What is a Term Sheet?

A term sheet is a non-binding document that outlines the key economic and governance terms of a proposed transaction. It is done before full legal documentation is drafted; serving as the framework from which the Private Placement Memorandum and operating agreement are developed.

What a Term Sheet Contains

A term sheet for a real estate investment typically covers:

The target property

The offering size

The minimum investment

The projected hold period

The distribution structure (including preferred return and waterfall terms)

The sponsor’s promotion or carried interest,

Management fees

The governance framework.

The term sheet may also outline:

the capital stack

the anticipated financing terms

key risk factors

the parties involved (developer, builder, property manager, legal counsel, administrator).

The evolution of term sheet practices reflects increasing investor sophistication and regulatory scrutiny, with modern term sheets including detailed appendices covering risk factors, capital deployment schedules, and waterfall scenarios.

It provides enough detail for a prospective investor to evaluate the deal's structure before the full legal documents are produced.

Understanding key terminology is essential:

non-recourse financing protects investors differently than recourse structures

hard preferred returns restrict sponsor distributions while soft returns allow above-threshold distributions

clawback provisions protect investors if sponsor distributions exceed calculated amounts.

Term Sheet vs. Private Placement Memorandum

Why are Term Sheets Used?

Producing a full PPM requires significant legal work and cost. The term sheet allows the sponsor and potential investors to align on key deal terms before committing to the expense of full documentation.

If the parties cannot agree on the:

preferred return

the waterfall structure

or the hold period

at the term sheet stage, there is no reason to produce a PPM.

Term sheets also serve as internal alignment tools. Before a deal reaches investors, the sponsor, legal counsel, and operating partners use the term sheet to confirm that everyone agrees on the deal's economics and structure.

Term Sheet at Node Proptech

Term sheets for Node offerings are developed under S&K's legal framework. They outline the SPV structure:

offering terms

distribution waterfall

partner roles

before the full PPM is drafted.

Term sheets serve multiple strategic purposes in capital raising, forcing clarity on key economic drivers and risk mitigation strategies before committing to full documentation. They accelerate decision-making timelines, facilitate negotiation positioning, and act as internal alignment tools ensuring sponsors and investors agree on deal fundamentals.

The term sheet provides prospective investors with an early view of the deal's economics and structure, with the understanding that final terms are defined in the Private Placement Memorandum.