For guidance purposes only. Not comprehensive or legal advice.
Designed for business, CRE professionals as part of the earlier Mainframe, Mini/PC, CADD, Web, Mobile/Cloud revolutions.
Click to expand or collapse, or click the ► after each term to open individually
Individual with a net worth of at least $1 million, not including the value of his or her primary residence
Individual with income exceeding $200,000 in each of the two most recent calendar years or joint income with a spouse exceeding $300,000 for those years, and a reasonable expectation of the same income level in the current year
Director, executive officer, or general partner of the company selling the securities
Bank, insurance company, registered investment company, business development company, or small business investment company
Employee benefit plan (within the meaning of the Employee Retirement Income Security Act) if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million
Tax-exempt charitable organization, corporation or partnership with assets in excess of $5 million
Enterprise in which all the equity owners are accredited investors
or Trust with assets of at least $5 million, not formed only to acquire the securities offered, and whose purchases are directed by a person who meets the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment. Exemption. 2
Angel Investor
A high-net-worth individual who provides capital to early-stage startups or entrepreneurs, typically in exchange for convertible debt or equity ownership. Angel investors often invest their own funds (distinguishing them from institutional venture capitalists who manage pooled money) and frequently bring industry expertise, mentorship, and professional networks in addition to capital. Typical angel investments range from $25,000 to $500K, though angel groups or syndicates can deploy significantly more. Most angel investors qualify as accredited investors under SEC rules. Returns are highly variable – many investments fail, but successful exits can return 10x to 30x or more. Angel investing is often the bridge between friends-and-family financing and formal venture capital rounds. 4
Bridge Loan
A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate or inventory. Also known as "interim financing, "gap financing" or a "swing loan. As the term implies, these loans "bridge the gap" between times when financing is needed. They are used by both corporations and individuals and can be customized for many different situations. For example, let's say that a company is doing a round of equity financing that is expecting to close in six months. A bridge loan could be used to secure working capital until the round of funding goes through. In the case of an individual, bridge loans are common in the real estate market. As there can often be a time lag between the sale of one property and the purchase of another, a bridge loan allows a homeowner more flexibility. 1
Capital Stack
The layered structure of all financing used to fund a project or company, arranged from lowest risk/return to highest risk/return. A typical real estate capital stack from bottom to top:
Senior Debt. First-lien mortgage or construction loan. Lowest risk, lowest return, paid first in liquidation. Typically 50–65% of total capitalization.
Mezzanine Debt / Preferred Equity. Subordinate to senior debt but senior to common equity. Higher interest rate or preferred return (typically 8–14%) compensates for higher risk. Often convertible to equity.
Common Equity / LP Equity. Last paid in liquidation, highest risk, highest potential return. Typically receives remaining cash flow after debt service and preferred returns are satisfied.
GP Equity / Promote. General partner's ownership stake plus carried interest (promote) – the GP’s share of profits above a preferred return hurdle, typically 20–30% of profits above the hurdle.
Understanding the capital stack is essential for structuring deals, negotiating terms, and projecting investor returns at each level. 4
Capitalization Rate (Cap Rate)
A method used to estimate the value of an income-producing property based on the rate of return on investment. Cap Rate is calculated as Net Operating Income divided by current property value:
Formula: Cap Rate = NOI ÷ Current Property Value
Example: Connect Towers has an NOI of $70,000 and a current property value of $1,000,000. $70,000 ÷ $1,000,000 = 0.07 = 7% Cap Rate
Cap rates function inversely to property values – when cap rates compress (fall), property values rise, and vice versa. They vary significantly by property type, market, location, and quality (Class A vs. B vs. C). A lower cap rate generally indicates lower perceived risk and/or a stronger market (e.g., core urban multifamily at 4–5%); a higher cap rate signals higher risk or a secondary/tertiary market (e.g., rural retail at 8–10%). Cap rates are the primary valuation shorthand in CRE transactions – knowing the market cap rate for a given asset class and submarket is foundational to deal underwriting. 3,4
Cap Table (Capitalization Table)
A spreadsheet or ledger that details the equity ownership of a company, including all shareholders, their ownership percentages, types of equity held (common stock, preferred stock, options, warrants, convertible notes), and the value of each stake at various valuation scenarios. Cap tables are critical for fundraising (investors analyze them before committing capital), equity compensation planning (tracking employee stock options), exit planning (modeling distributions at various sale prices), and dilution analysis (understanding how new financing rounds affect existing holders). A clean, accurate cap table is a prerequisite for closing any institutional financing round. Common tools include Carta, Pulley, and Shareworks. 4
Convertible Note
A short-term debt instrument that converts into equity upon a triggering event, typically the next qualifying financing round. Widely used in seed-stage investing because it avoids the need to set a company valuation at an early stage when valuation is highly uncertain. Key terms:
Interest Rate. Accrues (typically 4–8% annually) and converts along with principal at the triggering event.
Conversion Discount. Noteholders convert at a discount (typically 10–30%) to the price paid by new investors in the triggering round – rewarding early risk.
Valuation Cap. A maximum valuation at which the note converts, protecting early investors from excessive dilution if the company's valuation rises dramatically before conversion.
Maturity Date. If no qualifying round occurs before maturity, the note may demand repayment, convert at a negotiated price, or trigger a default – terms vary by agreement.
