An investment offering provides investors with the information they need to know to decide whether to invest or not in a particular opportunity. This is no different for tenant-in-common (TIC) offerings. In this article, we'll go over what to expect in a TIC offering and the associated subscription letter.
If you've invested in a mutual fund, you likely received a prospectus, either digitally or through the mail. The prospectus tells investors about the fund's strategy, risks, and fees.
A TIC offering is called a private placement memorandum (PPM). A PPM is required for securities that are filed through Regulation D. Reg D allows securities filings to bypass the full SEC registration that is a requirement for any public securities filing. This is an exemption to the requirements of the Securities Act of 1933. The trade-off for that exemption is that only accredited investors are eligible to invest. Reg D is also why TICs are restricted to 35 investors.
Potential investors are provided a PPM before a subscription letter. The subscription letter is a legally binding document for the deposit of a specific amount of investor funds into the investment.
The general workflow of these two documents is that an investor finds a potential investment, requests a PPM, reviews it, and decides to invest a specific amount of money. The investor then receives the subscription letter. Once the subscription letter is signed, the investor is legally bound to invest the amount documented on the subscription letter.
Note that a TIC offering document is different from a TIC agreement. The Agreement can be issued with the subscription letter. Whereas the offering should go out before any investment is made. The TIC agreement is another legally binding document that includes:
- Percentage ownership
- How the property will be used
- What happens upon the death of the co-owner
- How the property is managed
Think of the TIC agreement as specific to an investor and the PPM as general to all potential investors.
What's in the Offering?
The PPM is a thick booklet. It's important that any potential investor goes through it thoroughly, so they fully understand the investment. Even better is to have their legal team look through the PPM.
Investors will find the following in the PPM:
- Description of the business
- Financial statements
- Associated risks
- Investment objective/strategy
- Fee structure
- How much the sponsor paid for the property
- Sponsor’s profits
The PPM results from the sponsor's due diligence and disclosures related to the property.
The TIC opportunity may advertise an overview of the property, which might be how potential investors discover it. However, an advertisement will lack the details needed for an investor to make an informed decision. That's why requesting the PPM is essential before investing in any TIC opportunity.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status or professional experience.
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