A Brief Overview of Exemptions for Real Estate Fundraising
Raising capital for a real estate project can be a complex process, and there are several options available to companies seeking to do so. Three commonly used exemptions for real estate capital raises are the 506b exemption, the 506c exemption, and the Regulation Crowdfunding (Reg CF) exemption.
The 506b exemption, also known as the private placement exemption, allows a company to sell securities to an unlimited number of accredited investors and up to 35 non-accredited investors. Accredited investors are individuals or entities who meet certain financial thresholds, such as having a net worth of at least $1 million or an annual income of over $200,000. Non-accredited investors, on the other hand, are individuals or entities who do not meet these financial thresholds. Under the 506b exemption, a company is not required to provide potential investors with any specific information about the offering, but must still take reasonable steps to ensure that the investors are accredited and must provide them with certain documents, such as a private placement memorandum.
The 506c exemption, also known as the general solicitation exemption, allows a company to sell securities only to accredited investors. This means that a company using the 506c exemption cannot sell securities to non-accredited investors. In addition, a company using the 506c exemption must also take steps to verify that all investors are accredited, such as obtaining written confirmation from the investor or a third party, and must provide potential investors with certain information about the offering, such as the company’s financial statements. The 506c exemption also allows a company to advertise the offering to the general public.
Regulation Crowdfunding, or Reg CF, is an exemption that allows companies to raise capital from a large number of investors through online crowdfunding platforms. Under Reg CF, a company can sell securities to an unlimited number of investors, regardless of their accreditation status as long as the offering is made on a registered Funding Portal such as Invown. There are, however, limits on the amount that an individual investor can invest based on net worth and income (see the Investor Education section of this site:, and the company must provide potential investors with certain information about the offering, such as the company’s business plan and financial statements.
In summary, the 506b, 506c, and Reg CF exemptions are three options available to companies seeking to raise capital for a real estate project. Reg CF and 506c can be uses concurrently. The main differences between these exemptions are the types of investors who can participate in the offering, the level of information that must be disclosed to potential investors, and the ability to advertise the offering to the public. Companies should carefully consider which exemption is the most appropriate for their needs, taking into account the nature of their business, the type of investors they are targeting, and the level of information they are willing to disclose.