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Offering Memorandum (OM)- Real Estate Template

What is an offering memorandum (OM)?  

Generally, a private placement’s offering memorandum – OM is a legal document that states the investment’s objective, risks, and terms. The offering memorandum document includes company financials, management biographies, and detailed business operations information.

What is the difference between a prospectus vs. an offering memorandum?

All securities offered to investors in the US must comply with federal provisions to ensure they aren’t fraudulent. The prospectus and offering memorandum are disclosure documents provided to prospective investors to formulate informed investment decisions.

The difference between a prospectus vs. an offering memorandum is that the OM is a document used in a private placement (securities that are not sold to the public), while a summary prospectus is provided to investors by mutual fund companies before or during the time of sale to the general public.

What is an offering memorandum (OM) in real estate?

One of the most important legal documents in commercial real estate private placement is an offering memorandum. The function of an offering memorandum in real estate is to provide information for potential investors as to whether they should move forward with a real estate investment. The offering memorandum informs potential investors about the objectives of the investment, some of the risks involved, as well as the terms and conditions on which they’re being offered. The real estate investment memorandum will cover a generous amount of legal information and marketing materials.

Let’s take a look at a real estate offering memorandum template below to show you the elements that should be included in any commercial real estate offering memorandum.

Real estate offering memorandum template

The Elements that Should Be in Every Offering Memorandum in Real Estate

An OM is used in various types of real estate transactions, so its information will depend on the deal. In commercial real estate, offering memorandum’s are most commonly provided by commercial real estate brokers that are facilitating the sale between the buyers and the seller of the asset. Real estate syndicators or sponsors will also create offering memorandums to prospective investors for real estate syndications. 

The following is a list and explanation of the different aspects that should be included in a real estate Offering Memorandum:

– Confidentiality and Disclaimers
The real estate OM will, in most cases, begin with a non-disclosure and confidentiality agreement. Please see examples of general and financial disclaimers below. 

Example of a General Disclaimer

This Offering contains privileged and confidential information, and unauthorized use of this information in any manner is strictly prohibited. If you are not the intended recipient, please notify the sender immediately. The Offering Memorandum is for informational purposes and not intended to be a general solicitation or a securities offering of any kind. The information contained herein is from sources believed to be reliable; however, no representation by Sponsor(s), either expressed or implied, is made as to the accuracy of any information, and all investors should conduct their own research to determine the accuracy of any statements made. An investment in this offering will be a speculative investment and subject to significant risks, and therefore investors are encouraged to consult with their personal legal and tax advisors. Neither the Sponsor(s) nor their representatives, officers, employees, affiliates, sub-contractors, or vendors provide tax, legal, or investment advice. Nothing in this document is intended to be or should be construed as such advice.

Example of a Financial Disclaimer

The Executive Summary further contains several future financial projections and forecasts. These estimated projections are based on numerous assumptions, and hypothetical scenarios, and Sponsor(s) explicitly makes no representation or warranty of any kind with respect to any financial projection or forecast delivered in connection with the Offering or any of the assumptions underlying them. This Executive Summary further contains performance data that represents past performances. Past performance does not guarantee future results. Current performance may be lower or higher than the performance data presented.

– Executive Summary 

An Offering Memorandum will include an executive summary that will disclose a high-level overview of the highlights of the investment offering, the property, the market and submarket, and the parties involved in the transaction.

– Investment Summary 

The investment summary, also referred to as the offering summary, would include the following: 

  • The listing price
  • The selling price 
  • Current NOI of the property
  • Average rent per square foot
  • Rentable SF 
  • Average unit size 
  • # of Units
  • Lot size 
  • Occupancy 99%
  • Year built

– Property Overview 

The property overview will contain all relative information related to the property, including but not limited to: 

  • Property details 
  • Construction details
  • Utility details
  • Unit mix
  • List of amenities
  • Photo gallery of interior and exteriors
  • Regional Map
  • Ariel map
  • Floorplans 
  • Site map

– Rent Comparables

Rental comps show how rental properties with the same or similar features compare in one area. Rent comps are important to analyze as a buyer or investor because they help you understand how the investment property performs compared to properties in the same submarket. 

  • Rent comparable map
  • Rent comparable summary 

– Market Overview

  • Overview of the market (i.e., population/job growth, employment, economic diversification, transportation, etc.)
  • Overview of the submarket (i.e., local retailers, employment, and entertainment, etc.)
  • Demographics (i.e., average household income, education, home value, etc.)

– Financial Details

Financial details in a real estate offering memorandum will include the following: 

  • Rent roll summary
  • Operating Statement
    Growth rate projections
  • Debt on the property and how the investment funds will be sourced and used. 
  • Deal Structure and Splits – how the revenue will be distributed
  • Investor returns including the preferred return, IRR, average annualized return, cap rate
  • Fee’s- asset management, construction management, property management, etc.
  • A sensitivity analysis will show how an investor’s return would be impacted in best and worst-case scenarios. 
  • Loan Terms