Deal Structuring Secrets

Unlocking deal structuring secrets can make or break an investment, and these powerful insights often hide within the pages of a Private Placement Memorandum (PPM). 

Watch Episode 59: Deal Structuring Secrets with Seth Bradley, Esq.

Get ready to dive into the captivating world of deal structuring secrets within a PPM! Discover how these hidden gems can unlock tremendous benefits for you as a savvy real estate investor. 

Deal Structuring Secrets In A Private Placement Memorandum

A Private Placement Memorandum (PPM) is a document that provides detailed information about a company's business, finances, and investment offering. Its primary purpose is to inform potential investors for private offerings, especially in real estate, about associated risks that vary depending on project specifics.

Summary Of The Offering

The Executive Summary of a Private Placement Memorandum (PPM) is a concise overview of the investment offering and the company:

  1. Company Overview
  2. Offering Overview
  3. Business Model and Strategy
  4. Market Opportunity
  5. Key Personnel


The Offering section details the specifics of the investment opportunity in detail:

  1. Securities Offered
  2. Offering Amount
  3. Price Per Security
  4. Minimum Investment
  5. Use of Proceeds
  6. Risk Factors
  7. Exit Strategy
  8. Subscription Procedures

Rule 506(b) vs. Rule 506(c) 

While similar, these rules differ in who they allow to invest and how advertising occurs.

Rule 506(b)

Rule 506(b) allows a company to raise unlimited capital from accredited investors and up to 35 non-accredited investors. 

Rule 506(c)

Rule 506(c) was introduced through the JOBS Act of 2012 to make it easier for companies to raise capital. Under this rule, a company can advertise its offering and solicit investments publicly, a significant departure from the limitations of 506(b).

The choice between Rule 506(b) and Rule 506(c) depends on the company's fundraising strategy:

Use of Funds

The Use of Funds section outlines how the company will allocate the capital raised from the offering across different areas.

  1. Debt Repayment
  2. Operational Expenses
  3. Capital Expenditures
  4. Acquisitions
  5. Reserves

Misuse of funds can lead to legal repercussions and damage the company's reputation. 


The Company section gives potential investors comprehensive information about the company's history, operations, and products or services. Here are some key elements that are typically included in the Company section:

  1. History and Background
  2. Business Model
  3. Market Overview
  4. Management Team
  5. Corporate Structure
  6. Financial Information
  7. Legal Proceedings


The Management section is crucial for potential investors to evaluate the qualifications, experience, and track record of the company's leaders and their investment:

  1. Biographies
  2. Track Record
  3. Ownership
  4. Compensation
  5. Board of Directors or Advisors

A competent, experienced management team can often be a significant factor in an investor's decision to invest in a company. 

Business Plan

The business plan section overviews the company's strategy to achieve its objectives. Key elements typically included in a PPM's business plan section are:

  1. Company Overview
  2. Products or Services
  3. Market Analysis
  4. Marketing and Sales Strategy
  5. Operations
  6. Financial Projections
  7. Risk Factors
  8. Exit Strategy


These fees are usually subtracted from the capital raised, greatly affecting the net proceeds and overall return on investment (ROI). Here are some common types of expenses in a PPM:

  1. Management Fees
  2. Performance Fees or Carried Interest
  3. Placement Agent Fees or Underwriting Fees
  4. Legal and Accounting Fees
  5. Organizational and Offering Costs
  6. Broker-Dealer Fees
  7. Exit Fees


The Distributions section outlines how and when investment profits or returns go back to investors. It usually covers aspects like:

  1. Distribution Policy
  2. Distribution Method
  3. Distribution Priority
  4. Reinvestment Options
  5. Tax Implications

Risk Factors

The Risk Factors section assists investors in making informed decisions based on their risk tolerance, investment objectives, and personal circumstances. It discloses common types of risks in a PPM.

  1. Business Risks
  2. Financial Risks
  3. Market Risks
  4. Investment Risks
  5. Legal Risks

Investor Suitability and Qualifications

Accredited investors meet specific financial criteria set by the SEC, like having a net worth over $1 million (excluding their primary residence) or an annual income above $200,000 for the past two years (or $300,000 combined income if married).

Non-accredited investors in a 506(b) offering must be 'sophisticated' - possessing enough financial and business knowledge to evaluate the investment.

Instructions To Invest And Subscription Agreement

Instructions to Invest 

This section provides potential investors with step-by-step instructions on how to invest: 

Subscription Agreement

A contract between a company and an investor that outlines the terms of the stock sale:

Operating Agreement

The operating agreement establishes rules and procedures for managing the company or investment fund. It's a contract between partners or members outlining their rights, responsibilities, and financial interests. Includes:

  1. Company Structure
  2. Roles and Responsibilities
  3. Capital Contributions
  4. Profit and Loss Allocation
  5. Voting Rights and Decision-Making Procedures
  6. Transfer of Ownership
  7. Dissolution Procedures

Key Takeaways

Mastering key aspects like management and performance fees, distribution policies, and exit strategies is crucial for a successful PPM. These elements significantly impact net proceeds and ROI, necessitating careful assessment and negotiation to protect investor interests. Diligent due diligence and skillful deal structuring are essential for successful private placements.

