Buying real estate is a popular way to invest. Most real estate investments
offer steady returns with the potential for significant capital appreciation.
However, real state investments are capital intensive. As a result, many
commercial real estate sponsors seek to raise funds from investors in
order to purchase real estate.
Following are some of the popular methods for raising capital to acquire
- Private offering with no advertising: In this method, the real estate sponsor
approaches investors with whom he or she has a pre-existing relationship.
No advertising is allowed. With this method, a private placement memorandum
[ Link to PPM article] is prepared describing the investment opportunity,
management, and risk factors. There is no limit on how much can be raised;
however, if non-accredited investors invest, then detailed financial statements
must be included. In addition, a maximum of 35 non-accredited investors
- Private offering with advertising: With this method, the offering can be
advertised freely though any means. However, only accredited investors
can invest in the offering, and the company must verify the accredited
investor status of each investor. In order to use this method, a private
placement memorandum [ Link to PPM article] is prepared describing the
investment opportunity, management, and risk factors. There is no limit
on how much can be raised, and there is no limit on the number of investors
that can invest.
- Regulation A+: In a Regulation A+ offering, an offering circular (similar
to a prospectus) must be filed with the SEC and declared effective. The
offering can be advertised freely through any means; however, investors’
funds cannot be accepted until the offering circular is declared effective
by the SEC. There are no limits on who can invest; however, there are
limits on how much non-accredited investors can invest. In addition, audited
financial statements are required. With a Regulation A+ offering, a maximum
of $50 million can be raised. Furthermore, there are post-offering compliance
- Fully registered offering: A fully registered offering is similar to a
Regulation A+ offering in that a registration statement (which contains
the prospectus) must be filed with the SEC. The prospectus must include
audited financial statements. Ironically, there are more restriction on
advertising a fully registered offering than there are for a Regulation
A+ offering. However, there are no limitations on who can invest and no
limits on the size of the offering. Furthermore, the company will be required
to file quarterly, annual, and current reports with the SEC on an ongoing basis.
The method that is right for your company will depend on the nature of
your investors (accredited or not), how you plan on finding investors,
and whether you will be purchasing just one piece of real estate or forming
a real estate fund [ Link to real estate fund article ].
If you are ready to start raising capital to purchase real estate, then
contact Whitley LLP Attorneys at Law today. We can work with you to find
the method that is right for your offering, prepare all necessary documents,
and get you ready to raise the capital you need to make your real estate
acquisition a success.