Exemptions from SEC Registration of Real Estate Offerings
Most real estate practitioners know that the sale of securities falls under the jurisdiction of the SEC on the Federal level and on the states that involve the sale of such securities.
When selling real estate interests in group ventures, LLCs, Partnerships, Joint Ventures, etc., such sales can constitute a security. If it is a security, the offer and sale of the securities must be registered in most instances with the SEC (and relevant state securities office).
There are exceptions, where, for example, there is an exemption from this requirement to register the securities.
In prior Tips, I have discussed some of the exemptions that might protect the promoter or seller of the real estate interests from having to register the same.
Recently, the SEC added to the list of some private and other offerings that can be exempt from the registration requirement. This is good news for those individuals and companies that sell interests in group investments, such as putting together a partnership, LLC or similar body to own real estate with investors.
Recently, the Chairman of the SEC, Jay Clayton, announced recent exemption amendments by the SEC, adding new exemptions that eliminate the need to file a registration statement with the SEC. (Many states follow the SEC lead and provide many exemptions at the state level.)
The new exemptions from the SEC can be found in an SEC Release .* This Release under 33-10884 and 34-90300 is 388 pages. It covers many areas dealing with the Final SEC positions as to these new exemptions. In summary, RIN 3235-AM27 attempts to help investors, on a reasonably safe level, to consider investments, but to lessen the burden of time and costs on the promoter in making the offer to sell interests.
The SEC stated in their Release:
“We are adopting amendments to facilitate capital formation and increase opportunities for investors by expanding access to capital for small and medium-sized businesses and entrepreneurs across the United States.”
The Release allows more flexibility in qualifying for private offering exemptions under Regulation D. It also expands the use of the Intrastate Offering position under Rules 147 and 147A. There are many more exemption issues discussed in these 388 pages. Suffice to say at this time that the SEC, as mentioned above, is attempting to aid investors and promoters, in a reasonable manner, relative to reducing costs, time and complexity when engaging in the (real estate) securities market.
Dr. Mark Lee Levine
Professor, University of Denver
*For more details, see the above Release and see the background information in this area in Levine, Mark Lee and Feigin, Phil A., Real Estate Securities, PP&E, Inc. (2020); this work is also available at Amazon.com.