Convertible notes have been largely supplanted at the seed stage by the SAFE (Simple Agreement for Future Equity) in many markets, though notes remain common where investors require interest accrual or specific maturity protections. 4
CrowdFunding
The use of small amounts of capital from a large number of individuals to finance a new business venture. CrowdFunding makes use of the easy accessibility of vast networks of friends, family and colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word out about a new business and attract investors. CrowdFunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists. In the United States, CrowdFunding is restricted by regulations on who is allowed to fund a new business and how much they are allowed to contribute. Similar to the restrictions on hedge fund investing, these regulations are supposed to protect unsophisticated and/or non-wealthy investors from putting too much of their savings at risk. Because so many new businesses fail, their investors face a high risk of losing their principal. 1
Debt Financing
When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid. The other way of raising capital is to issue shares of stock in a public offering. This is called equity financing. 1
Equity Financing
The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. Also known as "share capital. This is when a company raises money by issuing stock. The other way to raise money is through debt financing, which is when the company borrows money. 1
FINRA (Financial Industry Regulatory Authority)
A non-governmental self-regulatory organization authorized by Congress to oversee U.S. broker-dealers. FINRA licenses and regulates approximately 3,500 broker-dealer firms and 600,000+ registered representatives. Critical issues for private capital raises:
Broker-dealers participating in Reg D offerings must comply with FINRA suitability, disclosure, and compensation rules
Paying unregistered persons (finders) to solicit investors is a federal securities law violation and can trigger investor rescission rights against the issuer
BrokerCheck (brokercheck.finra.org) allows anyone to verify broker and firm credentials and disciplinary history
FINRA Rule 5123 requires members selling private placements to file offering documents within 15 days of the first sale
The ratio of a building’s total floor area to the total area of the lot on which it sits. FAR is a zoning tool used by municipalities to regulate building density and volume – it controls how much building mass can be placed on a given piece of land, regardless of building height or footprint configuration.
Formula: FAR = Building Floor Area ÷ Total Lot Area
Example: Connect Towers is a 50,000 sq ft building on a 100,000 sq ft lot. 50,000 ÷ 100,000 = 0.5 FAR
A FAR of 1.0 means the total floor area equals the lot area (achievable with a single-story building covering the entire lot, or a two-story building covering half the lot, etc.). Higher FARs enable denser development – urban high-rise markets may allow FARs of 10:1 or more. For AEC and CRE developers, FAR is a critical entitlement constraint that directly determines development potential and therefore land value. 3,4
General Partner (GP)
In a limited partnership or private fund structure, the managing entity responsible for operating the partnership, executing investment decisions, and bearing unlimited personal liability. In real estate syndications and private equity:
Responsibilities. Deal sourcing, underwriting, execution, asset management, investor reporting, and all strategic decisions
Capital Contribution. Typically 1–5% of total equity (the GP co-invest), aligning incentives with LP investors
Compensation. Acquisition fee, asset management fee (1–2% of equity or AUM), and promoted interest (carry) – typically 20–30% of profits above a preferred return hurdle
Liability. GPs bear unlimited personal liability for partnership obligations; most GPs operate through LLC entities to limit personal exposure
See also: Limited Partner (LP), Capital Stack, Syndication. 4
Hybrid Instrument
An investment product that combines the attributes of an equity security with a debt security. Generally, hybrid instruments are designed as debt-type instruments with exposure to the equities market. Examples of hybrid instruments are convertible bonds, preferred stocks, equity default swaps and structured notes linked to an equity index. Also called Hybrid Securities. -- InvestorWords 1
In-House Financing
A type of seller financing in which a firm extends customers a loan, allowing them to purchase its goods or services. In-house financing eliminates the firm's reliance on the financial sector for providing the customer with funds to complete a transaction. The automobile sales industry is a prominent user of in-house financing. Many vehicle sales rely on the buyer taking a loan, in-house financing allows the firm to complete more deals by accepting more customers. Whereas banks or other financial intermediaries might turn down a loan application, car dealerships can choose to lend to customers with poor credit ratings. 1
Initial Public Offering - IPO
The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market. Also referred to as a "public offering. IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future because there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, which are subject to additional uncertainty regarding their future values. 1
Inventory Financing
A line of credit or short-term loan made to a company so it can purchase products for sale. Those products, or inventory, serve as collateral for the loan if the business does not sell its products and cannot repay the loan. Inventory financing is especially useful for businesses that must pay their suppliers in a shorter period of time than it takes them to sell their inventory to customers. It also provides a solution to seasonal fluctuations in cash flows and can help a business achieve a higher sales volume - for example, by allowing a business to acquire extra inventory to sell during the holiday season. Lenders may view inventory financing as a type of unsecured loan because if the business can't sell its inventory, the bank may not be able to either. This reality may partially explain why, in the aftermath of the credit crisis of 2008, many businesses found it more difficult to obtain inventory financing. 1
Investment Bank - IB
A financial intermediary that performs a variety of services. This includes underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients. The role of the investment bank begins with pre-underwriting counseling and continues after the distribution of securities in the form of advice. 1
Intrastate Offering
A securities offering exempt from SEC registration under Section 3(a)(11) of the Securities Act, available when the offering is made and sold exclusively to residents of a single state by an issuer incorporated and doing business in that state. Key requirements:
The issuer must be incorporated or organized in the state where the offering occurs
The issuer must conduct a significant portion of its business in that state (the “doing business” requirement)
Every purchaser must be a bona fide resident of that state at the time of the sale
Resales to out-of-state persons during the offering period and for nine months after the last sale can destroy the exemption retroactively for the entire offering
SEC Rule 147 provides a safe harbor for intrastate offerings; the 2016-updated Rule 147A permits issuers to advertise publicly, including to out-of-state persons, as long as sales are limited to in-state residents
State blue sky laws still apply. Many states have modernized their intrastate crowdfunding exemptions, allowing offerings up to $5M+ to non-accredited in-state residents. US SEC Overview2
JOBS Act
The Jumpstart Our Business Startups Act, signed into law April 5, 2012, made sweeping changes to securities law to facilitate capital formation for small businesses and startups. Key provisions include:
Title I – Emerging Growth Companies (EGCs). Companies with less than $1 billion in annual gross revenue qualify as EGCs and receive a five-year on-ramp with reduced disclosure requirements, two years of audited financials instead of three, and exemptions from certain Sarbanes-Oxley requirements.
