Real Estate Transactions and Development

Real estate development projects—whether a single-property joint venture or a multi-asset investment fund—require careful legal structuring to balance control, liability, and tax efficiency. At Vanguard Legal PLLC, our Houston and Dallas attorneys advise developers, landowners, and investors on the legal, tax, and securities law considerations involved in forming and operating real estate investment entities in Texas and across the U.S.

Below is a practical overview of how real estate development ventures are commonly structured, how investors are brought into those projects, and the key securities law and compliance considerations that sponsors must observe.

1. Real Estate Joint Ventures: Developer + Landowner + Investors

The Typical Structure

A real estate joint venture (JV) is often used for a single property development or a limited number of related projects. It usually involves:

• A developer contributing expertise, management, and development services;

• A landowner contributing land or property rights; and

• One or more investors providing equity capital for construction and development costs.

The parties typically form a special purpose entity (SPE)—most commonly a limited liability company (LLC)—to own and develop the property. The LLC agreement (or joint venture agreement) defines each party’s contributions, governance rights, return structure, and exit rights.

Why LLCs Are Commonly Used

LLCs are preferred for real estate joint ventures because they provide:

• Pass-through taxation (no entity-level tax, profits and losses flow to members);

• Limited liability protection for all members;

• Flexible governance, allowing parties to allocate profits, losses, and control however they agree; and

• Ease of formation and management under Texas law.

LLCs also accommodate “waterfall” distributions, where investors receive a preferred return and return of capital before profits are shared with the developer through a promote or carried interest—similar to a private equity model.

Legal Considerations

A well-drafted JV agreement should clearly address:

• Each member’s capital contributions and funding obligations;

• Management and major decision rights;

• Profit and loss allocations and distribution waterfall;

• Transfer restrictions, buy-sell rights, and exit mechanics; and

• Tax allocations and accounting principles.

For larger JVs or multi-member LLCs, it is also critical to ensure compliance with federal and state securities laws, since selling equity interests to investors may constitute an offering of securities.

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2. Larger Real Estate Development Funds

When a sponsor seeks to raise capital for multiple projects or properties, a real estate development fund is often more appropriate than a single-property JV.

Structure and Participants

A real estate fund typically involves:

• A sponsor or general partner (GP) that manages the fund’s operations and investment activities;

• Multiple limited partners (LPs) who contribute capital and receive returns based on the fund’s performance; and

• One or more special purpose entities (SPEs) that hold each investment or property.

Why Limited Partnerships Are Commonly Used for Funds

Most real estate funds are structured as limited partnerships (LPs) rather than LLCs because:

• LPs allow the sponsor to act as general partner (with control) and investors as limited partners (with liability limited to their investment);

• LP structures are familiar and well-understood by institutional investors;

• The structure aligns with standard private fund tax and accounting practices; and

• LPs work efficiently with private placement exemptions under federal securities laws.

In contrast, LLCs are typically used for smaller, deal-specific ventures or as subsidiary holding entities under the fund’s umbrella.

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3. Securities Law Issues for Real Estate Sponsors

Are Real Estate Interests “Securities”?

Under both federal and Texas law, interests in a real estate joint venture or fund may be treated as securities if investors are passive—meaning they rely primarily on the sponsor’s efforts to generate profits.
In most real estate developments, this test is satisfied, so offering interests to investors typically requires reliance on an exemption from securities registration.

Federal and Texas Law Framework

• Federal law: Governed by the Securities Act of 1933, which requires registration unless an exemption applies, and the Investment Company Act of 1940, which private funds avoid through §3(c)(1) or §3(c)(7) exemptions.

• Texas law: Governed by the Texas Securities Act and enforced by the Texas State Securities Board. Texas largely follows federal exemptions but requires state notice filings when Texas investors are involved.

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4. Offering Interests to Investors – Private Placement Process

Step 1: Choose an Exemption

Most real estate sponsors rely on Regulation D under the Securities Act to raise capital privately:

• Rule 506(b): Private offering to accredited investors (and up to 35 sophisticated but non-accredited investors). No public solicitation permitted.

• Rule 506(c): Allows general solicitation, but all investors must be accredited, and the sponsor must verify accreditation.

Step 2: Prepare Offering Documents

Sponsors typically prepare a Private Placement Memorandum (PPM), Operating Agreement (or Limited Partnership Agreement), Subscription Agreement, and Investor Questionnaire.

Step 3: File Regulatory Notices

• File Form D electronically with the SEC within 15 days of the first sale; and

• File a notice and fee with the Texas State Securities Board if investors are in Texas.

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5. The Private Placement Memorandum (PPM)

A Private Placement Memorandum is the key disclosure document for any private real estate offering. It provides investors with the information they need to evaluate the investment and helps protect the sponsor under federal and state anti-fraud laws.

A PPM should include:

• Overview of the project(s) or fund investment strategy;

• Management structure and experience of the sponsor/developer;

• Detailed terms of the offering (minimum investment, fees, promote structure, target returns, capital commitments);

• Use of proceeds;

• Risk factors (market, construction, financing, environmental, and regulatory risks);

• Conflicts of interest and related-party transactions;

• Summary of key terms of the partnership or LLC agreement; and

• Tax considerations and investor suitability requirements.

While not technically required by Regulation D, a well-prepared PPM is a best practice for reducing liability exposure.

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6. Key Differences Between a Real Estate JV and Fund

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7. Best Practices for Texas Sponsors

• Engage legal counsel early to select the right entity and securities exemption before soliciting investors.

• Use clear, comprehensive offering documents (PPM, LPA/Operating Agreement, Subscription Agreement).

• Verify investor accreditation and maintain documentation.

• File Form D and Texas notices on time.

• Avoid general solicitation unless you are using Rule 506(c) and verify every investor.

• Maintain accurate records of investor communications and capital contributions.

• Work with tax professionals to align entity and allocation structures with the tax goals of investors.

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8. How Vanguard Legal PLLC Can Help

Vanguard Legal PLLC advises Texas developers, real estate sponsors, and private investors on all aspects of real estate joint ventures and private fund formation, including:

• Structuring LLCs, limited partnerships, and joint ventures for development projects;

• Preparing private placement memoranda and offering materials;

• Ensuring compliance with SEC Regulation D and Texas securities laws;

• Negotiating operating and limited partnership agreements;

• Advising on investment adviser registration issues; and

• Coordinating with tax professionals to optimize after-tax returns.

Our attorneys bring a business-minded, investor-focused approach, helping clients structure projects that are both compliant and commercially successful.