Often, the section names several entities, but a close inspection will reveal that the manager typically boils down to a handful of individuals identified as the “principals” of the company. The Manager : This section describes who is “running” the investment.The executive summary section provides an overview of the investment opportunity, including the following key points: Although they can be lengthy and presented in legalese, they present a very clear warning to investors that the investment involves a high degree of risk and that they could lose all or some of their investment capital. The important point is that legal disclaimers are the fine print in the transaction and they should be read carefully. Actual performance can vary from the initial proforma. A discussion of the fact that the document contains forward looking statements, but they should not be relied upon as an indicator of investment performance.Suitability statement which says something like “this investment is only suitable for investors with the appropriate risk tolerance and time horizon.”.Potential risk factors for the investment.The disclaimers can cover several pages, but typically contain the following key points: Nearly all PPMs start with legal disclaimers designed to protect the company offering the securities. Most PPMs contain the following major sections. In these types of transactions, the PPM is provided to investors to outline the terms and conditions under which shares in the LLC are offered.
To qualify for the exemption under Regulation D, the company is only allowed to sell shares in the LLC to “Accredited Investors” who meet certain income and/or net worth requirements. In a private offering of real estate, shares in the company are sold under an exemption to Securities and Exchange Commission (regulatory authority) requirements. As shareholders in the company, investors are entitled to a portion of the income and profits generated by the underlying real estate asset. In most cases, investors are purchasing shares in the Limited Liability Company that owns the asset. One common misconception about commercial real estate investing is that individuals are purchasing a fractional share of a real estate asset. In order to understand why the PPM is important, it is first necessary to understand how a typical commercial real estate transaction is structured. The specific contents of the document can vary widely from one transaction to another, but they typically contain the same general sections, which are described in this article. Of these documents, the PPM is one of the most important because it describes key information about the investment, its risks, and the underwriting assumptions used to calculate returns. These documents include marketing materials, a subscription agreement, operating agreement, legal disclaimers, and the Private Placement Memorandum (PPM). When raising money for a commercial real estate investment, the transaction sponsor is required to provide a number of legal documents to prospective investors.
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