A conversation with a well-known Architect-Developer Jonathan Segal about the evolution of his business model and the strategic advantages it gives him
When people need funding for a project, they often form a company, sell shares in the company, and use the money from those sales to fund their business. That’s how many real estate developers raise capital for their deals as well. They form an LLC (limited liability company) for a given project, sell shares in that company (to people who will share in the profits for that project), and use the money raised from selling shares in order to buy or build real estate. The legal document they use for this transaction is called a “PPM,” short for Private Placement Memorandum. Here’s an outstanding example of a PPM, produced by my guest’s company. In this episode we’ll be talking about this all-important system and the ins-and-outs of raising capital for real estate deals using PPMs.
My guest is Doug Ruark, whose company Reg D Resources has created over 4500 PPMs for companies of many kinds. In our chat we discussed the legal background for raising funding (00:19), the components of a PPM (7:13), the workflow for creating a PPM (18:53), getting lists of investors for 506c placements (26:54), who can actually sell the securities (29:16), selling shares as debt vs equity (38:04), whether people offer rates that are too high or too low (41:11), equity waterfalls in PPMs, which we also discuss earlier in the episode (43:37), investor audits of proceeds (46:30), and legal exposure (49:48). Hope you enjoy it!
Here are a few links to topics we discuss in the episode: overview of laws that affect securities, full-text of the Securities Act of 1933, full-text of the Regulation D exemption, the SEC’s overview of the different programs (504, 506b, and 506c), Form 1A (which is used as a questionnaire of investors for very high-grade investments), Form D (which is submitted to the SEC within 15 days of starting a raise), the SEC’s description of what a “broker-dealer” is, notes from FINRA about their Series 7 exam (required if you’re going to sell other peoples’ PPM), and an outline of the material on an exam which may be soon replacing the series 7 (the Securities Industry Essentials Test).