Title II – End of General Solicitation Ban. Amended Rule 506 to allow general solicitation and advertising in securities offerings, provided all actual purchasers are verified accredited investors. This created Rule 506(c) alongside the existing Rule 506(b).
Title III – Crowdfunding. Authorized equity crowdfunding for non-accredited investors through SEC-registered funding portals, subject to limits: investors with income or net worth under $107,000 may invest the greater of $2,200 or 5% annually; those above that threshold may invest up to 10% (capped at $107,000).
Title IV – Regulation A+. Raised the Regulation A offering limit from $5 million to $75 million annually (Tier 2), with preemption of state blue sky laws for Tier 2 offerings – a major change from original Reg A.
Title V & VI. Raised the Section 12(g) shareholder threshold that triggers mandatory SEC reporting from 500 to 2,000 shareholders (or 500 non-accredited), allowing companies to stay private longer.
A passive investor in a limited partnership or private fund who contributes capital but has no role in management and bears liability only up to the amount of their investment. The LP structure is the standard vehicle for real estate syndications, private equity funds, and venture capital funds. Key characteristics:
Limited Liability. LPs cannot lose more than their invested capital – they are not personally liable for partnership debts
No Management Role. LPs may not participate in day-to-day management without risking reclassification as a GP and losing limited liability protection
Preferred Return. Most LP structures provide a preferred return (typically 6–8% cumulative) to LPs before the GP receives any promoted interest
Distributions. LPs receive pro rata cash flow distributions and their share of sale proceeds per the waterfall structure defined in the LP Agreement
Tax Benefits. LPs typically receive pass-through tax treatment – depreciation, interest deductions, and losses flow through to their personal returns, often creating paper losses that offset passive income
See also: General Partner (GP), Capital Stack, Syndication, Accredited Investor. 4
Mezzanine Financing
A hybrid of debt and equity financing that bridges the gap between senior debt and equity in the capital stack. Mezzanine debt is subordinate to senior debt but senior to all equity – it holds payment priority over equity investors and typically carries the right to convert to equity if the loan is not repaid on time and in full.
Position in capital stack: Senior Debt → Mezzanine Debt → Preferred Equity → Common/LP Equity
Typical returns: 12–20%+ (higher than senior debt, lower than equity) – priced for its subordinate position and conversion risk
Security: In CRE, typically secured by a pledge of the borrower’s equity interest in the property-owning entity (not a direct lien on the property itself – that is held by the senior lender)
Senior lender approval: Mezzanine financing must generally be permitted by and disclosed to the senior lender via an intercreditor agreement
CRE Example: Connect Holdings has a property valued at $1,000,000 with a senior loan of $500K. Connect Holdings adds mezzanine financing of $100,000. If the property sells for $550,000: $500K retires the senior loan and $50,000 goes to the mezzanine lender – the remaining $50,000 shortfall must be resolved between the mezz lender and Connect Holdings. If it sells for $1,000,000: $500K retires the senior loan, $100,000 retires the mezzanine loan, and the remaining $400,000 is distributed to equity investors.
Microfinance
A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance. Like conventional banking operations, microfinance institutions must charge interest on loans. While these interest rates are generally lower than those offered by normal banks, the World Bank estimates that more than 500 million people have directly or indirectly benefited from microfinance-related operations. 1
Net-Net Lease (NN)
A commercial lease structure in which the tenant pays base rent plus two of the three major operating expenses – typically property taxes and insurance – in addition to rent. The landlord retains responsibility for maintenance, common area costs (if applicable), and capital expenditures.
Lease structures from least to most tenant responsibility:
Gross Lease. Tenant pays only base rent; landlord covers all operating expenses – most favorable to tenant
Net Lease (N). Tenant pays rent plus one operating expense (usually property taxes)
Net-Net Lease (NN). Tenant pays rent plus property taxes and insurance; landlord covers maintenance and capital expenses
Triple-Net Lease (NNN). Tenant pays rent plus property taxes, insurance, maintenance, and common area costs – most favorable to landlord/investor
Absolute Net / Bond Lease. Tenant pays all expenses including structural repairs and roof replacement – the purest income stream for investors
Net lease structures are standard in retail, industrial, and single-tenant commercial properties. NNN leases are particularly attractive to investors because they produce a predictable, low-management income stream – making them the preferred structure for 1031 exchange buyers and institutional investors.
