Most TICs are structured and offered as securities under the Securities Act of 1933 which requires the investor to be provided with a private placement memorandum (PPM) created out of significant due diligence from the real estate company, the lender, and the securities industry. Therefore, the investor can now enjoy the best of both worlds--the full disclosure of a security and the tax advantages of real estate!

A PPM is the document that should disclose everything the investor of a new offering will need to know in order to make an informed investment decision. This includes: the offering structure, the structure of the company, SEC disclosures about the interests being purchased, company information, information on company operations, risks involved with the investment, management information, use of proceeds, information on certain transactions that could affect the investor, and investor suitability data. The PPM also includes the subscription agreement, which is the actual "sales contract" for the offering. This is the document that the investor will sign and send in with their investment funds. The PPM is prepared by the insurer (Sponsor) of the offering.

The PPM is very important because it provides the investor with all of the information and disclosures that they will need to make an investment decision and includes the actual documentation to effect the investment transaction. PPM's are designed as a stand-alone document - meaning that there need not be other information presented to the investor for them to make an accurate investment decision.

Regulation D, better known as Reg D, which became effective April 15, 1982 is one of the key exemptions under SEC rules for sponsors that wish to raise money by selling equity. Reg D contains the kind of exemptions that many entrepreneurs have been looking for. These exemptions can easily be used in private or limited offerings. Thus, the Reg D private placement document, better known as the Private Placement Memorandum, has been considered to be one of the most workable exemptions for small offerings, such as TIC offerings.

Thus, by using a PPM pursuant to a Reg D offering, TIC sponsors can meet the requirements of the Securities Act in a manageable fashion, while providing potential investors with the disclosures and protections required by the Act.

As stated above, the PPM is intended to provide all of the information necessary for an investor to make an informed decision about a prospective investment. At a minimum, a PPM should contain the following (for a detailed overview of each of these sections please contact Cornerstone Exchange Services. We will be glad to discuss them with you or send you additional literature on the matter):

1. The cover page and securities legends;
2. Suitability standards for investors
3. Summary of the offering & use of proceeds
4. Risk factors
5. Capitalization of the company or venture
6. Use of proceeds from the offering
7. Plan of distribution of the securities
8. The business of the company or venture
9. Selected financial data
10. Management & compensation
11. Conflicts of interest by management
12. Terms of the securities offered
13. Tax matters
14. Legal matters
15. Documents available for inspection
16. Financial statements
17. Financial projections
18. Exhibits

By nature these documents are long and detailed. As a result, many investors would prefer to look at just an executive summary, or at marketing material with pretty pictures and vague statements about how well the investment will do. This would be a very big mistake. The PPM is the Sponsor's chance to disclose all of the risks and conflicts associated with their offering. It is also the investors chance to objectively review these risks and conflicts.

A PPM is not a marketing document. Instead, it is a document that should allow an investor to determine all of the risks and conflicts of a prospective investment - while also discussing the various opportunities and potential rewards of the investment. In other word, it should be a stand-alone document that allows an investor to make an informed decision about the potential investment.

Typically, a PPM will include copies of the LLC agreement (if any), the TIC agreement, the management agreement and the subscription documents. These are the actual documents that will govern operation of the property and are therefore critical in the review of the investment.

No prospective investor should invest, or commit to invest in any offering where they have not first fully reviewed each of these documents. In addition, regardless of their desire to invest in the offering, no investor should ever invest in an offering if they are not willing and able to comply with the terms and conditions contained in these documents.

A PPM can be a daunting document for the average investor. However, if one breaks down the various sections, it can be a very useful guide to compare one investment against another. A properly written PPM educates and protects the investor, discloses the risks and opportunities of the investment and protects the Sponsor from certain types of liability. Not bad for one little document.