The Importance of an Offering Memorandum in Private Equity Commercial Real Estate

Key Takeaways

  • Offering Memorandums (OMs) are a key component of the equity raising process, but many firms lack a structured approach, resulting in underwhelming documents that fail to capture investor interest.
  • A well-crafted OM follows a systematic process, ensuring clarity, accuracy, and customization for each deal, thereby boosting investor confidence.
  • Lexcraft Advisors specializes in producing OMs to showcase each unique investment opportunity and position sponsors as sophisticated industry leaders.

A man and woman shaking hands over a completed deal.

What is an Offering Memorandum?

In the world of private equity commercial real estate, an offering memorandum (OM) is a valuable tool used by sponsors and general partners to raise equity for new offerings and infuse fresh capital into existing projects when it is needed to complete the business plan. An OM provides prospective investors with the key information needed to evaluate an opportunity, ranging from property details to financial projections and market data. However, many firms struggle to produce OMs that truly resonate with investors, often because they don’t follow a structured process for creating these documents.

A poorly executed OM raises more questions than it answers, leaving potential investors uncertain about the opportunity. On the other hand, a well-prepared OM not only informs but also builds trust, paving the way for successful capital raises.

How Lexcraft Advisors Creates Effective Offering Memorandums

Our team has developed a methodical approach to designing OMs that drives results for our clients. Through experience, we’ve learned that customization and attention to detail are key to ensuring that an OM captures investor attention. Here’s how we approach OM creation:

Assess Your Current OM Process

Our goal is to produce institutional-quality OMs for middle-market commercial real estate investment firms of the caliber that investors have come to expect from industry leaders. With this in mind, we dive deep into your current process before designing a new OM. We want to understand the materials you have at your disposal—charts, tables, and financial data—and see what has worked and what hasn’t. This helps us ensure that the new OM addresses past shortcomings and sets a higher standard.

Review Investor Feedback

We look at how your previous OMs were received by potential investors. Were there gaps in the information provided? Did the same questions come up repeatedly? Did investors ask for more data? This feedback is invaluable for us as we work to tailor a document that speaks directly to investor concerns, enhances clarity, and minimizes objections.

Design a New OM Structure

Based on our findings, we draft an outline for a new OM. This outline acts as a proposal for the type of information and visuals that should be included in the final document. Whether it’s financial forecasts or market trends, we ensure the OM covers all the necessary details to present a compelling investment case.

Create a Visual Template

We design a visual template that serves as the foundation for all future OMs. This template is scalable, allowing us to adapt it to future deals or funds. It is also customized to reflect your brand identity while ensuring consistency and professionalism across all your offerings.

Develop Content Specific to Each Offering

Once a new deal comes in, we customize the template with specific copy and visuals that highlight the unique aspects of the opportunity. This ensures that each OM is not just a generic document but a tailored marketing piece that speaks directly to the potential investor audience.

Why Offering Memorandum Customization Is Key

Many commercial real estate funds and syndications struggle to produce OMs that resonate with investors because they take a “one-size-fits-all” approach. From experience, we know this doesn’t work. Commercial real estate fundraising is a complex endeavor because each investment opportunity is different, as are the information needs and communication preferences of unique investor pools. For example, raising capital from high net worth individuals necessitates a different presentation and messaging compared to a fundraising initiative centered around institutional private equity investors.

Risks of a Poorly Crafted Offering Memorandum

An OM often serves as the sponsor’s entry point with a prospective investor. A poorly executed OM can cause an investor to pass on an offering without much thought, even if the facts, figures, and projections work in the investor’s favor. Further, if the document is disorganized or lacks key details, it can raise doubts about the sponsor’s experience level, and this establishes a serious hurdle when attempting to move prospective investors down the fundraising funnel. At worst, inaccurate or incomplete information could expose the sponsor to legal and financial risks, especially if the investment underperforms.

The Benefits of a Well-Designed Offering Memorandum

A professional and comprehensive OM boosts investor confidence and encourages investors to schedule follow up meetings, which is key to securing capital and ensuring smooth deal execution. By offering clear, detailed information, it enables informed investor decisions and can reduce delays in the fundraising process. Transparency in financials and risk disclosures also protects against legal liabilities. With a scalable OM template, sponsors can efficiently produce high-quality documents for new offerings, ensuring preparedness to capitalize on future opportunities.

Why Work with Lexcraft Advisors on Your Next Offering Memorandum

Each OM we design is customized – from the copy to the visuals – to the offering and the target audience. Our approach is designed to engage a predetermined investor profile by addressing their specific concerns and highlighting the value of the offering and the sponsor. Tailored OMs improve transparency, build trust, and streamline the investment decision process, while also mitigating legal risks through accurate information.

Final Thoughts

In the world of private equity commercial real estate, a thoughtfully-crafted OM is essential for raising equity and securing investors. By following a structured process—like the one Lexcraft Advisors employs—sponsors can avoid common pitfalls and produce OMs that resonate with investors, build trust, and lead to successful fundraising initiatives.

If you’re looking to elevate your OMs and streamline your capital-raising process, Lexcraft Advisors can help. Contact us today to learn more about how we can assist with your next offering.

Lexcraft Advisors is a fund administration provider that serves middle market real estate investment funds and syndications, typically with equity under management between $15 million and $100 million. Our team takes pride in providing general partners with reliable fund administration solutions often reserved for large, global investment firms. To learn more about our services, schedule a complimentary meeting with one of our Managing Partners.

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