Are You a Real Estate Sponsor With More Opportunities Than Capital?

So you have capital – intellectual capital. And that’s great, because you are the person that finds the opportunity, has the vision for how to profit from it, and the know how to bring it to fruition. But what you don’t have, or at least don’t have enough of is, financial capital.

The days are dark and gloomy for real estate, but you still find exceptional opportunities to make money in this market. Whether it is buying underperforming debt secured by real estate, buying into a busted development, acquiring foreclosures or tax lien auctions – you have the deals and the know-how to make money with them. And that’s what investors are looking for – someone who can make money for them.

When you initiate your capital raising efforts, one of the first items you’ll need is a private placement memorandum, or a PPM. You may think that a PPM is something for the corporate guys seeking to raise equity to acquire a business. But if you are raising money from investors – issuing securities (think issuing a security in exchange for money), then your activities fall under state and federal securities laws. And specifically, since you are doing a private transaction you are issuing what is called “unregistered securities”, which falls under Reg-D of the Securities Act of 1933.

So, not only is there a legal requirement to comply with both state and federal securities laws, but by using a PPM you will provide yourself with cover from securities fraud claims. By having a defining document for your transaction, there should be no questions about what the deal is. Furthermore, your prospective investors, if they are active in private investments, will expect to see a PPM.

The PPM is a document that provides your prospective investors with all of the information they require to make an intelligent decision about whether to invest in your transaction or not. With a view from 30,000 feet, the PPM will include legal legends for the benefit of the investor, a term sheet that spells out the economics and legal provisions of the transaction, and the risks of the transaction.

The challenge for any deal sponsor is that a PPM can be very expensive. To have a consultant or attorney draft a Private Placement Memorandum, you can expect to pay up to $20,000. And this is an upfront expense that gets paid whether you successfully get your money raised or not. Busted deal expenses can be painful.

Fortunately, there is a more efficient and cost effective way to get your PPM drafted. With a Private Placement Memorandum Template, you can get your memorandum drafted on your own, then have your attorney review it; clearly a more efficient use of your legal resources.

So keep finding those real estate opportunities and stay compliant when raising capital by using a Private Placement Memorandum. Remember, it’s not just for corporate transactions.