Thinking about a MAJOR CAPITAL RAISE for your next real estate deal?

You might be looking at U.S. accredited investors AND tapping into the global market. A common strategy for this is the Master-Feeder Fund structure, particularly one that combines a Regulation D (Reg D) offering for U.S. investors with a Regulation S (Reg S) offering for those overseas.

Based on Kaliser & Associates PC's memo outlining this strategy for a Texas real estate transaction, here are the pros and cons to consider.

The PROS: Why It's a Game-Changer 🚀

Massively Expanded Investor Pool 🌎

〰️Unleash Your U.S. Marketing 📣: The structure uses a Regulation D, Rule 506(c) offering for the domestic fund.
〰️Access to Offshore Capital 💰: The Regulation S feeder fund is specifically designed to raise capital from non-U.S. persons, tapping into a whole different market.
〰️Regulatory Safe Harbor 🛡️: The master-feeder structure, with its separate LLCs, is designed to legally insulate the offerings from each other.

The CONS: The Operational Hurdles 🚧

〰️Structural Complexity & Cost 🏗️: This isn't a simple setup. It requires the formation of three distinct Limited Liability Companies (LLCs): a Parent LLC (the Master Fund) and two Feeder LLCs (one for Reg D, one for Reg S). This means more legal work, more administrative oversight, and more cost.
〰️Heavy Compliance Lift ⚖️: You have a legal duty to take "reasonable steps" to verify that every single U.S. investor is accredited. This can involve reviewing sensitive documents like tax returns or bank statements.

For the Reg S fund, you are prohibited from any "directed selling efforts" in the United States. Your marketing must be carefully targeted to be offshore only.

Strict Separation is Mandatory ✂️.
This includes:

〰️Separate Offering Documents:
〰️Distinct Marketing Channels:
〰️Segregated Bank Accounts:
〰️Expert Counsel is Non-Negotiable 🧑‍⚖️:

The Takeaway: The master-feeder structure is a sophisticated and powerful strategy for large-scale real estate capital raises. It can significantly broaden your reach, but it comes with a heavy administrative and compliance burden. It's a pro-level move, not a beginner's strategy.

What are your experiences with master-feeder funds? Listen to our Deep Dive on this topic: https://lnkd.in/gPvww7DE