Case Study: How One Sponsor Raised $5M Legally With A PPM

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by PPM LAWYERS
Case Study: How One Sponsor Raised $5M Legally With A PPM

Discover how a real estate sponsor raised $5 million using a legally compliant PPM — and what you can learn from their strategy.

Raising capital is a challenge. Raising capital legally is a bigger one. At PPM Lawyers, we’ve seen countless sponsors attempt to shortcut the process — and pay the price later. But we’ve also seen clients succeed. This case study breaks down exactly how one real estate sponsor raised $5 million from private investors using a fully compliant Private Placement Memorandum (PPM) and Regulation D exemption.

Whether you’re planning your first raise or looking to scale, this real-world example will help you understand what it takes to raise capital the right way.

Meet The Sponsor: Background And Goals

Keywords: ppm case study, real estate fundraising

Our client — let’s call him David — was an experienced real estate investor based in Texas. Over the past decade, he had acquired and managed multiple small multifamily properties. In 2024, David identified a 150-unit value-add apartment complex in a growing submarket. The total project cost: $8.5 million. David planned to contribute $500,000 of his own funds and needed to raise $5 million in equity from passive investors.

His goal? To structure the raise in a way that:

  • Protected him legally
  • Attracted serious, accredited investors
  • Avoided triggering an SEC audit

Step 1: Choosing The Right Legal Structure

David chose to set up a manager-managed LLC to acquire the property. This allowed him to:

  • Maintain control as the sponsor and manager
  • Offer passive investment units to limited members
  • Avoid the complexity of a limited partnership structure

We helped him draft the Operating Agreement to reflect:

  • Profit splits (70/30 after an 8% preferred return)
  • Management fees and acquisition fees
  • Voting and removal provisions

Legal Insight: Choosing the right entity structure early is critical. It defines your authority, your exposure to liability, and your tax implications.

Step 2: Drafting A Customized PPM

We then drafted a fully customized Private Placement Memorandum (PPM). This was not a template or copy-paste job — the document was tailored to David’s offering, his team, and the asset.

Key components of the PPM included:

  • Detailed business plan: How the $5M would be used to renovate and stabilize the property.
  • Investor terms: Minimum investment of $100,000, preferred return, and target hold period.
  • Risk disclosures: From market volatility and tenant turnover to liquidity risk and sponsor experience.
  • Exit strategies: Refinancing, sale, or recapitalization.

Legal Insight: A PPM is your liability shield. If investors later claim you failed to disclose risks or misrepresented returns, the PPM becomes your best defense.

Step 3: Using The Right Exemption — Rule 506(b)

David opted for the Rule 506(b) exemption under Regulation D. That meant:

  • No general solicitation (he could not advertise on social media or public webinars).
  • He could accept funds from up to 35 non-accredited but sophisticated investors — though he chose to only work with accredited investors to keep it simple.
  • He had to provide substantial disclosure documents (which the PPM and subscription package fulfilled).

We also guided him on filing a Form D with the SEC and the appropriate Blue Sky filings in each state where his investors resided.

Legal Insight: Choosing between 506(b) and 506(c) depends on your investor network, marketing strategy, and compliance readiness.

Step 4: Investor Outreach And Presentations

With his legal documents in hand, David hosted small, invite-only webinars with previous investors, industry contacts, and referrals. Each investor received a full subscription package, including:

  • The PPM
  • An Investor Questionnaire
  • The Subscription Agreement
  • Operating Agreement

He clearly explained the risks, business plan, and exit options — always deferring to the legal documents for official terms.

The results:

  • David raised $5 million from 28 accredited investors within 6 weeks.
  • No public advertising was used.
  • Each investor reviewed and signed the full PPM package.
  • Every subscription document was countersigned and archived.

Legal Insight: Even in a “friends and family” raise, you must treat it like a securities offering — because that’s exactly what it is.

Step 5: Post-Close Compliance

After closing on the property, David:

  • Filed his SEC Form D on time
  • Sent investors quarterly reports as outlined in the PPM
  • Retained a CPA and bookkeeper for financial compliance
  • Maintained clear separation of personal and investment entity funds

Legal Insight: Legal compliance doesn’t stop once you close. Good reporting, bookkeeping, and communication are essential to protecting your credibility — and your legal standing.

Lessons Learned: Key Takeaways For Your Raise

David’s story offers a step-by-step playbook for legally raising capital:

Step Action
1 Form a compliant entity structure
2 Work with a securities lawyer to draft a customized PPM
3 Choose the right Reg D exemption (506(b) or 506(c))
4 Prepare your subscription package (Operating Agreement, Subscription Agreement, Investor Questionnaire)
5 File Form D
6 Raise from qualified investors — with full documentation
7 File State Blue Sky notices
8 Maintain compliance after closing

The result? $5 million raised, no legal issues, and a deal that’s now returning profits to investors.

Don’t Shortcut The Legal Process

If David had skipped any of these steps — used a free PPM template, advertised on social media without 506(c) compliance, or accepted funds without proper documents — he could have triggered a regulatory nightmare.

Instead, he followed the letter of the law and raised millions with confidence.

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