3,4
Net Operating Income (NOI)
A calculation used to analyze the profitability of income-generating real estate investments. NOI equals all revenue from the property minus all reasonably necessary operating expenses. NOI is a before-tax, before-debt-service figure – it measures the property’s operational performance independent of financing structure.
Formula: NOI = Total Revenue − Operating Expenses
Includes in revenue: Base rent, percentage rent, parking income, laundry/vending income, other ancillary income
Includes in operating expenses: Property management fees, utilities, insurance, property taxes, maintenance, repairs, reserves for replacement
Excludes: Debt service (mortgage payments), income taxes, depreciation, capital expenditures
Example: Connect Towers pulls in $140,000 in annual revenues and incurs $70,000 in operating expenses. $140,000 − $70,000 = NOI of $70,000
If NOI is negative, it is called a Net Operating Loss (NOL). Outside real estate, NOI is analogous to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). NOI is the numerator in the Cap Rate formula and the primary metric used in CRE income property underwriting. 3,4
Non-Public Offering (Private Placement)
A securities offering made to a limited number of selected investors without a public offering or SEC registration, relying on exemptions under the Securities Act – most commonly Section 4(a)(2) or Regulation D. Private placements are the dominant method of capital formation for private companies, real estate syndicators, private equity funds, and hedge funds. Characteristics:
No requirement to register with the SEC or file a prospectus
Securities are “restricted” and may not be freely resold without registration or an applicable exemption (see Rule 144)
Investors are typically required to be accredited investors, though Rule 506(b) allows up to 35 sophisticated non-accredited investors
Form D must be filed with the SEC within 15 days of the first sale in a Regulation D offering
Private placements may include equity (common or preferred stock, LLC membership interests, LP interests) or debt (promissory notes, convertible notes)
Also called a private placement or Reg D offering. See also: Regulation D, Section 4(a)(2), Accredited Investor. 2
Preferred Stock
A class of equity ownership in a corporation that has priority over common stock with respect to dividends and liquidation proceeds, while typically carrying no voting rights (or limited voting rights). Preferred stock is the standard equity instrument in venture capital and institutional private equity rounds. Key features:
Liquidation Preference. Preferred stockholders receive their investment back (1x or sometimes 2x) before common stockholders receive any proceeds in a sale or liquidation. “Participating preferred” also shares in remaining proceeds alongside common after receiving the liquidation preference.
Dividend Preference. Preferred stockholders receive declared dividends before common stockholders. Cumulative preferred accrues unpaid dividends; non-cumulative preferred does not.
Conversion Rights. Preferred stock is typically convertible into common stock at the holder’s option, and automatically converts in a qualifying IPO.
Anti-Dilution Protection. Broad-based weighted average anti-dilution is standard; full ratchet anti-dilution is more aggressive and more founder-unfriendly.
Series Designation. Each funding round typically issues a new series (Series A, Series B, etc.) with its own terms stacked senior to prior series.
4
Pro Forma
A projected annual operating statement used in real estate underwriting that shows expected income, operating expenses, net operating income, debt service, and cash flow based on the underwriter’s assumptions about a property’s future performance. The pro forma is the central document in CRE investment analysis – it translates a deal’s physical and market characteristics into projected financial returns.
Stabilized Pro Forma. Projects performance at full occupancy and market rents – used to value properties at their income potential rather than current depressed performance
Going-In Pro Forma. Projects performance from day one of ownership, including a lease-up period if applicable
Key line items: Gross potential rent → less vacancy → Effective gross income → less operating expenses → NOI → less debt service → Cash flow before tax
Sensitivity analysis: Good pro formas show multiple scenarios (base case, upside, downside) with varying occupancy and rent growth assumptions
“Pro forma” is Latin for “as a matter of form” – meaning projected rather than actual. Investors should scrutinize pro forma assumptions carefully: rent growth projections, vacancy assumptions, expense ratios, and exit cap rates are the four variables most commonly manipulated (consciously or otherwise) to make deals appear more attractive than they are. A well-underwritten pro forma is the foundation of credible deal presentation to lenders and investors. 3,4
Promissory Note
A written, legally binding promise by one party (the maker) to pay a specified sum of money to another party (the payee) at a defined date or on demand. In the context of private lending and real estate finance:
The promissory note is the primary evidence of the debt obligation and specifies the principal amount, interest rate, payment schedule, maturity date, and default provisions
A note is typically paired with a deed of trust or mortgage (the security instrument) which pledges real property as collateral for the note obligation
Notes may be recourse (the lender can pursue the borrower personally in addition to the collateral) or non-recourse (limited to the collateral) – a critical distinction in commercial real estate lending
In private equity and venture contexts, convertible promissory notes are a common seed financing instrument (see: Convertible Note)
Seller-carried promissory notes are frequently used in business acquisitions, real estate purchases, and creative financing structures
4
Private Equity
Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet. The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company. The size of the private equity market has grown steadily since the 1970s. Private equity firms will sometimes pool funds together to take very large public companies private. Many private equity firms conduct what are known as leveraged buyouts (LBOs), where large amounts of debt are issued to fund a large purchase. Private equity firms will then try to improve the financial results and prospects of the company in the hope of reselling the company to another firm or cashing out via an IPO. 1
Regulation A
An exemption for public offerings not exceeding $5 million in any 12-month period. Must file an offering statement with the SEC on Form 1-A. Offerings share many characteristics with registered offerings: offering circular similar to a prospectus; can be offered publicly, using general solicitation and advertising; purchasers do not receive restricted securities, so can resell up to $1.5M of securities. The principal differences from registered public offerings are: Financial statements are simpler and do not need to be audited; No reporting obligations after the offering or Sarbanes-Oxley Act obligations; Three formats, one of which is a simplified question-and-answer document; and May test the waters" to determine market before filing expenses. All types of companies may use Regulation A, except SEC reporting companies, development stage companies without a specified business (e.g., blank check companies), and investment companies registered or required to be registered under the Investment Company Act of 1940. 2
Regulation D
