Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/206598
Group Changes to securities laws may change your business model. Investing by Kim Lisa Taylor, Esq., and Gene Trowbridge, Esq., CCIM CCIMs and other commercial real estate professionals are ofen involved with raising money from groups of investors to purchase income-producing properties. Since this activity generally means working under the federal securities laws, the ability to advertise and solicit investors has historically been restricted. However, the Jumpstart Our Business Startups Act, known as the Jobs Act, has dramatically changed the way group investment money is going to be raised. ties Act of 1933, sales of securities must be registered with the SEC unless exempt. By far the most common exemption has been the Rule 506 private ofering exemption. As much as $898 billion may have been raised in Rule 506 oferings in 2012, according to the SEC. From 2009 to 2012, the average ofering size was $30 million and the median ofering size was $1.5 million. In its July 10, 2013, meeting, the Securities and Exchange Commission adopted the new Regulation D, Rule 506(c) as authorized by the Jobs Act (Title II), which became efective September 23, 2013. (See SEC Release No. 33-9415, Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Oferings.) Under the new rule, persons such as issuers, sponsors, syndicators, or promoters selling "securities" to private investors to fund their companies or real estate transactions will be able to advertise their private-investment opportunities under certain conditions. Anyone who is raising money from multiple investors is probably selling securities. Securities include promissory notes or investment contracts between a manager and passive investors. Under the Securi- 38 November | December | 2013 Under the original Rule 506, which will now be known as Rule 506(b) and is still in efect, issuers of securities are exempt from SEC registration as long as they follow the rules for the exemption. Rule 506(b) allows issuers to raise an unlimited amount of money from an unlimited number of accredited investors and up to 35 "sophisticated" investors, but issuers cannot make any ofers or sales of the securities by any means of general advertising or solicitation. To prove they didn't solicit investors, issuers must be able to demonstrate a pre-existing relationship with an investor that predates any current or contemplated ofer to sell securities. For issuers relying on Rule 506(b), investors may self-certify that they are accredited or sophisticated by checking a box on a prequalifcation form the issuer provides. For real estate syndicators who want to issue their own securities, the pre-existing relationship and nonsolicitation provisions of Rule Commercial Investment Real Estate Inna Popkova/Thinkstock; Angelo Arcadi/Thinkstock The Old Rule 506 What Changed?