How to Raise Equity for a Commercial Real Estate Deal
Where first-time sponsors find equity for a commercial property, from friends and family to family offices, and the securities rules for raising it.
Updated & fact-checked Figures are linked to their sources at the end of the article.
Most commercial property is bought with two kinds of money: a mortgage from a lender, and equity from the owners. The lender will only cover part of the price, so a sponsor (the person who finds the deal, arranges the debt and runs the property) has to raise the rest. Unless the sponsor can write that cheque alone, that means bringing in investors.
This guide is for first-time sponsors of hotels, apartment buildings, shopping centres and other income property in Canada and the U.S. It covers where equity usually comes from, how each source behaves, and the securities rules that apply the moment you take other people’s money into a deal. It is general information, not legal advice: speak to a securities lawyer before you approach anyone.
Why raising equity is a securities matter
When investors put money into a property company and expect to be paid out of profits that someone else produces, they are usually buying a security, whatever the paperwork calls it. In the U.S., the Supreme Court’s 1946 Howey decision defined an investment contract as an investment of money in a common enterprise with profits to come solely from the efforts of others, and said it does not matter whether the interest is evidenced by formal certificates or by interests in physical assets.[1] Units in a limited partnership that owns an apartment building, shares in a hotel holding company and memberships in an LLC set up for one deal usually fall into that net.
A security must either be sold with a prospectus (Canada) or registration statement (U.S.), which is expensive and slow, or sold under an exemption. Almost every private real estate raise relies on an exemption. The exemption you choose decides who you may sell to, whether you may advertise, what documents you must hand over and what you must file afterwards.
Where the equity comes from
| Source | Typical cheque | What they expect | Watch for |
|---|---|---|---|
| Your own money | Whatever you can commit | Lenders and investors want to see it | Too little of your own capital makes others nervous |
| Family, friends and business contacts | Small to moderate | Trust in you, simple terms | They may not qualify for an exemption; relationships suffer if the deal does |
| Angel or private investors | Moderate | A clear plan, reporting, a say on big decisions | Investor-friendly terms that limit your control |
| Investment clubs and syndicate groups | Many small cheques | Deal flow and a shared decision process | Pooled passive money is usually a security offering |
| Family offices | Large | Experienced sponsor, institutional-quality reporting | Long diligence; may want co-control or a preferred return |
| Institutional investors and funds | Very large | Track record and scale | Rarely back a first-time sponsor alone |
Friends, family and business contacts are where most first deals start, because they invest in the sponsor as much as the building. The risk is that many of them are not wealthy enough to qualify as accredited investors, and the money is personal. Treat them exactly as you would a stranger: same documents, same reporting, same warnings.
Angel and private investors are high-net-worth individuals who put their own money into private deals. They tend to ask for more say: approval rights on refinancing, sale or new debt, and regular financial reporting. A short, honest offering package (the property, the business plan, the sources and uses of funds, the debt terms, the fees the sponsor earns and the risks) does more to attract them than a polished pitch.
Investment clubs and syndicate groups pool money from members to buy property together. Members who simply contribute cash and let an organizer pick and run the deals are passive investors, and their interests will usually be securities under the Howey test.[1] A club that raises money that way needs an exemption like any other issuer.
Family offices, such as UBU Financial, invest a family’s own capital. They can move faster than institutions and often take a longer view, but they expect a sponsor to show the same discipline: third-party reports, a realistic budget and clear reporting. Some prefer to co-invest in a joint venture rather than buy passive units.
Online platforms are a separate route with their own rules. See our guide to real estate crowdfunding, and for money from abroad, attracting international investors.
The main exemptions in the U.S.: Regulation D
Most private real estate raises in the U.S. use Rule 506 of Regulation D. It comes in two forms.
Rule 506(b) versus Rule 506(c)
Rule 506(b)
- Unlimited amount and unlimited accredited investors
- Up to 35 non-accredited investors in any 90-day period, who must be financially sophisticated
- Non-accredited investors must receive prescribed disclosure, including financial statements
- No general solicitation or advertising
Rule 506(c)
- Unlimited amount
- Every purchaser must be accredited
- The issuer must take reasonable steps to verify accredited status
- General solicitation and advertising allowed
Under both, investors receive restricted securities that cannot be freely resold, the issuer must file a notice on Form D within 15 days after the first sale, states may still require notice filings and fees, and “bad actor” disqualification rules apply.[2][3] In practice, 506(b) suits a sponsor raising from people they already know; 506(c) suits one who wants to advertise, at the cost of verifying each investor’s finances.