Establishes exemptions from Securities Act registration. The only filing requirement under each of these exemptions is the requirement to file a notice on Form D with the SEC. The notice must be filed within 15 days after the first sale of securities in the offering. Many states also require the filing of a Form D notice in a Regulation D offering. The main purpose of the Form D filing is to notify federal (and state) authorities of the amount and nature of the offering being undertaken in reliance upon Regulation D. Some rules under Regulation D specify particular disclosures that must be made to investors, while others do not. Even if your company sells securities in a manner that is not subject to specific disclosure requirements, you should take care that sufficient information is available to investors. All sales of securities are subject to the antifraud provisions of the securities laws. This means that you should consider whether the necessary information was available to investors, and that any information provided to investors must be free from false or misleading statements. Similarly, information should not be omitted if, as a result of the omission, the information that is provided to investors is false or misleading. We address each of the Regulation D exemptions separately. 2
Regulation D, Rule 504
Sometimes referred to as the seed capital exemption, provides an exemption for the offer and sale of up to $1,000,000 of securities in a 12-month period. Your company may use this exemption so long as it is not a blank check company and is not subject to Exchange Act reporting requirements. In general, you may not use general solicitation or advertising to market the securities, and purchasers generally receive restricted securities. Purchasers of restricted securities may not sell them without SEC registration or using another exemption, which is further explained below under the heading Resales of restricted securities. Investors should be informed that they may not be able to sell securities of a non-reporting company for at least a year without the issuer registering the transaction with the SEC. Your company may, however, use the Rule 504 exemption for a public offering of its securities with general solicitation and advertising, and investors will receive non-restricted securities, under one of the following circumstances: It sells in accordance with a state law that requires the public filing and delivery to investors of a substantive disclosure document; or It sells in accordance with a state law that requires registration and disclosure document delivery and also sells in a state without those requirements, so long as your company delivers to all purchasers the disclosure documents mandated by a state in which it registered; or It sells exclusively according to state law exemptions that permit general solicitation and advertising, so long as sales are made only to "accredited investors" (we describe the term accredited investor in more detail below in connection with our description of Rule 506 offerings). 2
Regulation D, Rule 505
Provides an exemption for offers and sales of securities totaling up to $5 million in any 12-month period. Under this exemption, your company may sell to an unlimited number of accredited investors and up to 35 persons that are not accredited investors. Purchasers must buy for investment purposes only, and not for the purpose of reselling the securities. The issued securities are restricted securities, meaning purchasers may not resell them without registration or an applicable exemption, as explained below under the heading Resales of restricted securities. If your company is not an SEC reporting company, investors should be informed that they may not be able to sell securities for at least a year without the company registering the transaction with the SEC. Your company may not use general solicitation or advertising to sell the securities. Under Rule 505, if your offering involves any purchasers that are not accredited investors, you must give these purchasers disclosure documents that generally contain the same information as those included in a registration statement for a registered offering. There are also financial statement requirements that apply to Rule 505 offerings involving purchasers that are not accredited investors. For instance, if financial statements are required, they must be audited by a certified public accountant. You must also be available to answer questions from prospective purchasers who are not accredited investors. You may decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions of the federal securities laws. If your company provides information to accredited investors, it must make this information available to the non-accredited investors as well. 2
Regulation D, Rule 506
The most widely used Regulation D exemption, with no dollar limit on the amount raised and no limit on the number of accredited investors. The JOBS Act of 2012 split Rule 506 into two distinct sub-rules:
Rule 506(b) – No General Solicitation (the original Rule 506)
The traditional private placement. Issuers may raise an unlimited amount from an unlimited number of accredited investors, plus up to 35 sophisticated non-accredited investors. The relationship requirement is the defining feature: the issuer may only offer to people it has a pre-existing, substantive relationship with – close associates, friends, family, business contacts, and those who have held themselves out as investors and with whom the issuer has developed sufficient familiarity to evaluate their suitability. These relationships should be documented. No general solicitation or advertising of any kind is permitted. Non-accredited sophisticated investors must receive disclosure documents equivalent to a registered offering. Key conditions:
No general solicitation or advertising – offerings must be made only to persons the issuer knows or has documented pre-existing relationships with
Up to 35 non-accredited investors permitted, but each must be sophisticated (sufficient knowledge and experience to evaluate the merits and risks of the investment)
Non-accredited investors must receive specified disclosure documents with the same information as a registered offering
Issuer must be available to answer questions from non-accredited prospective purchasers
Financial statements required if non-accredited investors participate
Form D must be filed with the SEC within 15 days of the first sale
Rule 506(c) – General Solicitation Permitted (created by the JOBS Act, 2013)
Allows issuers to publicly advertise an offering – on websites, at conferences, in social media, through broker-dealers – but in exchange, every actual purchaser must be a verified accredited investor. No non-accredited investors are permitted under any circumstances. The accredited investor status must be verified through reasonable steps, not merely investor self-certification. Acceptable verification methods include:
Review of tax returns, W-2s, or pay stubs (income-based accreditation)
Review of bank statements, brokerage statements, or third-party net worth verification (net worth-based)
Written confirmation from a licensed attorney, CPA, registered investment adviser, or registered broker-dealer that the investor is accredited
Rule 506(c) is the exemption used for most publicly marketed real estate syndications, Reg D crowdfunding portals, and private placements advertised on LinkedIn and industry platforms. US SEC Regulation D Overview
Rule 144
Provides a safe harbor for the public resale of restricted securities and control securities (securities held by affiliates) without SEC registration. Key conditions:
Holding Period. Restricted securities of reporting companies must be held at least six months; non-reporting companies require a one-year hold before resale.
