Regulation D Offerings: Issuers, Investors, and Intermediaries
The Reg D offering market is similar to
the public offering market in capital raised and has been growing
rapidly over recent years. The proceeds from Reg D offerings sold
between 2021 and 2023 total $6.2 trillion, 23% more than the capital
raised in registered offerings over the same period and a 86%
increase over the proceeds from Reg D offerings sold during 2011-2013. Reg D securities have recently been sold to more investors
per offering with a less amount sold per investor, suggesting an
increasing retail preference for unregistered securities. Intermediaries
play an important role in reaching retail investors. Offerings
sold by broker-dealers with more retail clients and offerings sponsored
by investment advisers with more wealthy individual clients
are purchased by more investors per offering and raise less capital
per investor. Investors of unregistered offerings must be wary of
intermediariy misconduct and conflicts of interest. Broker-dealers
that receive more commissions and specialize in selling unregistered
offerings tend to receive more customer complaints stemming from
unregistered securities. Investment advisers with non-fund clients
are more likely to disclose conflicts of interest in regulatory filings
when they sponsor Reg D offerings, indicating that they allocate
client funds in self-sponsored unregistered securities.
Private Placement Real Estate Valuation
Published in the Journal of Business Valuation and Economic Loss Analysis Volume 9, Issue 1, January 2014.
As a result of the Securities and Exchange Commission's relaxation of its prohibition against the marketing of private placements, investors will soon be exposed to a broad array of syndicated commercial real estate investments. Private placement commercial real estate investments are illiquid and so cannot be easily valued by reference to frequent transactions in the same asset in active markets.
We have reviewed over 200 syndicated commercial real estate private placement memorandums and find that virtually all include projected cash flows. This study explains how investors and their advisors can use these projections to develop estimates of investment value. We determine a lower bound for discount rates applicable to the cash flows derived from commercial real estate and apply the methodology to an actual commercial real estate private placement investment. Our findings suggest significant overvaluation by commercial real estate private placement investment sponsors even when using conservative estimates of discount rates.