The Encyclopedia of Commercial Real Estate Advice

ENCYCLOPEDIA TOPIC CRaising Investor Partners

Accredited Investor: If your investors are not going to be passive investors, then you are going to have to get into bed with the SEC

As the sponsor, or deal manager, if you need to raise money to purchase a commercial property, you might already be thinking of your Uncle Henry, who is loaded, and likely some other folks that have money. Most of these people will have no interest in running a property with you. They just want to make money on their money. It is easier to attract private investors to raise equity if they are passive investors, which means they have no responsibilities whatsoever in running the property. But then things get complicated, as this arrangement will require a syndication (see later in this Topic) with a private placement memorandum (see later in this Topic), as required by securities law. The Securities and Exchange Commission (SEC) mandates that these passive investors be accredited investors, unless they have a lot of experience investing in commercial properties. To qualify they have to have a net worth of at least $1 million and a minimum annual income of $200,000 if single and $300,000 if their spouse is included. The value of the accredited investor's residence and any mortgage on it are excluded when computing the net worth. The easiest way to have your investors become accredited investors is to have their CPA or banker write an accredited investor qualification letter that verifies that they meet ...