Master due diligence & deal structuring with our Royal Investing Group Mentoring Session. Learn from experienced investors, gain insights into their strategies, & get real-time answers to your questions. Maximize your investment potential. Sign up for our free group mentoring & become a more savvy investor.

Syndication: Deal Structuring Secrets

A private placement memorandum is a legal document companies use to raise funds from private investors or venture capitalists. For real estate syndication, the deal structuring document outlines the terms of the investment opportunity.

Watch Seth Bradley, Esq. discuss PPMs in great detail on Episode #59 of our Royal Investing-Strategic Growth Membership

Summary Of The Offering In Syndication

The Summary of the Offering refers to a crucial section of a PPM. It's used in real estate syndication to give potential investors an overview of the investment opportunity.

The purpose of the Summary of the Offering is to provide:

The Summary comes immediately after the cover page and the table of contents. It grabs the reader's attention and provides a concise overview of the investment opportunity.

Offering In A Real Estate Syndication PPM

An offering in this context refers to the opportunity for investors to purchase shares in a real estate syndicate and:

506(c) vs. 506(b)

506(b) is a popular exemption for real estate syndicators because it allows for up to:

However, some limitations exist on how those non-accredited investors may learn of the investment opportunity.

One significant aspect of 506(b) is that it prohibits general solicitation and advertising, which means you can only market the investment to people you have an existing relationship.

506(c) is another regulation used by real estate syndicators that allows them to solicit investment offerings to anyone without limits on how many accredited investors they can accept.

Unlike 506(b), syndicators using 506(c) advertise publicly and attract investors through various marketing channels.

Importance of "Use of Funds" In A Syndication PPM

The "use of funds" section is crucial in a real estate syndication PPM, as it outlines how the syndicate uses investors' money.

The "use of funds" section typically includes expenses such as:

Real Estate Syndication Private Placement Memorandum: Company Section

The "Company" section is a critical component that outlines important information about the company offering the investment opportunity.

The Company section typically includes the following information:

Key Elements Typically Included In The Management Section Of A PPM

The management section of a PPM document typically includes the following key elements:

The management section is essential as it provides insight into how the syndicate: 

Private Placement Memorandum: Business Plan Section

The business plan section of a PPM outlines the syndication's investment objectives, strategies, and plans to achieve the set goals.

Below are the essential components of the business plan section:

Deal Structuring: Fees Section Overview

A PPM typically includes a fees section, which details all the fees associated with acquiring, managing, and eventually disposing of the property.

Acquisition Fees

This fee covers the expenses incurred during the purchase of the property. These expenses include legal work, due diligence, and other transaction costs.

Management Fees

This compensation goes to the syndicator or a property management company that oversees the property's day-to-day operations, including leasing units, maintenance, and repair work.

Disposition Fees

This fee covers the expenses incurred during the sale of the property.

Asset Management Fees

Asset management fees go to the syndicator for overseeing the investment and managing the property's overall performance.

Other Fees

Other fees may include legal expenses, accounting fees, and additional regulatory costs associated with the syndication process.

Distributions In A Real Estate Syndicate PPM

Different types of distributions can be included in a PPM, including:

  1. Preferred return refers to the fixed rate of return paid to investors before the general partners.
  2. Equity splits refer to how profits divide between the general and limited partners.
  3. Waterfall provisions specify the order in which profits distribute to different classes of investors.
  4. Capital accounts track investors' contributions to the investment.

It is essential to understand the different types of distributions included in a real estate syndicate PPM, as they can significantly impact the overall return of the investment.

Deal Structuring: Risk Factors

This section aims to disclose any material risks to potential investors so they can make informed investment decisions.

The section should divide into three categories:

Industry risks pertain to risks that affect the real estate industry.

Company risks relate to risks specific to the company offering the securities, such as management and financial risks.

Risks related to securities are inherent in investing in the securities themselves, such as lack of market liquidity or regulatory changes.

Importance And Relevant Contents Of Investor Suitability And Qualification

This section helps protect the interests of both the issuer and investor by ensuring that only suitable investors who can bear the investment risks should participate.

To determine investor suitability, the PPM includes critical concepts such as:

Deal Structuring: Significance Of The Subscription Agreement

The subscription agreement section of the PPM outlines the specific investment opportunity offered to the subscriber. This section typically includes information on the following:

The subscription agreement also outlines the rights and responsibilities of each party involved and may include the following:

Importance Of The Operating Agreement: Syndication Private Placement Memorandum

The operating agreement is a crucial component of the PPM as it sets out the rules and regulations governing the operation of the syndication.

Other Significant Provisions

In addition to the above, the operating agreement should also address other significant provisions, such as the following:

Deal Structuring: Key Takeaways

A private placement memorandum (PPM) is a legal document companies use to raise funds from private investors or venture capitalists. It is an offering memorandum that outlines the following:

Knowing how to navigate a PPM ensures you syndicate deals benefit you. Do you want to learn more about real estate syndication investing? Sign up for our weekly FREE Group Mentoring.