An individual is an accredited investor in the U.S. if they have net worth over $1 million excluding their primary residence (alone or with a spouse or partner), or income over $200,000 alone or $300,000 with a spouse or partner in each of the prior two years with the same expected this year. Holders of certain securities licences (Series 7, 65 or 82) also qualify.[4]
The main exemptions in Canada: NI 45-106
In Canada, National Instrument 45-106 Prospectus Exemptions sets out the exemptions used by every province and territory, with some local differences. Nova Scotia, where UBU Financial is based, uses it too. Three exemptions do most of the work for real estate sponsors.[5]
| Exemption | Who can invest | Limits and conditions |
|---|---|---|
| Accredited investor (s. 2.3) | Individuals with financial assets over C$1 million net of related debts, net income before tax over C$200,000 (C$300,000 with a spouse) in each of the last two years, or net assets of at least C$5 million; and many institutions | No cap on the amount. Individuals in some categories sign a risk acknowledgement form |
| Family, friends and business associates (s. 2.5) | Close family, close personal friends and close business associates of a director, executive officer, founder or control person, plus accredited investors | No cap. Ontario and Saskatchewan add a signed risk acknowledgement |
| Offering memorandum (s. 2.9) | Anyone, subject to investment limits | In Alberta, New Brunswick, Nova Scotia, Ontario, Quebec and Saskatchewan, individuals may invest up to C$10,000 a year; C$30,000 if they are an “eligible investor”; C$100,000 if an eligible investor who received suitability advice from a registered dealer or adviser. Requires a prescribed offering memorandum and a signed risk acknowledgement |
An “eligible investor” under the offering memorandum exemption includes an individual with net assets over C$400,000, or net income before tax over C$75,000 (C$125,000 with a spouse) in each of the last two years.[5]
For property sponsors, the offering memorandum exemption carries extra rules. An issuer engaged in real estate activities must add a real-estate schedule to its offering memorandum. If it plans to buy property from a related party, or states a value for a property anywhere other than its financial statements, it must give investors an independent appraisal by a qualified appraiser, dated within six months, and may not quote another value without a reasonable basis.[5]
After a distribution under any of these three exemptions, the issuer must file a report of exempt distribution in each province where buyers are located, no later than 10 days after the distribution.[5] Securities bought under these exemptions are also subject to resale restrictions.
Putting a raise together
A typical sequence for a first equity raise
Settle the deal and the debt
Know the purchase price, the lender’s terms and how much equity is needed, including closing costs and reserves.
Choose a structure
Most sponsors use a limited partnership or a corporation formed for one property. Tax and liability treatment differ; take accounting and legal advice.
Pick the exemption before marketing
Who you plan to approach, and whether you will advertise, decides the exemption, and the exemption decides what you can say and to whom.
Write the terms down
Minimum investment, preferred return, profit split, sponsor fees, voting rights, reporting and what happens on sale or refinance.
Prepare honest disclosure
Business plan, sources and uses, debt terms, third-party reports and a frank list of risks. Required forms depend on the exemption.
Collect, close and file
Verify each investor’s eligibility, collect signed subscription documents and any risk acknowledgements, then make the required filings on time.
Report as promised
Regular financial reports and early warning of problems keep investors for the next deal.
If you are selling securities as a business, or paying someone to find investors, ask your lawyer whether you or they need to be registered as a dealer. Finder’s fees paid to unregistered people are a common source of trouble in both countries.
Sources
- Securities and Exchange Commission v. W. J. Howey Co., 328 U.S. 293 (1946) — Supreme Court of the United States (via Cornell Legal Information Institute), May 27, 1946. Checked 2026-10-12.
- Private Placements: Rule 506(b) — U.S. Securities and Exchange Commission. Checked 2026-10-12.
- General solicitation: Rule 506(c) — U.S. Securities and Exchange Commission, June 21, 2024. Checked 2026-10-12.
- Accredited Investors — U.S. Securities and Exchange Commission. Checked 2026-10-12.
- Unofficial Consolidation: National Instrument 45-106 Prospectus Exemptions — Ontario Securities Commission (Canadian Securities Administrators instrument), December 4, 2025. Checked 2026-10-12.
