In real estate crowdfunding, the SEC requires “Risk Factors” to be tailored specifically to your project rather than just using generic boilerplate text. For your GONEN Statutory Trust $2.4M raise, you must address risks related to the real estate market, the development process, and the specific structure of a statutory trust.
Drafting Your “Risk Factors” Section
The following are critical risk disclosures commonly found in Form C filings for real estate operating companies.
1. General Real Estate & Market Risks
- Market Fluctuations: “The value of the Trust’s real estate assets, including the Lynchburg Project, may fluctuate based on economic conditions, interest rate hikes, and local market demand. There is no guarantee that the property will appreciate or maintain its current value.”
- Illiquidity: “Real estate is a notoriously illiquid asset. The Trust may be unable to sell the property at a favorable price or within a desired timeframe, which could delay distributions to beneficial interest holders.”
2. Construction & Operational Risks
- Construction Delays & Cost Overruns: “The planned revitalization of our properties involves inherent risks such as labor shortages, supply chain disruptions, and unexpected structural issues. Any significant delay or cost increase could negatively impact our projected returns.”
- Vacancy & Tenant Default: “Our revenue depends on maintaining high occupancy rates. If a major tenant defaults or we experience high vacancy rates, the Trust’s cash flow may be insufficient to cover debt service or dividends.”
3. Offering & Structural Risks
- Statutory Trust Structure: “As a Wyoming Statutory Trust, our governance differs from a traditional corporation. Beneficial interest holders generally have no voting rights and cannot participate in the management of the Trust, which is handled exclusively by the Trustees.”
- Limited Liquidity of Securities: “The securities offered are ‘restricted’ and cannot be resold for at least one year under SEC rules. Furthermore, there is no public market for these interests, and one may never develop.”
- Audit and Financial Risk: “This offering is based on audited financials. However, past performance is not indicative of future results, and our ability to meet the $2.4M target is not guaranteed.”
SEC “Plain English” Guidelines
To ensure these are accepted by the SEC and your funding portal, you must follow these formatting rules:
- Short Sentences: Avoid long, rambling legal paragraphs.
- Definitive Language: Use concrete, everyday words instead of dense “legalese.”
- Active Voice: Clearly state what will or could happen.
- No “Countervailing” Language: You cannot “explain away” the risk. For example, do not say, “The market might crash, but we are so experienced it won’t matter.” The SEC prohibits minimizing the risk in this section.
Would you like me to help you draft the “Use of Proceeds” table? This is where you precisely show investors how the $2.4M will be split between the Lynchburg acquisition, renovations, and administrative costs.