Correspondence 0001477932-23-006412 from Tirios Propco Series LLC (CIK 0001975188)
Tirios Propco Series LLC (CIK 0001975188)
Date: Aug. 22, 2023 · CIK: 0001975188 · Accession: 0001477932-23-006412
AI Filing Summary & Sentiment
File numbers found in text: 024-12277
Referenced dates: July 20, 2023
Letter
Re:
tirios_corresp.htm
August 22, 2023
Stacie Gorman
Office of Real Estate & Construction
Division of Corporation Finance
Tirios Propco Series LLC
Offering Statement on Form 1-A
Filed June 12, 2023
File No. 024-12277
Ms. Gorman:
Please see below for responses to the Division’s letter dated July 20, 2023, regarding the above captioned matter. All questions have been addressed in Amendment No. 1 to the Offering Statement on Form 1-A, filed August 18, 2023 (“Amendment”), as further herein detailed.
Cover Page
1.
We note that your cover page consists of 4 pages. Please limit the cover page to one page, as required by Item 1 of Part II of Form 1-A. Please also revise to clearly disclose the amount of each series being offered, as required by Item 1(d) of Part II of Form 1-A.
We have revised our cover page to comply as closely as possible to the one page requirement, but note that the disclosures required by Guide 5 in addition to the necessary tables prohibit strict compliance. The amount of each series being offered is disclosed via a cross-reference to the Series Offering Table on page 1.
Summary, page 1
2.
We note that you and your manager are Delaware corporations, but that the properties you have acquired are based in Texas. Please clarify how you will manage these properties on a day to day basis, and if you have hired a third party, please identify the party and file the agreement as an exhibit.
Please see Amendment. We have updated the disclosure to clarify that we have agents located in Texas who will manage day to day operations for the Manager and the Company in regard to properties located in Texas. We have not engaged any third party to manage day-to-day operations. We will also be foreign filing in Texas.
3.
We note your disclosure that you intend for each series to be taxed as a REIT or as a partnership. Please clearly disclose how you intend for each of the series in this offering statement to be classified and provide clear disclosure on the cover page.
Please see Amendment. Clarifying language has been added on the cover page. Each of the three series have elected to be taxed as a Partnership. Please note we have also included the taxation election for each of the series under the Series Offering Table on Page 1, right most column.
Reporting, page 2
4.
We note that you have provided audited financial statements of the company as of and for the period ended April 13, 2023 and that you subsequently acquired three properties. Please tell us what intent you have to provide separate financial statements and obtain separate audit opinions for the company and each individual Series for future periods. For reference see Question 104.01 of the Compliance and Disclosure Interpretations for the Securities Act Sections.
Please see Amendment. The properties acquired by the Series are newly constructed residential properties that have not been previously occupied or leased and have not previously been revenue producing. Therefore, they were not operated as a business and without leasing history. As a result, there are no financial statements applicable to the property for which financial statements may be required in the Offering Circular prior to the date of acquisition of the properties by the Series.
For future reporting periods, we intend to have each series that has commenced operations audited on an annual basis and to present these series audited financial statements separately and on a consolidated basis with the financial statements of the Company. The audit opinion to be provided along with the audited financial statements will cover each of the audited series as well as the Company audited as a whole.
Series LLC Structure, page 3
5.
We note your disclosure that there may be situations where the fees are not allocable to a specific series. Please disclose the situations where a fee will not be allocable to a particular series, given that these entities are to have completely separate operations, including from the company.
Please see Amendment. We have provided examples of such situations in the last paragraph on page 3 and in the last paragraph under “Allocation of Expenses” on page 34, which include “annual EDGAR filer fees, annual audit fee for the Company, legal fees relating to annual reporting, and rent and utilities if the Series share the same office space. ”
Risk Factors, page 6
6.
Please expand your risk factor discussions to describe the risks attendant to the transfer agent’s records and transfer procedures.
See Amendment. We have included additional risk factors related to our transfer agent’s records and transfer procedures.
