CREShow: Raising Money for Private Investments About to Get Easier
Those who raise money for commercial real estate purchases through the private placement of securities may soon find that task a little easier, thanks to a new federal law that permits such investments to be advertised to the public under certain circumstances.
That was one of the observations made in the most recent episode of “America’s Commercial Real Estate Show,” which looked at group investing in commercial properties. Gene Trowbridge, a real estate attorney and a Certified Commercial Investment Member instructor, joined host Michael Bull to discuss the topic.
The federal Securities and Exchange Commission’s (SEC) Regulation D exempts securities from having to register with the SEC, a process that can cost hundreds of thousand of dollars, if their investors are deemed to be “accredited” — meaning they have a net worth of $1 million (not including their home) or an annual income of at least $200,000 — or are “sophisticated” in investments.
To help make sure the investors know the security sponsor before investing their funds, Regulation D has until recently banned the public advertising of the investments. However, under a provision in the recently passed Jumpstart Our Business Startups (JOBS) Act, those seeking to raise funds under Rule 506 of Regulation D – which allows sponsors to raise an unlimited amount of money – will soon able to solicit accredited investors from the general public by advertising.
The act’s “crowdfunding” provision also will allow sponsors to raise up to $1 million in each deal by Internet advertising; investors secured through this route do not need to be accredited.
Neither provision has yet to take effect but could do so this fall, Trowbridge said. Noting that all private placements raised $1 trillion in 2011, Trowbridge added that amount could soar with the new law.
“We’re going to raise more capital than we ever thought of,” he said.
During the course of the show, Trowbridge provided an overview of the things that someone looking to put a group investment to purchase real estate should keep in mind. He also detailed common mistakes by investors.
“First off, they generally don’t read the documents,” Trowbridge said. “The [investment] sponsor takes a lot of time and effort to tell the story in the documents, to give the investor all the information they need, and many investors don’t read them, and I think that’s a mistake.”
Other common mistakes include only using the yield rate to choose among investments and giving money to asponsor they don’t know.
The entire episode on real estate syndication strategies is available for download at www.CREshow.com.
The next “America’s Commercial Real Estate Show” will be available Sept. 13 and will provide an update on the hotel and lodging industry.