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Complying With Securities Laws in Real Estate Private Placement Deals

 Posted on December 00, 0000 in Commercial Real Estate

securities laws, Naperville real estate lawyerWhen working on a real estate deal, there are often many different regulatory and compliance issues to consider. Some of the most difficult to and complicated issues have to do with federal securities regulations.

Real Estate and Securities Law

The Securities and Exchange Commission (SEC) has sweeping authority to regulate and police securities throughout the United States. While many people do not think about real estate when they think about securities, actions like syndication of real estate deals, the formation of LLCs for real estate development, and seeking investor funds all fall under SEC regulations.  Securities law strictly regulates how investments in securities can be solicited and even who is allowed to invest in the first place.

Exceptions to the Rule

Many real estate investments seek to qualify for an exception to many of the most onerous restrictions and requirements that the SEC places on investments by making a private placement (also called a private offering of securities) under Regulation D. It allows investors to raise up to $5 million without having to go through the complex public offering process. One of the key requirements for making a successful private placement that complies with Regulation D is a private placement memorandum (PPM).

What Goes Into a Private Placement Memorandum? 

A PPM is a legal document that is distributed to the potential investors. It informs them of the potential risks of the investment as well as the terms of the offering. A PPM must contain a variety of specific disclosures, depending on the complexity of the offering, the type of investors sought, and the precise exceptions to securities registration being sought.

A PPM will usually have the following sections:

  • Introduction
  • Summary of the Offer Terms
  • Risk Factors
  • Description of the Issuing Company
  • Description of Management
  • Use of Proceeds
  • Description of Securities Offered
  • Subscription Procedures

A proper PPM will comply with state and federal securities laws. It can also help a private offering succeed by giving investors confidence that the management team is professional and detail oriented.

If you are considering a private placement for your real estate deal, you need to speak with a knowledgeable and skilled Naperville real estate attorney. Call Lindell & Tessitore, P.C. at 630-778-3818 today to schedule an appointment. Failure to strictly follow securities laws and regulations could jeopardize your investment and could even bring criminal charges.


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