Thursday
July 27, 2017

SEC Raises Limits for Investment

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SEC Raises Limits for Investment

Gene Trowbridge of Trowbridge Taylor Sidoti LLC explains how real estate crowdfunding may change with the new rules.

Real estate crowdfunding boomed in 2014. Now, new SEC rules for Title IV of the JOBS Act have made crowdfunding even more attractive to real estate deal sponsors. Gene Trowbridge, CCIM, principal in Trowbridge Taylor Sidoti LLC in Lake Forest, Calif., explains the details.

How do these rules change real estate crowdfunding?

The biggest change is the increase in the dollar amount a sponsor can raise. Offerings under the existing Reg. A of Title II can now raise $20 million, up from $5 million. For offerings under the new Reg. A+, the yearly amount is $50 million. Since the average real estate syndication in 2013 was $1.75 million, this change will primarily benefit larger companies and perhaps sponsors who want to put together pools of properties.

What changes will most benefit smaller real estate sponsors?

The new regs allow solicitations to nonaccredited and accredited investors. Accredited investors, who have an annual income of more than $200,000 in the last two years or a net worth of $1 million, account for only about 10 percent of the U.S. population, according to the SEC. Opening up solicitations to unaccredited investors also lessens liability for sponsors and broker dealers since they will no longer be responsible for certifying investors’ accreditation.

Aren’t there some limits on how much unaccredited investors may invest?

Not under Reg. A. Under Reg. A+, unaccredited investors may invest only 10 percent of their annual income or 10 percent of their net worth, whichever is greater, in any one deal.

How have reporting requirements for sponsors changed under the new regulations?

Deals using Reg. A must still file the offering with each state where it is offered for sale, as well as with the SEC. This requirement is very cumbersome unless you are working in just one state. Offerings under Reg. A+ only have to file with the SEC, but the offering has to be approved, which will probably slow deals down. Reg. A+ also requires yearly audits of financials, which will add significant expense.

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