Tuesday, July 28, 2020

Private Placement For Investment Real Estate – Where to Begin

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.


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.