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Private Placement Memorandum for Syndications – 3 Essential Functions

By: Tilden Moschetti, Esq.

In real estate, a private placement memorandum is an attorney-drafted document that provides investors with all the information they need about the real estate syndication. The PPM explains how proceeds from the offering will be used and what risks are associated with investing in real estate. It also contains other important information like operating agreements for real estate syndication and persuades potential investors to invest in real estate. 

Why do you need a private placement memorandum? The Private Placement Memorandum (PPM) contains all the information about securities offered to investors, including risk factors and investment objectives. It also contains other important details like how proceeds will be used by the real estate syndication company, projections, the  Operating Agreement, as well as to provide them with details of the proposed project such as location, real estate company’s business plan, etc. It serves as a shield against damages from any real estate investment claims.

The private placement memorandum makes disclosures and disclaimers to investors (acts as a shield)

A private placement memorandum is a document that contains all the essential information about real estate investment. The real estate company can use it as a shield against real estate investment risks. The real estate company can use PPM to provide investors with details about real estate projects. The real estate syndicators and real estate investment trusts (REITs) also use the document to disclose all information that investors need to know, including risk factors and investor objectives.

The real estate syndication PPM is a document prepared by an attorney for real estate investments. Unlike prospectuses used for real estate investment, the real estate syndication PPM is not regulated by the Securities and Exchange Commission (SEC). It contains information about how the real estate syndication company or real estate project will use funds from offering to real estate investors.

A private placement memorandum usually consists of elements like the real estate project description and summary, risk factors, real estate syndication company information, real estate acquisition plan discussion, real estate development term sheet, real estate taxation issues, legal opinion, and real property.

The PPM explains the Operating Agreement of a syndication

A private placement memorandum (PPM) explains the real estate syndication’s Operating Agreement. The real estate syndication’s Operating Agreement is a legal document. The real estate syndication’s private agreement between the real estate syndication members contains all the rules about how to manage the real estate syndication, who gets what when, what happens when someone dies or retires, etc. The real estate syndication’s Operating Agreement does not have to be registered in any particular state for it to be enforceable, but it can be used in court as evidence.

The private placement memorandum tells investors it is a good investment

One of the most critical functions of a private placement memorandum is to make an investor believe that it is a good investment. A real estate syndicator will typically neglect to do this. A well-drafted PPM does something that real estate syndicators usually miss: it persuades the investor that the real estate investment is worth investing in.

The PPM is used to get investors interested in investing in a new development project. It tells them all about the property (location, structure, price per square foot), it explains how their money will be spent (land appraisal, closing costs etc.), and it tells them all about the real estate developers. The real estate developer or realtor then uses their own private placement memorandum when they are meeting with real estate investors, real estate analysts, real estate agents, etc. They give this private placement memorandum to interested parties to get them to sign a contract for purchasers. 

When reviewing, it must look right (no fancy pictures), but it certainly can act to pitch investors again on why they said they were interested in the first place. Many potential investors take the PPM to their attorney or account to get feedback. This is an opportunity for a syndicator even to get new investors (the attorney or account themselves), but also, you want their advice to be, “this looks pretty good and clear to me.”

How to get a PPM for your syndication

Real estate syndication attorneys, like Moschetti Law Group, work with real estate developers and real estate agents who have found a piece of property that they want to sell. The attorney drafts the purchase agreement, marketing materials, private placement memorandum, and other documents for this real estate syndication. 

The private placement memorandum is a key document in real estate syndication because it makes disclosures and disclaimers to investors, explains the Operating Agreement, and tells investors that this investment opportunity is worth their time. 

Make informed decisions about your syndication.

Contact our syndication and private placement memorandum law firm today!