Syndication: PPM Creation Tool

So you're ready to invest in real estate syndications. This type of investing is complex, with many different factors at play that are outlined through PPM documentation. Tools that make the process easier are invaluable, as with any complicated investment.

Stephen Slawinski shows the power of a PPM creation tool in Episode #64 of Royal Investing Group Mentoring. Watch the detailed walkthrough here!

In this blog, we curated the critical information that you should have available as you start your investing adventure.

Private Placement Memorandum (PPM) Deal Structures

Several different types of PPM deal structures exist.

Identified Deal

An identified deal is a PPM deal structure where the investor knows what and where they are investing:

• They are for specific projects such as real estate or venture capital investments.
• Investors will know precisely how the syndication uses their money and what returns they can expect.
• It offers more security since they know what they are investing in.

Non-Specified Fund

A non-specified fund is a PPM deal structure where the investor does not know what they are investing in but instead invests in a pool of assets managed by an investment firm:

• allows diversification across multiple asset classes without researching each asset
• The firm will manage the portfolio according to the investor's risk profile and goal.

Semi-Specified Fund

A semi-specified fund is similar to a non-specified fund but with more transparency:

• The investor still has some diversification.
• Has more control over which assets they invest in and how much they invest in each asset class

Feeder Fund

A feeder fund is a PPM deal structure where one or more funds "feed" into another larger fund that then invests those funds into various assets on behalf of the investors:

• Allows investors access to economies of scale by pooling their resources with other investors with similar goals and risk profiles
• A larger fund invests those pooled resources into various assets at lower costs than if each investor had invested separately into those same assets.

Opportunity Zone

An opportunity zone is a PPM deal structure that allows investors to defer paying taxes on capital gains until 2026 if they invest those gains into certain designated areas as defined by the US Treasury Department's Opportunity Zones program.

Issuer's Information (PPM)

The section of the issuer's information provides prospective investors with detailed information about the offering, including the terms and conditions of the security offered, any risks associated with investing in it, and other vital details.

When you provide information about this section, you'll also need to consider the following:

• Class A Members: Investors
• Class B Members: Sponsors
• LLC vs. LP (LLC is preferable in most cases)

What's The Management Entity In A PPM?

A management entity is any individual or group assigned to manage a project. In real estate syndications, this could include:

• sponsors
• brokers
• property managers

The management entity is responsible for the following:

• developing a business plan for the project
• organizing financing
• selecting properties for investment
• managing assets
• overseeing operations

Sponsor's Information

A real estate sponsor has experience structuring and raising funds for a deal. The sponsor also plays a significant role in decision-making throughout the life of the syndication.

Typical Fees Outlined In a PPM

In this section, you'll determine the type, amount, and timeline of fees. Fees may be a way for you to generate income from your investment in syndication. 

Standard fees include the following:

• Acquisition fees cover the expenses for arranging a loan or lease agreement.
• Asset management fees come from asset management, financial planning, and portfolio management. 
• Disposition fees are costs associated with the sale of an investment property.

PPM Offering Information

In this section, you'll determine whether you'll have a 506(b) or 506(c):

• 506(b) is a private placement offering that allows companies to raise unlimited money from accredited investors and up to 35 non-accredited investors. 
• 506(c) offering is an exemption from registration that allows companies to raise capital from accredited investors. They use social media and other advertising techniques to solicit investments from accredited investors.

Accredited Investors

An accredited investor is an entity allowed to trade securities unregistered with financial authorities:

• Net worth that exceeds $1 million, either alone or combined with their spouse
• Have an income of at least $200,000 annually (or $300,000 with their spouse).

Accredited investors include banks, financial institutions, and other large corporations with access to complex, high-risk investments.

What is a True Up Provision?

A True Up Provision is an accounting adjustment that reconciles two or more balances, often with the help of an adjustment. It also involves adjusting purchase prices based on changes in value since the closing date of a transaction.

It is usually made at the end of a fiscal year or after a transaction has closed. Accountants will review all relevant financial information and make necessary adjustments to ensure accurate records.

Key Takeaways

When investing in a real estate syndication, there are many considerations. It's mountains of information and documentation, and Slawinski's syndication PPM Creation Tool guides you through the process.

If you have questions about syndication real estate investing or general questions about real estate investing, join us in Royal Investing Group Mentoring. It's free and contains valuable information to help you navigate your real estate investing journey.