More and more high end real estate investment opportunities
are available now, but fewer investors can afford to execute the “big deal” on
their own. However, the process of finding the best partnership fit has been
streamlined.
The majority of real estate partnerships looking for
“broader” participation need to follow SEC regulations. This is whether it is
for a public or private company seeking to raise capital for one or more large
real estate investments.
It was the Securities Act of 1933 which provides exemptions
for a Private Placement (also known as Private Offering) from federal
securities registration. Thus, the Private Placement “market” is sometimes referred
to as the “exempt market” when it comes to securities laws and the public
markets. In order for a company to raise public funds, it needs to file a
prospectus with the SEC in every state (and/or province) in which it plans to
sell securities. This includes real estate shares.
Issuing a Private Placement is how an entity attempts to
raise money for its operation(s). A Private Placement is, most often, more
affordable and can be implemented quicker than actual public offerings. When
done properly, the process of determining the amount of funding needed,
selecting a potential deal, and preparing the offering should all take place
within 7 to 21 days.
STEPS TOWARD COMPLETING YOUR PRIVATE PLACEMENT
To get started, the company (or “syndicator”) determines the
amount of money it needs to raise from the Private Placement. Next is choosing
just one potential deal to design the “equity offering” around. This is where
some investors make their first mistake. It is extremely important to choose
just one deal. Keep in mind that many
investors are looking to make a “yes” or “no” decision before selecting one
deal ahead of others.
If consulting with an attorney regarding getting started for
the first time, there are several factors to review. These start with determining
the number of investors and the amount of capital needed to be raised. This
step is not as “obvious” as new syndicators often assume.
For example, suppose the project requires an initial
investment of $50 million. It is easy to think that you would need five
investors at $10 million each. However, the pool of investors willing to invest
$10 million, combined with the number of them ready to invest that amount “now”
severely limit the possibilities for success.
Consequently, the goal might be to seek, for example, 25
investors to each contribute $2 million, or 100 investors at $500,000 each. The
lower the individual share amount needed, the more chances to get it.
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