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IPA Leads Advocacy Efforts on NASAA’s Proposed Revisions to NASAA Statement of Policy Regarding Real Estate Investment Trusts


Yesterday, the North American Securities Administrators Association (“NASAA”) announced that it is requesting regarding proposed to its Statement of Policy Regarding Real Estate Investment Trusts (i.e., “REIT Guidelines”). Last revised by NASAA membership in 2007, the statement of policy applies to the qualifications and registrations of REITs.

The four primary provisions being proposed are the following:

The proposed revisions would update the conduct standards for brokers selling non-traded REITs by supplementing the suitability section with references to the SEC’s best interest conduct standard.

  • The proposal includes an update to the individual net income and net worth requirements – up to (a) $95,000 minimum annual gross income and $95,00 minimum net worth, or (b) a minimum net worth of $340,000 – in the suitability section through adjusting upward to account for inflation occurring since the last adjustment in 2007.
  • The proposal would add a uniform concentration limitation prohibiting an aggregate investment in the issuer, its affiliates, and other non-traded direct participation programs that exceeds 10% of the purchaser’s liquid net worth. Liquid net worth would be defined as that component of an investor’s net worth that consists of cash, cash equivalents, and marketable securities. [NOTE: There is no carveout for accredited or other sophisticated investors.]
  • The proposed revisions also include, in multiple sections, a new prohibition against using gross offering proceeds to fund distributions, “a controversial product feature used by some non-traded REIT sponsors . . . having the potential to confuse and mislead retail investors.”

NASAA cites reliance on the NASAA Regulation Best Interest surveys and resulting reports “finding that many broker-dealer firms have not materially changes their policies, procedures, or practices regarding the sale of non-traded REITs or other complex, costly, and risky products to retail investors since the passage of Reg BI” as one justification for the proposal. As a reminder, however, earlier this year, to engage Dr. Matthew Greenwald, a recognized expert in survey research, in a careful review of the NASAA surveys. Dr. Greenwald uncovered significant deficiencies, including NASAA’s lack of objectivity, failure to collect information on key actions firms have taken pertinent to Reg BI and the best interests of their clients, and unstated agenda focusing on certain apparently disfavored products.

Final comments are due to NASAA on or before August 11, 2022. This proposal may be voted on as soon as the NASAA Fall Conference in September 2022.

An IPA State Task Force is actively working on this issue and is preparing a detailed comment letter, which will highlight deficiencies and critical issues in the proposal. We are aggressively engaging on all fronts, including with our coalition partners, to directly counter this troublesome and detrimental proposal for both businesses as well as investors looking for diversification and access to alternative investments.

The IPA will continue to keep our members informed as we move forward on this critical issue. We will need your proactive engagement in our advocacy efforts.

Thank you for your continued support,

Anya Coverman
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives