Understanding the Benefits of a Reg D Rule 506(C) Private Offering for Real Estate Development Firms

Abstract

When an investor begins the search for suitable investment opportunities, they generally have some rules-of-thumb about the relationship between risk and potential future return on the investment. They generally will use those informal rules to compare broad asset categories, such as public stocks compared to corporate bonds, or private equity versus an investment in commercial real estate.They have some existing knowledge about the customary, usual returns for example of commercial real estate because they have seen investment performance reports on the internet, or they have heard their business associates describe their experience. They use this past experience to imagine how the investment would fit into their goals.The fancy economic idea here is that investors have a mental image of their own welfare, and are always in the process of comparing investments according to how the investment fits into their “welfare” function. The human brain is always engaged in a furious search for the path that optimizes welfare, and making an investment decision involves the brain searching and sorting thousands of images, trying to come up with the right solution.