Current Public Information. Adequate current information about the issuer must be publicly available. Reporting companies must be current in their SEC filings.
Volume Limitations. Affiliates may only sell within any three-month period the greater of: 1% of outstanding shares of the class, or the average weekly reported trading volume during the four calendar weeks preceding the sale.
Ordinary Brokerage Transactions. Sales by affiliates must be handled as routine brokerage transactions; brokers may not solicit orders to buy the securities.
Filing Requirement. Affiliates selling more than 5,000 shares or $50,000 worth of securities in a three-month period must file a Form 144 with the SEC concurrently with placing the sell order.
Non-affiliates. Non-affiliates who have held restricted securities for at least one year may resell without volume, manner, or filing restrictions.
Provides an exemption from SEC registration for securities issued by non-reporting companies to employees, directors, officers, consultants, and advisors pursuant to written compensatory benefit plans or written contracts. Key provisions:
Who Qualifies. Eligible recipients include employees, directors, general partners, trustees, officers, and consultants or advisors who provide bona fide services to the company – not services in connection with a capital-raising transaction.
Offering Limits. During any 12-month period, the company may sell the greater of: $1 million in securities; 15% of the total assets of the issuer; or 15% of the outstanding amount of the class of securities being offered.
Disclosure Requirements. If aggregate sales in a 12-month period exceed $10 million (raised from $5 million by SEC rule amendments in 2018), the company must deliver additional disclosure to investors – including risk factors, a copy of the plan, and financial statements.
Restricted Securities. Securities issued under Rule 701 are restricted and subject to a six-month holding period before resale under Rule 144, even for non-affiliates.
No Filing Required. No Form D or other SEC filing is required, though companies should maintain records demonstrating eligibility.
An exemption from SEC registration mirroring the California Department of Financial Protection and Innovation (DFPI) §25102(n) exemption under the California Corporate Securities Law. Permits offers and sales of securities in California that qualify under state law without federal registration, provided:
California Qualification. The offering must qualify under California Corporations Code §25102(n), which covers limited offerings to no more than 35 purchasers within 12 months, with no general solicitation and no commissions paid to non-licensed persons.
Purchaser Sophistication. Purchasers must have a pre-existing personal or business relationship with the company or its principals, or have the capacity to protect their own interests.
No Advertising. No general solicitation or advertising may be used.
Dollar Limit. The California exemption limits aggregate sales to $5 million in any 12-month period.
Restricted Securities. Securities sold under Rule 1001 are restricted and may not be freely resold without registration or another applicable exemption.
Federal Preemption Note. Rule 1001 is narrow and California-specific. The JOBS Act and expanded Regulation D Rule 506(b) and 506(c) have largely superseded its practical utility for issuers who can qualify under federal rules, but it remains available for purely intrastate California offerings.