Our operating agreement contains provisions that reduce or eliminate duties ..., page 9
7.
We note your disclosure that you have reduced or eliminated fiduciary duties of the manager. Please provide clear disclosure to specify when this provision would apply. Please also clarify whether such provision complies with Delaware state law, and whether there is any uncertainty as to its enforceability. Please also disclose that nothing in the operating agreement modifying, restricting or eliminating the duties or liabilities of Fiduciary Covered Persons shall apply to or in any way limit the duties (including state law fiduciary duties of loyalty and care) or liabilities of such persons with respect to matters arising under the federal securities laws. Please revise here and in your disclosure regarding your operating agreement in the section "Securities Being Offered."
The disclosure is drafted broadly to reflect Section 5.7 of the operating agreement, which is also broadly drafted. Nevertheless, we have added a disclosure clarifying that although such broad waiver of fiduciary duties is permitted by Delaware law, we have been advised that Delaware courts will still impose a covenant of good faith and fair dealing on our Manager, which is non-waivable. In addition, we have included a disclosure that the SEC’s position is that any purported waiver of fiduciary duties or indemnification for violation of the same under the Securities Act of 1933 or under the Securities Exchange Act of 1934 is against public policy and therefore, unenforceable.
The Company's management has full discretion as to the use of proceeds..., page 11
8.
We note your disclosure that the company may use proceeds for purposes related to growing its business. We also note similar disclosure in the use of proceeds section on page 29. However, we note your disclosure that individuals are investing in a specific series and not in the company. Please explain how the company could use proceeds for purposes related to matters other than a particular series in which an investor has made an investment and how this is consistent with the structure of the company and the disclosures provided regarding the particular series assets.
We have clarified that each Series reserves the right to change the allocation of net proceeds from the offering as unanticipated events or opportunities arise, but such modifications will be limited to that particular Series.
Risks Related to Tokenization, page 14
9.
Please expand your risk factor discussions to include disclosure regarding:
·
Risks associated with the distributed ledger technology, including any inherent flaws or limitations of the blockchain technology;
·
Risks related to loss or theft of the Tokens, including losses related to cyberattacks, fraudulent or accidental transactions, loss of keys, etc.; and
·
The relatively new nature of the technology and whether it may impact participation of potential investors in the secondary market, thereby impacting potential liquidity.
Please see Amendment on page 14. Note that since the Tokens are only digital courtesy copies reflecting ownership of Series Interests and the Transfer Agent’s book form records are controlling, there is no risk related to cyberattacks, fraudulent or accidental transactions, loss of keys, etc., with respect to the Tokens, so long as the Transfer Agent’s records are accurate. We have disclosed risks related to errors in the Transfer Agent’s processes.
Blockchain-based Series Interests; No Investment in Cryptocurrencies, page 23
10.
We note that your Manager will create a blockchain wallet for each subscriber, assign a unique network blockchain address for each wallet, and provide a public key to each subscriber to track the balance of any series interests. Please address the following:
·
Identify the person(s) who have access to the blockchain wallet and public key, and any policies, procedures or other security features surrounding the wallet and public key;
·
Disclose the implications for both the subscriber and the network if a subscriber loses their key or is otherwise unable to access their Token; and
·
Describe how you maintain access to, or control over, Tokens in a subscriber’s wallet to make transfers, redeem or freeze Tokens.
Please see Amendment under Subscription Procedure and details in response to Staff’s item 21 with explanation of the process on how a subscriber creates an account and how a blockchain wallet is created for every subscriber.
The Blockchain wallet and public key for the wallet can be accessed by the subscriber themselves, by the Company, and by the Manager.
As disclosed in the Amendment, the Company maintains all records in book form with the Transfer Agent and the Token acts as a digital courtesy copy of the Series Interests on the blockchain.
Subscribers can login anytime to access the information about the Series Interests and access the public key for their wallet from within the platform. In case the subscriber forgets the password for investment platform, they can reset their password using the form available during the login process using their email. In case the subscriber loses access to their email account, which was used during the account creation process, they are instructed to contact our team at members@tirios.ai and validate their identity to reset the investment platform access for them. Once they gain access to the investment platform again, they can access their public key.
