Resources

Investor glossary

Plain-English definitions for the terms that come up in an offering package, from accredited investor to waterfall.

Accredited investor: Someone who meets the income or net-worth thresholds the SEC requires before they may participate in a private offering. Under Reg D 506(c) the status must be verified, not self-declared.
Capitalisation rate: A property's annual income expressed as a percentage of its price. Dividing income by this rate is how a market translates earnings into a value.
Cost segregation: A tax study that reclassifies parts of a building into shorter depreciation lives, moving deductions earlier and increasing the share of distributions sheltered in the early years.
Distribution: Cash paid out to investors during the hold, as distinct from proceeds returned when the asset is sold. Timing and frequency are set by the operating agreement.
Equity multiple: Total cash returned divided by cash invested. A multiple of 2.0 means the investor received twice what they put in, counting both distributions and exit proceeds, with no regard to how long it took.
General partner: The party that sources a deal, arranges its financing, executes the business plan, and carries the management authority. Also called the sponsor.
Internal rate of return: The annualised return that accounts for when cash arrives, not merely how much. Two investments returning identical totals differ here if one pays earlier.
Lease-up: The period between a facility opening and reaching stabilised occupancy. Its pace is usually the assumption with the largest effect on a development's return.
Limited partner: An investor who contributes capital without operational responsibility or authority, and whose liability is limited to that contribution.
Net operating income: Rental and ancillary revenue less the costs of running the property, before financing and taxes. The figure a valuation is built on.
Preferred return: A threshold rate investors receive before the sponsor participates in profit. It governs the order in which cash is split, not whether any is produced.
Private placement memorandum: The document setting out an offering's terms, business plan, assumptions, and risk factors. The risk-factor section is the part least often read and most worth reading.
Reg D 506(c): The exemption permitting a private offering to be advertised publicly, on the condition that every investor's accredited status is verified before they subscribe.
Stabilised: The state a facility reaches when occupancy and rates have levelled at the market's sustainable range, so income becomes predictable enough to value on.
Waterfall: The order in which cash is distributed among investors and the sponsor at each stage. It determines who is paid first and what each party earns at a given level of performance.