Real Estate Funds
Trusted Houston Securities Lawyer
A real estate fund is a collective investment vehicle that allows investors to pool their money together to purchase one or more properties. Real estate funds can also be used to acquire or finance real estate-related assets (such as pools of mortgages). These properties are then often managed by the fund manager or an affiliate.
The interests that investors can purchase can be either equity or debt. In equity offerings, the investors participate in gains on the property held by the fund when it is sold or refinanced as well as the income generated by the property. Equity offerings of real estate funds are usually accomplished via the sale of limited partnership interests or limited liability company (LLC) interests. When offered to investors, these interests are securities and are therefore subject to securities laws, including the Securities Act of 1933.
In debt offerings, the fund issues promissory notes to investors paying a certain rate of interest. The notes can also have scheduled principal payments, but more commonly, they are short to medium-term interest-only notes that the fund retires once it has sold or refinanced a property. The notes are usually collateralized by one or more properties held by the fund. These notes also are securities subject to the securities laws when they are offered to investors.
One type of real estate fund is the real estate investment trust (“REIT”). REITs allow passive investors to pool their monies to purchase properties and obtain professional management, much like a mutual fund. One major advantage of a REIT over a private real estate fund is liquidity; some (but not all) REITs are publicly traded, making them a form of public equity. REITs are not subject to corporate taxation, but they do have their own complex tax rules.
For more than 15 years, the Houston securities attorney at Whitley LLP Attorneys at Law has been providing clients with the legal insight they need to make sure the creation of any capital is in compliance with the SEC and Texas regulations. You can trust we can offer you the benefit of our robust experience when you decide to create or invest in any type of fund.