The Company and Manager have access to subscriber wallet and can freeze the tokens or block any transactions on blockchain to comply with the requirements of a regulatory mandate or a court order.
11.
In footnote 3 on page 23, you state that your “Manager maintains the wallet infrastructure. Each wallet is connected to an account created by investors on the Platform, and holds only Tirios tokens—not cryptocurrency or other digital assets,” and “[a]s a result, there is no risk of investors losing access to their wallet.” Please explain to us the factual basis for this conclusion.
Please see response to item 10. As explained in the Amendment, the Company maintains all records in book form with the transfer agent and the Tokens act as digital courtesy copies of the Series Interests on the blockchain.
Subscribers can login anytime and access the information about the Series Interests and the public key for their wallet from within the platform. In case the subscriber forgets the password for investment platform, they can reset their password using the form available during the login process using their email. In case the subscriber loses access to their email account, which was used during the account creation process, they are instructed to contact our team at members@tirios.ai and validate their identity to reset the investment platform access for them. Once they gain access to the investment platform again, they can access their public key.
12.
We note your disclosure that “Each member will be provided access to view Token holding information recorded to the Blockchain Token Ledger on the Platform,” including “all financial information related to the Underlying Asset on the blockchain, which includes rent, property taxes, insurance, etc., and information regarding their own holdings.” Please revise to address the following:
·
Please revise to describe in materially complete detail the current stage of development of the Tokens, the Platform and their functionalities;
·
Discuss how the Platform interacts with the Tirios Blockchain;
·
Elaborate on the role of the Tokens in your business, including how you intend for the Tokens and Platform to interact and how the Tokens will be used, and by whom, on your Platform;
Describe what, if any, uses or rights investors will receive upon purchasing Tokens in this offering and as anticipated in the future. In this regard, we note the video presentation posted on the “Learn More” section of your website describing investors’ ability to track their investments, net operating income and dividend distributions on the blockchain and sell their Tokens after holding them for a "short period;" and
·
Disclose whether the Tokens have any value or possible use outside of the Platform.
Please see response to item 21. The development of functionality for the Platform, Tirios Blockchain, and Tokens is complete and ready for deployment once the filing is made effective. This includes functionality to register for the members on Platform, complete their subscription, create a blockchain wallet for subscriber, receive Tokens that represent a digital courtesy copy of the Series Interests, the ability to view their holdings in .PDF format and on blockchain, and view all financial information related to the underlying asset in .PDF format and on blockchain.
Please note the Token holdings on blockchain and underlying financial information on the blockchain are a digital courtesy copy of records maintained by the Transfer Agent regarding the Series Interests and a digital courtesy copy of the financial records which are kept by the Company in book form. Each Member receives only those rights associated with the particular Series in which they invest. There are no additional legal or economic rights that stem from Tokens beyond the membership rights associated with the Series Interests. The Tokens therefore have no value independent of the Series Interests. Tokens can’t be transferred or used outside of Platform.
Members can access the financial information in the Platform in .PDF form based on the information in book form and the same information from the Platform in the blockchain form. In case of any conflict between the financial records held by the Company in book form and the blockchain records, the records in book form will be determinative.
13.
