Regulation D Offerings: Issuers, Investors, and Intermediaries
The Reg D offering market is
similar to the public offering market in terms of total amount of
capital raised and has been growing rapidly over recent years. The
proceeds sold through Reg D offerings between 2021 and 2022 equal
$4.4 trillion, 13% more than the public offering proceeds during the
same period and a 46% increase over the Reg D offering proceeds
during 2019-2020. Reg D securities have been sold to increasingly
more investors per offering with less amount sold to each investor
over the past decade, suggesting an increasing participation in unregistered
offerings by retail investors. Broker-dealers and registered
investment advisers (RIA) play an important role in reaching
retail investors: Offerings sold by broker-dealers with a larger
retail clientele and offerings sponsored by RIAs with more highnet-
worth individual clients are sold to more investors and raise
less capital from each investor. Investors must be wary of potential
misconduct and conflicts of interest when hiring intermediaries for
investments in unregistered securities. Broker-dealers receiving a
higher rate of sales commissions and those specializing in Reg D
offerings tend to receive more customer complaints arising from
unregistered securities. RIAs advising non-fund clients are more
likely to disclose a conflict of interest in regulatory filings when
they sponsor Reg D offerings, indicating that these advisers invest
their own clients' 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.