and Director of Due Diligence and Compliance. We syndicated all forms of real estate. Publicly, we specialized in mobile home parks and distributed our offerings through well known wire-houses including Walston & Co. and Francis I. Dupont & Co.. We were, in fact, the second real estate syndicator on Wall Street, only preceded by Pacific Plan in northern California and immediately followed by Prudential Bache. Privately, we marketed raw land along with income properties including industrial, multi-family apartments and commercial office buildings. With regard to private placements, we were always sure to provide private placement memoranda (PPMs) to accredited investor’s with full treatment of all material facts (private offerings are exempt from registration, not disclosure) and to avoid any general solicitation i.e. dropping PPM’s out of helicopters.
Earlier that year, I was contacted by the Practicing Law Institute (PLI) to request my participation in a 5 person panel to be made up of 4 securities attorneys and myself, the only non-attorney on the panel. Its purpose was to travel to 5 U.S. cities to introduce and explain real estate syndication to members of the bar and bench. Included on the panel was Brad Cook, then Chairman of the SEC. My participation was needed to provide PLI attendees with an evaluation tool or arithmetic formula to quantifiably evaluate and analyze the working aspects and deal points of a real estate syndication offering to better understand what could go wrong with these sponsored programs. After we returned from traveling, PLI asked me to write an article for the Fall 1972 issue of Real Estate Review on Real Estate Syndication. I entitled the article “Selling Syndication Shares Successfully”.
I took the opportunity given to me at PLI, for analyzing Real Estate Direct Participation Programs, to develop the Real Estate ScoreCard (Exhibit A).