We note your disclosure on page 23 that a “member will be deemed the record holder with respect to a Token as of any date only if, as of such date, such Token is registered on the Tirios Blockchain in such member’s name” and that the “transfer agent will maintain the Series Interests in book form, and in the event of a conflict between the blockchain record and the record held by the transfer agent, the transfer agent’s record will be determinative.” Given that the book entry system is the prevailing proof of ownership, please revise throughout to address the following:
·
Revise to clarify the nature of the Series Interests and the role of distributed ledger technology, including, clarifying, if true, that investors will in fact be holding Series Interests in book entry form that have additional distributed ledger technology features for the transfer agent’s bookkeeping purposes only, or advise us otherwise;
·
Describe in greater detail the record keeping process (i.e., the book entry system and the blockchain record) and how the two records are synchronized;
·
Clarify whether there are practical or legal considerations fo
Show Raw Text
CORRESP
1
filename1.htm
tirios_corresp.htm
August 22, 2023
Stacie Gorman
Office of Real Estate & Construction
Division of Corporation Finance
Re:
Tirios Propco Series LLC
Offering Statement on Form 1-A
Filed June 12, 2023
File No. 024-12277
Ms. Gorman:
Please see below for responses to the Division’s letter dated July 20, 2023, regarding the above captioned matter. All questions have been addressed in Amendment No. 1 to the Offering Statement on Form 1-A, filed August 18, 2023 (“Amendment”), as further herein detailed.
Cover Page
1.
We note that your cover page consists of 4 pages. Please limit the cover page to one page, as required by Item 1 of Part II of Form 1-A. Please also revise to clearly disclose the amount of each series being offered, as required by Item 1(d) of Part II of Form 1-A.
We have revised our cover page to comply as closely as possible to the one page requirement, but note that the disclosures required by Guide 5 in addition to the necessary tables prohibit strict compliance. The amount of each series being offered is disclosed via a cross-reference to the Series Offering Table on page 1.
Summary, page 1
2.
We note that you and your manager are Delaware corporations, but that the properties you have acquired are based in Texas. Please clarify how you will manage these properties on a day to day basis, and if you have hired a third party, please identify the party and file the agreement as an exhibit.
Please see Amendment. We have updated the disclosure to clarify that we have agents located in Texas who will manage day to day operations for the Manager and the Company in regard to properties located in Texas. We have not engaged any third party to manage day-to-day operations. We will also be foreign filing in Texas.
3.
We note your disclosure that you intend for each series to be taxed as a REIT or as a partnership. Please clearly disclose how you intend for each of the series in this offering statement to be classified and provide clear disclosure on the cover page.
Please see Amendment. Clarifying language has been added on the cover page. Each of the three series have elected to be taxed as a Partnership. Please note we have also included the taxation election for each of the series under the Series Offering Table on Page 1, right most column.
1
Reporting, page 2
4.
We note that you have provided audited financial statements of the company as of and for the period ended April 13, 2023 and that you subsequently acquired three properties. Please tell us what intent you have to provide separate financial statements and obtain separate audit opinions for the company and each individual Series for future periods. For reference see Question 104.01 of the Compliance and Disclosure Interpretations for the Securities Act Sections.
Please see Amendment. The properties acquired by the Series are newly constructed residential properties that have not been previously occupied or leased and have not previously been revenue producing. Therefore, they were not operated as a business and without leasing history. As a result, there are no financial statements applicable to the property for which financial statements may be required in the Offering Circular prior to the date of acquisition of the properties by the Series.
For future reporting periods, we intend to have each series that has commenced operations audited on an annual basis and to present these series audited financial statements separately and on a consolidated basis with the financial statements of the Company. The audit opinion to be provided along with the audited financial statements will cover each of the audited series as well as the Company audited as a whole.
Series LLC Structure, page 3
5.
We note your disclosure that there may be situations where the fees are not allocable to a specific series. Please disclose the situations where a fee will not be allocable to a particular series, given that these entities are to have completely separate operations, including from the company.
Please see Amendment. We have provided examples of such situations in the last paragraph on page 3 and in the last paragraph under “Allocation of Expenses” on page 34, which include “annual EDGAR filer fees, annual audit fee for the Company, legal fees relating to annual reporting, and rent and utilities if the Series share the same office space. ”
Risk Factors, page 6
6.
Please expand your risk factor discussions to describe the risks attendant to the transfer agent’s records and transfer procedures.
See Amendment. We have included additional risk factors related to our transfer agent’s records and transfer procedures.
Our operating agreement contains provisions that reduce or eliminate duties ..., page 9
7.
