What Is An OM In Commercial Real Estate?

When researching commercial real estate investing, you may have come across the term OM. What is an OM, and how do they work? Is structuring an OM something you need to be well-versed in to earn consistent returns in commercial real estate investing? Or is just a cursory understanding of OMs sufficient? In this article, we’ll cover what an OM is and whether or not you need to learn the ins and outs of them to get into commercial real estate investing.

What Is An Offering Memorandum In Real Estate?

An offering memorandum, often called an OM, is a key marketing document used in the private marketing of commercial real estate. The OM gives buyers information about a property and the deal offering, along with protecting the Deal Sponsor from liability.

The OM describes the objectives of the property investment, details potential risks associated with the placement, and covers the terms and conditions of the commercial real estate private placement. 

Details in an OM document typically include:

  • Property description including building and location overview, market demographics, and operations and management teams
  • Projections of the property’s past, present, and pro forma aka potential future returns
  • Pro-forma financial statements such as P&L, balance sheet, and distribution schedules
  • Management and investment company biographies and backgrounds
  • Requirements of participation and confidentiality agreement

When Is An OM Used In Commercial Real Estate?

Commercial real estate owners and developers often need to raise capital to update and remarket an existing property or purchase a large office building without publicizing the offering to the general public. Certain securities laws actually prohibit certain types of commercial real estate syndication deals from being publicly marketed, so an OM is how private accredited investors get the proper information to make a decision.

Generally, an OM is exempt from federal and state securities regulations when they’re marketed privately to networks of past investors and other high net worth professional contacts who may or may not be classified as accredited investors. When advertised to the general public, comparatively, only accredited investors may invest in commercial real estate syndications.

What Is A Memorandum Of Agreement, or Letter of Intent?

In an OM, a memorandum of agreement is a document summarizing the proposed transaction between the buyer and seller, including purchase price, basic terms and conditions, and contingencies. This is sometimes referred to as a deal sheet or letter of intent.

A memorandum of agreement is a summary of the proposed offer, so it is not binding on the parties. That said, the agreement does become binding if and when a purchase contract is drawn up that’s based on the deal details provided in the memorandum of agreement, and then fully executed by the buyer and seller.

What Makes A Quality Commercial Real Estate OM?

Has A Table of Contents

A quality commercial real estate OM starts with a table of contents that makes it easy for investors to quickly reference the information they seek. The table of contents in an OM should include information about the property, location, market demographics, rent or sales comparables, financial analysis with a summary, Pro-forma statement, income and expenses, and projected rates of return under different scenarios.

Clear Writing 

The next thing to look for in an OM is clear writing that’s relatively conservative, informative, and straightforward. The writers of an OM should concisely communicate the key points of the offering, getting to the point quickly and without any embellishment. Look for sentences and paragraphs that are short and to the point, along with clear headings and subheadings that align well with the body copy and make it easy for you to locate information quickly. Essentially, you want an OM that makes it simple to get the answers you need to make an informed investment decision without any sales fluff.

Clean And Simple Presentation

Similar to the writing style, you want an OM that’s presented in a clean and simple format without a bunch of unnecessary decoration, graphics, or huge blocks of text. The OM should be easy on the eyes while presenting all of the details pertinent to the investment. It should be easy to quickly scan the OM and have a cursory understanding of the property, with the ability to quickly drill down on any important details you’re concerned about. 

Quality Property Photography

While smartphone cameras are pretty great these days, using one to take photos for an offering memorandum definitely isn’t anywhere near sufficient. The best OMs will include images of neighboring buildings, nearby amenities, parking and access roads, and retail locations. These extra details go a long way in telling the full story about the potential of a commercial real estate investment, so they shouldn’t be overlooked.

Detailed Property Map

Maps in an offering memorandum are often customized to include the property location and illustrate market highlights such as access to highways, shopping and entertainment areas, and proximity to business districts and residential areas. Look for a map that provides you with plenty of context.

Financial Transparency

While potential investors appreciate an offering memorandum that is easy on the eye, serious investors are most interested in the financial aspects and potential returns from the deal.

OMs should be detailed enough that investors have all the information needed to make an investment decision, without financial documents and statements that are overly complicated. Financial documentation should be complete and easy for you to read without confusion.

Seeking Real Estate Investment Without Complication?

When you’re seeking an investment to diversify your portfolio that delivers a solid ROI year after year, real estate funds are the ideal place to put your capital. When you’d rather avoid the endless deal complications and legalese involved with directly investing in individual properties, Saint Investment Group offers a simpler way. 

Saint Investment Group enables you to invest in quality commercial properties that provide solid returns and stable income streams without the hassle. You also get access to performance stats through detailed monthly reporting for peace of mind. Call (323) 483-0291 today and get started in commercial real estate!

Frequently Asked Questions:

What information is typically included in an offering memorandum?

Typically, a commercial real estate offering memorandum includes details about the property itself, such as its location, size, age, and condition.
It also contains financial information, such as predicted revenue and costs, and details about the investment structure, including the conditions of the investment, the duties of the parties involved, and the possible risks and benefits of the investment.

How is an offering memorandum used in the commercial real estate investment process?

In the commercial real estate investment process, an offering memorandum is used to give prospective investors with thorough information about a particular investment opportunity. This information is intended to assist investors in deciding whether or not to invest in the property and on what conditions. The offering memorandum acts as a marketing and negotiating tool, attracting and retaining investors and establishing the investment parameters.

What is the purpose of an offering memorandum in commercial real estate?

An offering memorandum in commercial real estate describes a property, investment structure, and financial predictions for interested investors. It promotes and negotiates investment agreements. The offering memorandum clarifies the investment opportunity, conditions, risks, and benefits.