Private real estate offerings come with thick stacks of paper. A typical private placement memorandum runs 80–200 pages. It's intimidating to anyone evaluating one for the first time. Here are the five sections to read first — and how to know if the rest deserves your time.
1. The sponsor
This is the most important section in any offering. Who's running the deal? What's their track record? How long have they been operating? Have they completed full cycles — acquisition, hold, and exit — on similar deals before?
A sponsor with a 15-year track record on 50 properties is a different animal than a first-time sponsor with a great pitch deck. Both can produce great returns. They carry different risk profiles.
Read the sponsor section like you're reading a resume: check dates, completed deals, deals that didn't work out, and the lessons that were learned. A sponsor who only lists wins isn't being fully honest.
2. The fee structure
How does the sponsor get paid? Look for:
- Acquisition fee — often 1–3% of purchase price. Standard.
- Asset management fee — often 1–2% of equity raised annually. Standard.
- Promote / carried interest — the share of profits above a preferred return. Often 20–30%, sometimes higher.
- Disposition fee — 1–2% at sale. Common.
What you want to see: fees that align the sponsor with you. A sponsor who only makes money on the promote (above a hurdle return) has more skin in the game than one paying themselves heavily through fees regardless of outcome.
3. The capital stack
How is the deal financed? Typically:
- Bank debt (40–75% of total)
- Investor equity (the remaining)
- Sometimes a preferred equity tranche or mezzanine layer
Higher leverage means higher returns when things go well and bigger losses when they don't. Conservative deals run 60–70% debt. Aggressive deals run 80%+. Know what risk you're taking.
4. The risk factors section
This is the section everyone skips and shouldn't. Risk factors are required by securities regulations to disclose every material risk. Sponsors write them in dense legalese, but read them.
Most risks are boilerplate ("real estate markets fluctuate"). What you're looking for is sponsor-specific risks: pending litigation, key-person dependencies, related-party transactions, conflicts of interest. These tell you what's unusual about this offering.
5. The distribution waterfall
This describes who gets paid what, in what order. A typical structure:
- Preferred return — investors get a stated annual return (often 6–9%) before sponsor takes any promote
- Return of capital — investors get their principal back
- Promote split — remaining profits split between investors and sponsor (often 70/30 or 80/20)
Some structures have additional hurdles ("first 10%: 80/20; above 10%: 70/30"). Understanding exactly how distributions flow is essential to modeling your return.
What you can skip on first read
- Boilerplate legal disclaimers (read once, ever)
- State-specific securities exemption details
- Generic real estate market risk language (you know this)
- Glossary of defined terms (refer back as needed)
Funds are diversified across many deals. Private offerings are concentrated in one or a few. The trade-off: you get more control over each underwriting decision (you can say no), and you get direct access to the operators. Funds offer convenience; private offerings offer specificity.
Both have a place. The choice depends on how active you want to be in your investing.
If you're an accredited investor researching how private real estate works, we're happy to chat — see our investor relations page for an introduction. Note: this article is educational only and does not constitute an offer of any security.