Commercial real estate capital financing under the new securities rules is now completely different. Commercial real estate development financing business plans are now subject to being submitted to the SEC under the new securities regulations. This should be interpreted as your business plan capital financing proposal is going to be reviewed by someone in the Enforcement Division of the Securities & Exchange Commission. The days of hyperbole, unsupported material representations of fact and half-hearted pro forma financial presentations are over.
Business Plans Changed Forever…
The use of the “business plan” (really a capital funding proposal) to pitch a commercial real estate (CRE) development deal now require professional guidance and preparation. That being said, now you can use your business plan in an incredibly powerful manner that was only dreamt of in years gone by. The changes to the securities regulations mean you can now effectively advertise your opportunity – in accordance with strict rules and protocols to be sure – in a public manner before you even file your securities offering. Yes, the new rules basically mean that you will now be required to file a copy of a fully-qualified securities private placement offering memorandum with the SEC.
New Rules Create New Opportunities for CRE Development Capital Financing
CRE development capital financing is undergoing a massive upgrade, creating Capitalism version 2.0 in the commercial income-producing property development business in a way that you could not have imagined if you tried. The new regulations create the opportunity to create public securities offerings that are not accompanied by the costs and insane delays the accompany the traditional IPO in the public markets (median cost of pre-issuance organizational and offering expense being $3 million and an average processing time of 11 months for the $97 million median IPO). The changes to Regulation A crowdfunding provisions (i.e.: Section 4(a)(6)) create the opportunity to raise up to $5 million from any investor, subject to reasonable limitations and strict requirements on filings and due diligence.
Crowdfunding Offerings for Commercial Real Estate
The $5 million crowdfunding limitation is the real diamond in the entire new final rule (i.e.: Release No. 33-10884) because it may be used as early as the conceptual phase of the CRE development cycle to provide the highest tier of risk capital for CRE development projects, thus creating potentially insane levels of financial investment leverage that commercial real estate developers crave more than anything else. Where it gets real interesting is when the developer realizes that other tools and opportunities can be used to attract institutional investors into the transaction using a public venue and broadcast advertising – enter the Demo Day rule.
CRE Financing Using Demo Day Events
The new Demo Day rule allows businesses and entrepreneurs – including CRE developers – to utilize a public or virtual presentation forum to present their proposed business opportunity and financing needs to accredited investors before the registration-exemption is even filed. This creates multiple levels of opportunity for future transactions, investor pre-solicitation pool creation and access to capital that is likely to prove to be the difference in many CRE development projects. There are rules and limitations to be sure, but if you talk to experts who operate legitimate business accelerators or incubators, you can create the opportunity paradigm solution you have been looking for. We hope you will take to us about your needs.