For Sponsors looking to raise capital, seeking out limited partners is generally the most popular path. However, once you take on LPs, you become subject to the rules and regulations of the Securities and Exchange Commission (SEC). As a General Partner in the industry, it’s crucial to familiarize yourself with 506(c), a private placement exemption under Regulation D (Reg D).
Reg D defines how private securities offerings occur, providing exceptions that businesses rely on to issue securities to investors. When structuring syndicated real estate offers under Reg D guidelines, there are many considerations to utilizing 506(c), such as:
- Digital advertising improvements to your reach by utilizing general solicitation rules.
- General solicitations must go to accredited investors.
- SEC requires securities issuers to verify accreditation of its’ investors.
- Form D compliance with SEC & states.
Real Estate Syndication Offerings Under Reg D 506(c)
506(c) allows private equity firms and individual syndicators to advertise their deals only to accredited investors and must initiate the required steps to verify the purchasers’ accreditation status. To validate the investors’ accredited status, a Sponsor could request prepared financial documents, tax returns, brokerage, or other financial statements, from their CPA, likewise, issuers can utilize a platform like Madison Avenue Technology to host their offering, and which provides built-in third-party accreditation. Under these specifications, issuers may advertise their offering if they meet the criteria and include the appropriate language and disclaimers. General solicitation is a tremendous advantage to 506(c), and certainly increases the chances of having a successful raise.
Real Estate Syndication Offerings Compliance Form D
Ensuring you stay compliant with all SEC & state filing requirements is very important, as you don’t want to expose yourself to the risk of losing your exempt offering status. Form D notice is due within 15 days of your first sale of securities in the exempt offering. For this purpose, the date of the first sale is the date on which the investor is irrevocably contractually committed to invest. If the due date falls on a weekend or a holiday, it is moved to the next business day. There is no filing fee for a Form D notice to the SEC. Form D notices need to be filed electronically through EDGAR, and to file with EDGAR, you must retrieve your Central Index Key (CIK number) and access codes. If you do not already have these assigned to your company from a previous raise/filing, you would apply by completing and submitting the application for EDGAR access online through Form ID. These steps should be completed in anticipation of your raise and Form D filing notice, as they can take several days to process and receive the email.
Once you’ve got your CIK number and access codes, and have made the first sale of securities in your Reg D exempt offering, you would visit EDGAR Filing and use the access codes you generated to log into EDGAR. When you are logged into the system, choose “Form D” under “Make a Filing”.
Further to note, each state in which you raise capital may have a “Blue Sky” Form D notice filing due as well, most accommodate electronic filing through an Electronic Filing Depository (EFD), and fees for filing vary by state.
When raising capital through private placements, your due diligence is critical in ensuring that you maintain compliance with the SEC as an issuer. A conversation with an SEC attorney may be a vital piece in helping you decided the approach for your next offering and discuss, at length, exemptions that fit your circumstance.
506(c) Offering Management and Performance
Creating, managing, and monitoring your offering(s) to syndicate capital can prove rather challenging without the right software. Fortunately, there are unique software solutions, such as Madison Avenue Technology, that offer a white label automated Reg. D 506(c) compliant capital syndication platform, and is a viable digital alternative to the expensive, antiquated, time-consuming old way of bringing your next offering to market. Madison’s 506(c) compliant digital platform reduces your time & expenses by up to 90% and brings your offerings to life with an elegant digital PPM, Sponsor dashboard, dynamic document creation, investor portal, and analytics to track it all. Links from a landing page to a gated pitch deck, and to ultimately your digital PPM – A proven 1-2-3 funnel for generating interest in your offerings, all created for you. Being compliant and marketing for investors has never been faster or cheaper.