SEC Regulation D
A “Private Placement Memorandum” is a solicitation for funds for an investment, such as a real
development. Regulation D of the Securities and Exchange Commission requires PPMs to solicit or
advertise securities such as an equity investment in a Limited Liability Corporation, which is
typically used for developments. See http://www.sec.gov/answers/regd.htm.
These regulations are especially important for development, where there are large sums of money,
high risks, and high leveraging. The PPM requires the seeker of funds to inform a potential investor
about all the risks and present all the important facts about the investment. The PPM protects the
investor from dishonest scams, but it also protects the seeker of funds from being sued by a
disgruntled investor.
A PPM typically has about 3 pages of boiler-plate warnings about risk and a page of details about
the terms of the offering. It is typically mailed hard copy to a qualified investor, and each copy
numbered for that investor, with the investor’s name on it.
There are three major types of sources of funds: friends and family, wealthy individuals, and
institutional investors. Specialized financial firms in major cities act as intermediaries between
institutional investors and developers. Such firms raise large amounts of money in “Commingled
Real Estate Funds” (pooling funds from several sources) to invest in several development projects.
The thirty biggest of these firms each manage $2.5 billion or more in property.
To receive a PPM, the potential investor must be accredited, defined as:
Certain institutional investors (banks, certain employee benefit plans, charitable corporations)
regardless of capitalization;
Insiders (management);
Individuals whose net worth exceeds $1 million or whose individual income exceeds $200,000
($300,000 if married);
Any investment company with assets in excess of $5 million;
Investors whose combined considerations satisfy the previous criteria (i.e. a head of a $4.5
million fund has $500,000 of his own money to invest also, would qualify)
What you are reading here is, obviously, not a solicitation or advertisement, for investors. Its
purpose is to inform the public, including planners and advocates of sustainable development, about
the details of a usually confidential and mysterious process known only to those in the business. The
development business has a lot of inertia, necessarily evolving slowly and conservatively to build
what market analysts are confident people will buy.
The analyses are necessarily based on looking at the past, which is a good guide to the near term
future, but a poor guide to the longer term and to what needs to be done for sustainability. Most
investors and developers would not touch Bayview Village with a ten foot pole. The project
requires “patient green” investors willing to invest in sustainability and take the risk of low returns.
That also reflects the difference between the managers we have and the entrepreneurs we need.