A guide for small businesses on raising capital and complying with the federal securities laws. Includes Exemptions: Non-Public Offering (Private Placement), Regulation A, Regulation D, Accredited Investor, Intrastate Offering, and Rules 144, 701 & 1001. 2
SAFE (Simple Agreement for Future Equity)
A financing instrument invented by Y Combinator in 2013 as a simpler alternative to convertible notes for early-stage investing. A SAFE is not debt – it carries no interest rate, no maturity date, and no obligation to repay if no triggering event occurs. Instead, the SAFE holder receives the right to receive equity in a future priced round or exit. Key terms:
Valuation Cap. The maximum company valuation at which the SAFE converts – protects early investors if the company’s valuation rises dramatically before conversion
Discount Rate. SAFE holders may convert at a discount (typically 10–20%) to the price paid by new investors in the triggering round
MFN (Most Favored Nation). Some SAFEs include an MFN clause – if the company issues a subsequent SAFE with better terms, the earlier SAFE automatically receives those terms
Pro Rata Rights. Give the SAFE holder the right (not obligation) to participate in the next priced round to maintain their ownership percentage
SAFEs have become the dominant seed financing instrument in Silicon Valley and have spread broadly to other startup ecosystems. Post-money SAFEs (introduced by YC in 2018) provide clearer ownership math than the original pre-money SAFEs. SAFE holders are not creditors – in a dissolution without a triggering event, they typically receive nothing. YC SAFE Documents4,5
Section 4(a)(2)
The primary statutory exemption from SEC registration under the Securities Act of 1933 for “transactions by an issuer not involving any public offering.” All private placements ultimately rely on this exemption or a rule promulgated under it (Regulation D provides safe harbors that are deemed to satisfy Section 4(a)(2)). Requirements under the judicial standard developed in SEC v. Ralston Purina (1953):
Offerees must be able to fend for themselves – they must have access to the same kind of information that would be available in a registered offering, and must be sophisticated enough to evaluate the investment
No general solicitation or advertising may be used – the offering must be genuinely private
The number of offerees should be limited, though there is no statutory numerical limit (unlike Reg D Rules 504, 505, and 506(b))
Securities must be acquired for investment purposes, not for immediate resale
In practice, most issuers rely on the Regulation D safe harbors rather than the direct Section 4(a)(2) exemption because of its clearer standards. Rule 506(c) specifically permits general solicitation – a carve-out from traditional 4(a)(2) principles enabled by the JOBS Act. US SEC Overview2
Syndication
The process of pooling capital from multiple investors to acquire or develop an asset too large for any single investor to finance alone. Real estate syndication is one of the most common applications, but the structure is also used in private equity, venture capital, and commercial lending. A typical syndication structure:
Sponsor / GP. The syndicator (general partner) identifies the opportunity, structures the deal, raises equity from LPs, arranges debt financing, and manages the asset through the hold period
Investors / LPs. Passive capital providers who receive pro rata ownership of the LLC or LP holding entity, along with preferred returns and equity upside per the operating agreement
Offering Documents. A Private Placement Memorandum (PPM) disclosing the investment, risks, terms, and management; a Subscription Agreement; and an Operating Agreement or Limited Partnership Agreement defining rights and responsibilities
Securities Compliance. Syndications are securities offerings and must comply with SEC exemption requirements (typically Reg D Rule 506(b) or 506(c)) or register with the SEC. Syndicators who raise capital regularly may be required to register as investment advisers
Returns Structure. Common waterfall: preferred return to LPs (e.g., 6–8%) → return of capital → profit split (e.g., 70/30 LP/GP) above the preferred return hurdle
See also: General Partner (GP), Limited Partner (LP), Capital Stack, Non-Public Offering, Regulation D. 4
Venture Capital
Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns. Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies or ventures with limited operating history, which cannot raise funds by issuing debt. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity. 1
Real Estate Investment Trust (REIT)
A pooled investment vehicle that purchases and holds income-producing real estate, allowing individual investors to participate in large-scale real estate ownership without directly buying property. REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends – making them attractive income-generating investments.
Public REITs. Traded on major stock exchanges (NYSE, NASDAQ) – liquid, transparent, subject to full SEC disclosure requirements. Examples: Prologis (industrial), Realty Income (NNN retail), Welltower (healthcare)
Private REITs. Not publicly traded – illiquid, limited disclosure, typically available only to accredited investors through private placements
Open-End vs. Closed-End. Open-end REITs continuously issue and redeem shares; closed-end REITs have a fixed share count and defined investment horizon
Mortgage REITs (mREITs). Invest in mortgages and mortgage-backed securities rather than physical properties – earn income from interest spread rather than rent
Example: 30 different investors contribute a total of $100M capital to a REIT. The REIT purchases $300M of commercial assets using the investor capital and leveraging debt (3:1 leverage). The REIT manages the portfolio per the operating agreement and distributes 90%+ of income to investors quarterly.
REITs offer investors diversification, professional management, liquidity (public REITs), and pass-through income – but investors should understand that REIT shares correlate with equity markets during stress periods, reducing diversification benefits precisely when most needed.
3,4
Triple-Net Lease (NNN)
A commercial lease structure in which the tenant pays base rent plus all three major operating expenses: property taxes, insurance, and maintenance (including common area costs where applicable). The landlord receives a truly “net” income stream with minimal management responsibility.
NNN leases are the gold standard for CRE income investors because:
Credit tenant NNN leases (McDonald’s, Walgreens, Dollar General, etc.) are priced like bonds – cap rates reflect tenant credit quality and lease term remaining
Preferred by 1031 exchange buyers seeking passive income replacement
Institutional and REIT buyers actively seek long-term NNN leases with investment-grade tenants
The risk: NNN leases concentrate credit risk on a single tenant. If the tenant vacates, the landlord inherits a specialized building and all operating expenses simultaneously. Location quality and tenant credit rating are the two most important underwriting factors in NNN acquisitions. See also: Net-Net Lease (NN), Capital Stack, Pro Forma, NOI, Cap Rate. 3,4
Cashing In On The Venture Capital Cycle. "Private equity" is a catch-all term that includes the earliest stages of investing - often when a company consists of little more than its founders and an idea - right through to the large buyout firms that raise equity and debt financing to take public companies private. Within this supply chain, VC firms occupy a position along a continuum such as that represented in the diagram in this article.
Guide to SEC Filings. Due diligence has become a buzzword among investors especially since the Bernard L. Madoff fraud was uncovered. The U.S. Securities and Exchange ... eHow
How To Attract Investors For Your Small Business. Venture capital firms are comprised of private investors who research, negotiate and (hopefully) fund businesses in their early stages of development. Even some of the leaders in business today - Home Depot, Starbucks and Google, to name a few - relied on venture capital in their early stages.