We note your disclosure that you have reduced or eliminated fiduciary duties of the manager. Please provide clear disclosure to specify when this provision would apply. Please also clarify whether such provision complies with Delaware state law, and whether there is any uncertainty as to its enforceability. Please also disclose that nothing in the operating agreement modifying, restricting or eliminating the duties or liabilities of Fiduciary Covered Persons shall apply to or in any way limit the duties (including state law fiduciary duties of loyalty and care) or liabilities of such persons with respect to matters arising under the federal securities laws. Please revise here and in your disclosure regarding your operating agreement in the section "Securities Being Offered."
The disclosure is drafted broadly to reflect Section 5.7 of the operating agreement, which is also broadly drafted. Nevertheless, we have added a disclosure clarifying that although such broad waiver of fiduciary duties is permitted by Delaware law, we have been advised that Delaware courts will still impose a covenant of good faith and fair dealing on our Manager, which is non-waivable. In addition, we have included a disclosure that the SEC’s position is that any purported waiver of fiduciary duties or indemnification for violation of the same under the Securities Act of 1933 or under the Securities Exchange Act of 1934 is against public policy and therefore, unenforceable.
2
The Company's management has full discretion as to the use of proceeds..., page 11
8.
We note your disclosure that the company may use proceeds for purposes related to growing its business. We also note similar disclosure in the use of proceeds section on page 29. However, we note your disclosure that individuals are investing in a specific series and not in the company. Please explain how the company could use proceeds for purposes related to matters other than a particular series in which an investor has made an investment and how this is consistent with the structure of the company and the disclosures provided regarding the particular series assets.
We have clarified that each Series reserves the right to change the allocation of net proceeds from the offering as unanticipated events or opportunities arise, but such modifications will be limited to that particular Series.
Risks Related to Tokenization, page 14
9.
Please expand your risk factor discussions to include disclosure regarding:
·
Risks associated with the distributed ledger technology, including any inherent flaws or limitations of the blockchain technology;
·
Risks related to loss or theft of the Tokens, including losses related to cyberattacks, fraudulent or accidental transactions, loss of keys, etc.; and
·
The relatively new nature of the technology and whether it may impact participation of potential investors in the secondary market, thereby impacting potential liquidity.
Please see Amendment on page 14. Note that since the Tokens are only digital courtesy copies reflecting ownership of Series Interests and the Transfer Agent’s book form records are controlling, there is no risk related to cyberattacks, fraudulent or accidental transactions, loss of keys, etc., with respect to the Tokens, so long as the Transfer Agent’s records are accurate. We have disclosed risks related to errors in the Transfer Agent’s processes.
Blockchain-based Series Interests; No Investment in Cryptocurrencies, page 23
10.
We note that your Manager will create a blockchain wallet for each subscriber, assign a unique network blockchain address for each wallet, and provide a public key to each subscriber to track the balance of any series interests. Please address the following:
·
Identify the person(s) who have access to the blockchain wallet and public key, and any policies, procedures or other security features surrounding the wallet and public key;
·
Disclose the implications for both the subscriber and the network if a subscriber loses their key or is otherwise unable to access their Token; and
·
Describe how you maintain access to, or control over, Tokens in a subscriber’s wallet to make transfers, redeem or freeze Tokens.
Please see Amendment under Subscription Procedure and details in response to Staff’s item 21 with explanation of the process on how a subscriber creates an account and how a blockchain wallet is created for every subscriber.
The Blockchain wallet and public key for the wallet can be accessed by the subscriber themselves, by the Company, and by the Manager.
As disclosed in the Amendment, the Company maintains all records in book form with the Transfer Agent and the Token acts as a digital courtesy copy of the Series Interests on the blockchain.
Subscribers can login anytime to access the information about the Series Interests and access the public key for their wallet from within the platform. In case the subscriber forgets the password for investment platform, they can reset their password using the form available during the login process using their email. In case the subscriber loses access to their email account, which was used during the account creation process, they are instructed to contact our team at members@tirios.ai and validate their identity to reset the investment platform access for them. Once they gain access to the investment platform again, they can access their public key.
