Raising Capital & Finding Investors
Preparing (PPM) Private Placement Memorandum for a Real Estate Offering
There has never been a better time to successfully raise capital; most particularly for real estate projects. In fact, with investors receiving 1-2% return on their 401K accounts a good real estate development project can be a very attractive option. There is an increasing appetite for quality real estate investments, particularly if secured. In our opinion, the principal reason is that real estate not only can offer superior returns but is the most conservative and best investment choice available in today’s marketplace.
Raising Capital – Finding Investors
Did you know that you can advertise for investors? There was a change in the Federal Securities Law that allows you now to advertise IF you follow the Law’s requirements. This change is governed by Regulation D – Rule 506(c). There are millions of investors with 401K and IRA plans complaining about the 1% return on their retirement accounts. Each one of these individuals has both the resources and potential to be an investor. Can you raise money? The answer is going to depend on your answer to the following question. What deal can you offer prospective investors?
- Can you offer prospective investors an interest rate return on their investment?
- Can you offer to secure investor funds with the underlying property?
- Can you offer investors a piece of the profit (backend)?
What is your Investor Presentation?
- Is there a competitive “Interest Rate Return”? Is there an opportunity for a significantly higher return on their 401K and IRA funds?
- Is their investment “secured”? – Fully securing their investment funds with the underlying real estate.
- Is an annual dividend possible?
- Are you providing them “Profit Participation”. A reasonably good piece of the profit (back-end) in addition to an interest rate return or dividend payment?Finally, what is the investor’s EXIT strategy? When can they get their money back? One of several possibilities is offering a debenture (bond) redeemable in 3 – 5 years or redeemable preferred. Offering to investors. A deal that contains these types of provisions should cause your prospects to take a very serious look at your project?
Preparing (PPM) Private Placement Memorandum
Our job is to ask you the right questions and provide you with explanations and solutions of your best options. Once you have decided on the “deal” you are willing to offer the prospective investors a (PPM) Private Placement Memorandum must be prepared that comports with all the terms and conditions you have decided.
The PPM document actually is composed of multiple documents.
The primary document is the PPM: This document is given to every prospect that you have had any discussion that entailed investing in your project.
Subscription Agreement: This document is given to the investor to sign and return to you. it will detail the amount of money they are investing and their specific ownership interest. Most Importantly. It is also acts as a receipt that the investor received the Private Placement Memorandum. Note. Federal Securities Regulation that govern the taking of investor funds requires you must provide prospective investors with “all material” information germane to your project. Full and complete information that will allow them to make an informed decision.Not providing investors with the PPM Documents would be a violation of Federal Securities Laws and subject you to the Security & Exchange Commission ordering a right of rescission (a return of all the investors money).
Investor Questionnaire: This document will identify whether the investor is either an “Accredited” Investor or “Non-Accredited” Investor. (We will explain the importance of this information during the structuring of the deal. A must know if you are to comply with Federal Securities Law.
Operating Agreement: Most likely you will organize as a Limited Liability Company (LLC) for a number of reasons. Again, this will be explained during the Structuring of the deal.
The only document we need from you is the description of your real estate project.
We are very good at taking the complexity out of this process. As soon as you commit to hiring us we provide you with a list of 40 or so talking points to begin. From the information contained in your answers, we can direct you to your options and why those options are the best versus other choices. Once you have the deal structure decided we usually can have all the documents prepared and ready within 8 days.
Questions? Call Mr. Shields. No charge: 239-300-9725
Shields Capital Partners
365 Fifth Avenue South
Naples, FL 34102
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