How to Complete SEC Filings. Federal law requires that all publicly traded companies file financial documents with the Securities and Exchange Commission (SEC). These documents ... eHow
How To Find Venture Funding. The venture capital industry exists to help entrepreneurs turn business ideas into actual, functioning businesses. Most business ventures fail, but there is the occasional home run that can pay for many earlier failures. Other business ventures may not turn the initial founders into billionaires, but can turn into steady businesses that create jobs and incomes for employees and the upper management team. Article is an overview of the stages of venture capital funding, and the most likely parties to secure funding to turn a business concept into reality.
How to Register an SEC Company. Registering a company with the Securities and Exchange Commission allows potential investors access to information about stocks and securities being ... eHow
Seek An Adventure In Venture Capital. Venture Capital versus Private & Public Equity Investing. In the investment community, there is more than one way to hold a stake in a company, and just as there are various means of investing, there are different business structures built around each investment model. Three of the most common types of investing are public equity, private equity and venture capital.
Regulation A+ After the JOBS Act – Raising Up to $75 Million Without a Full Registration. The SEC’s 2015 amendments to Regulation A under the JOBS Act (sometimes called Reg A+) created two tiers. Tier 1 allows offerings up to $20 million in any 12-month period with state registration still required. Tier 2 allows offerings up to $75 million annually with preemption of state blue sky qualification for the offering itself – a transformative change that made Regulation A viable for mid-sized companies for the first time. Tier 2 issuers must provide audited financials and file ongoing annual, semiannual, and current reports with the SEC. Reg A+ securities are not restricted securities and may be freely resold by non-affiliates. The expanded limits have made Reg A+ a realistic alternative to a traditional IPO for companies raising $20–75 million from both accredited and non-accredited investors. Source: SEC.gov
Angel Investing – How It Works and What Investors Want. Angel investors fill the funding gap between friends-and-family capital and institutional venture rounds. Most angel investors are accredited investors who invest $25,000 to $250,000 in early-stage companies in exchange for convertible notes or preferred equity. Angel groups – organized networks of angels who pool deal flow and diligence – can deploy $500K to $2 million+ per deal. What angels look for: a large addressable market, a defensible product or technology, a strong founding team with relevant experience, evidence of early traction or validation, and a clear path to an exit (acquisition or IPO). Entrepreneurs should expect angels to take 10–30% equity at seed stage, require standard protective provisions (pro rata rights, information rights, anti-dilution), and expect regular updates. Building relationships with angels before needing capital is far more effective than cold outreach. 7,4
Cap Table Basics – What Every Founder and Investor Needs to Know. A capitalization table is the single most important financial document for a private company. It records every share, option, warrant, convertible note, and SAFE – who holds it, at what price, and with what rights. A well-maintained cap table lets founders model dilution before accepting a term sheet, investors verify their ownership percentage and liquidation priority, and legal counsel prepare accurate closing documents. Common cap table mistakes that kill deals: missing or unissued founder shares, undocumented stock option grants, unconverted SAFEs or notes omitted from fully-diluted share counts, and inconsistencies between the cap table and the corporate charter. Best practice: maintain your cap table on a dedicated platform (Carta, Pulley, or Shareworks) from day one, not in a spreadsheet. Investors will request a current fully-diluted cap table during due diligence – if it is not clean, it signals operational risk. 8,4
SOURCES 1Investopedia.com 2SEC.gov – U.S. Securities and Exchange Commission 3 Connect Strategic Consulting / Katie Yee 4 Prosper Systems research and commentary 5Y Combinator – SAFE documents 6FINRA.org – Financial Industry Regulatory Authority 7SBA.gov – U.S. Small Business Administration (Articles section) 8Carta.com – Cap Table Basics (Articles section)
Real Estate – Cap rates, NOI, pro forma, capital stack, REIT, leasing structures, and investment return metrics that underpin CRE financing decisions.
Sales – Bank Guarantees, SBLCs, MTNs, SWIFT MT760/MT799, and trade finance instruments — the transaction layer for large asset and commodity deals.
AI – Terms, tools, and deployment strategies for AI in CRE practice — the technology layer running across all PS sectors.
Oil & Gas – Drilling, reservoir, production, reserves classification, royalties, and working interest terms for the upstream petroleum industry.
Mining – NI 43-101, reserves classification, royalty structures, and junior mining finance terms for resource sector investors.
Commodities – Incoterms, letters of credit, shipping documents, and trade finance instruments for physical commodity transactions — the market layer for Oil & Gas and Mining output.
Neither Prosper Systems (PS), nor its Founder, Kenton H Johnson, are licensed Real Estate or Lending Brokers, Securities Dealers or Investment Advisers. However, PS has an Attorney on its Team, and works closely with and engages other licensed individuals or firms as needed. PS makes no warranties or representations as to the quality of an opportunity, the integrity of any party, or the value of a given transaction. PS is acting only as Collaborator. All due diligence is the responsibility of Investors, Buyers, Owners and their Collaborators.
The definitions in this Glossary are for guidance and educational purposes only and are not intended to be comprehensive or to constitute legal, financial, or investment advice. No responsibility, whether direct or indirect, can be accepted in the event of incomplete, erroneous, or misleading definitions. Users are strongly recommended to seek qualified legal, financial, and real estate advice before acting on any information contained herein.
Prosper Systems, a Denver-based boutique founded in 2000, provides $500K to $50M in CRE acquisition debt and equity, and takes great care of referrers (up to 20%).
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