3
The Company and Manager have access to subscriber wallet and can freeze the tokens or block any transactions on blockchain to comply with the requirements of a regulatory mandate or a court order.
11.
In footnote 3 on page 23, you state that your “Manager maintains the wallet infrastructure. Each wallet is connected to an account created by investors on the Platform, and holds only Tirios tokens—not cryptocurrency or other digital assets,” and “[a]s a result, there is no risk of investors losing access to their wallet.” Please explain to us the factual basis for this conclusion.
Please see response to item 10. As explained in the Amendment, the Company maintains all records in book form with the transfer agent and the Tokens act as digital courtesy copies of the Series Interests on the blockchain.
Subscribers can login anytime and access the information about the Series Interests and the public key for their wallet from within the platform. In case the subscriber forgets the password for investment platform, they can reset their password using the form available during the login process using their email. In case the subscriber loses access to their email account, which was used during the account creation process, they are instructed to contact our team at members@tirios.ai and validate their identity to reset the investment platform access for them. Once they gain access to the investment platform again, they can access their public key.
12.
We note your disclosure that “Each member will be provided access to view Token holding information recorded to the Blockchain Token Ledger on the Platform,” including “all financial information related to the Underlying Asset on the blockchain, which includes rent, property taxes, insurance, etc., and information regarding their own holdings.” Please revise to address the following:
·
Please revise to describe in materially complete detail the current stage of development of the Tokens, the Platform and their functionalities;
·
Discuss how the Platform interacts with the Tirios Blockchain;
·
Elaborate on the role of the Tokens in your business, including how you intend for the Tokens and Platform to interact and how the Tokens will be used, and by whom, on your Platform;
Describe what, if any, uses or rights investors will receive upon purchasing Tokens in this offering and as anticipated in the future. In this regard, we note the video presentation posted on the “Learn More” section of your website describing investors’ ability to track their investments, net operating income and dividend distributions on the blockchain and sell their Tokens after holding them for a "short period;" and
·
Disclose whether the Tokens have any value or possible use outside of the Platform.
Please see response to item 21. The development of functionality for the Platform, Tirios Blockchain, and Tokens is complete and ready for deployment once the filing is made effective. This includes functionality to register for the members on Platform, complete their subscription, create a blockchain wallet for subscriber, receive Tokens that represent a digital courtesy copy of the Series Interests, the ability to view their holdings in .PDF format and on blockchain, and view all financial information related to the underlying asset in .PDF format and on blockchain.
Please note the Token holdings on blockchain and underlying financial information on the blockchain are a digital courtesy copy of records maintained by the Transfer Agent regarding the Series Interests and a digital courtesy copy of the financial records which are kept by the Company in book form. Each Member receives only those rights associated with the particular Series in which they invest. There are no additional legal or economic rights that stem from Tokens beyond the membership rights associated with the Series Interests. The Tokens therefore have no value independent of the Series Interests. Tokens can’t be transferred or used outside of Platform.
Members can access the financial information in the Platform in .PDF form based on the information in book form and the same information from the Platform in the blockchain form. In case of any conflict between the financial records held by the Company in book form and the blockchain records, the records in book form will be determinative.
4
13.
We note your disclosure on page 23 that a “member will be deemed the record holder with respect to a Token as of any date only if, as of such date, such Token is registered on the Tirios Blockchain in such member’s name” and that the “transfer agent will maintain the Series Interests in book form, and in the event of a conflict between the blockchain record and the record held by the transfer agent, the transfer agent’s record will be determinative.” Given that the book entry system is the prevailing proof of ownership, please revise throughout to address the following:
·
Revise to clarify the nature of the Series Interests and the role of distributed ledger technology, including, clarifying, if true, that investors will in fact be holding Series Interests in book entry form that have additional distributed ledger technology features for the transfer agent’s bookkeeping purposes only, or advise us otherwise;
·
Describe in greater detail the record keeping process (i.e., the book entry system and the blockchain record) and how the two records are synchronized;
·
Clarify whether there are practical or legal considerations fo