An offering memorandum is a critical document for investors considering alternative investment opportunities, such as institutional-grade real estate.
For eligible and accredited investors looking to expand their knowledge of investment opportunities, understanding what an offering memorandum is and its importance is paramount for investors when making investment decisions that match their goals and risk profiles. In this article, we’ll cover:
- What is an offering memorandum?
- Offering memorandum vs. prospectus
- Types of issuers that use offering memorandums
- Their role and importance in real estate investing
What is an offering memorandum?
An offering memorandum is a legal document that provides investors with information about a private investment offer. It typically includes details around goals, terms, risks, and conditions that are meant to give potential investors the information they need to make an informed investment decision: for example, background on the issuer, financial statements, potential risks, management team, and so on. It’s used primarily by companies that are raising capital privately vs. publicly.
In Canada, public investment offerings require a prospectus. However, there is a regulatory provision – the offering memorandum exemption – which allows certain issuers, such as exempt market dealers, to raise funds without a prospectus. This exemption helps streamline capital raising while also ensuring that investors are given everything they need to make informed decisions.
The differences between an offering memorandum and a prospectus
The simplest distinction between the two are that offering memorandums are used for private investments aimed at eligible and accredited investors, while a prospectus is used for public offerings and is intended for a broader, often less experienced audience.
Both provide important information about investment opportunities, but there are notable differences:
- Different regulatory requirements: A prospectus must be filed with and reviewed by regulators for any securities issued to the public. In contrast, an offering memorandum can be used in private offerings which are exempt when certain conditions are met
- Restrictions on Access: Securities offered via an offering memorandum are typically restricted to eligible and accredited investors, whereas those offered through a prospectus are available to the general public.
- Level of detail: A prospectus contains very detailed information since it is intended for a wider audience, including retail investors, who may lack the same level of knowledge and experience as qualified investors.
Given the regulatory requirements and level of detail involved with issuing a prospectus, they tend to be more time and cost-intensive than an offering memorandum.
Types of issuers that use offering memorandums
- Private real estate companies: Offering memorandums provide detailed information about properties, investment strategies, and the potential risks involved in private real estate investment opportunities for qualified investors.
- Startups or small businesses: Some early-stage companies finding it difficult to secure traditional financing can turn to private placements to raise capital, without the extensive regulatory requirements and costs associated with a prospectus
- Private equity and venture capital firms: These firms often use offering memorandums from high-net-worth and institutional investors.
- Companies undergoing a restructuring or recapitalization: Some companies may use an offering memorandum to raise additional capital or to restructure through private placements.
The purpose of an offering memorandum in real estate investing
In private real estate opportunities, offering memorandums function to give investors what they need to make informed investment decisions that align with their financial goals and risk tolerance. Typically, they include:
- Details about the property: Location, property type, projected returns, investment horizon, and more.
- The investment strategy: Details on the investment approach, such as value-add, opportunistic, core plus, etc.
- Management team: Who will be managing the investment, executive team, their experience and qualifications, track record, and more.
- Financial data: Potential returns, historical or projected financial information, expenses or rental income.
- Risk factors: Market conditions, regulatory considerations, property-specific risks, etc
The information outlined in the offering memorandum is important as it gives potential investors the ability to do their due diligence and assess each investment opportunity. They are then able to weigh potential risks and rewards and determine if it aligns with their needs and goals.
Investing with Parvis
Parvis is a registered Exempt Market Dealer offering institutional-level private real estate investment opportunities
For Canadian investors interested in this asset class, Parvis provides comprehensive information detailing each of its expertly-vetted projects: property portfolios, investment strategies, management teams, financial data, risk factors, and more.
To access more information about our investment opportunities and start investing, sign up to the platform today, or book a meeting with one of our representatives below.