Don’t forget your real estate private placement memorandum
We here at PPM write a lot of business plans and private placement memorandums (PPM). Most people know that if you’re going to raise private capital, you’ll need a PPM specified to the asset you want others to back. The private placement memorandum for equity (stocks) or debt notes (bonds, e.g. 144A offerings) disclose your operating plans, your background, and any risks to the investor.
There are also private placement memorandums for specific industries or purposes. For example, in real estate, there are real estate private placement memorandums that allow investors to back the special purpose vehicle or asset in question. If you are raising funds for your real estate venture through private placement, say for your real estate investment trust (REIT), you will need a real estate private placement memorandum (real estate PPM).
Just as in a typical PPM, the real estate PPM should include a full accounting of your business plan, operating plan, management team and track record. The real estate private placement memorandum should also outline all the risks to your asset, as well as any fees and anticipated revenue streams and returns. At the end, the private placement memorandum (PPM) should cover all the legal requirements for the LLC or LP, including the governance and investment structure, rights of investors, and requirements surrounding sale and transfer of the offering. Finally, the subscription agreement provides the mechanism for investors to specify the amount of their investment and how many shares or investments units they will receive in return.
At PPM, we have worked on dozens of real estate PPMs and facilitated raising capital and eventually offering plenty of returns to our clients’ investors. It’s vital for the group or individual real estate entrepreneur seeking capital to not only outline risks in the document but also to provide a schedule of investor distributions. The company needs to reassure its potential backers that it has the liquidity and funds to make its distributions on time, or whether they have the ability to collect the disbursements following sale of other assets or borrowing.