Author: Trey Jackson

Senate and House Pass The Inflation Reduction Act of 2022

Posted on by Trey Jackson

The Inflation Reduction Act of 2022 (IRA) heads to President Joe Biden’s desk for his signature, following passage by the House today and the Senate on Sunday. After weeks of negotiations, the comprehensive economic package primarily brokered by Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) reflects Democratic priorities to combat climate change, reduce prescription drug costs, and lower the deficit by roughly $300 billion over the next decade. (Washington Post, Aug. 7; Roundtable Weekly, July 29)

Why It Matters

  • After Congress passed the IRA today, President Biden stated, “With the passage of the Inflation Reduction Act in the House, families will see lower prescription drug prices, lower health care costs, and lower energy costs. I look forward to signing it into law next week” (Twitter, Aug. 12 | Wall Street Journal, Aug. 12)
  • The $790 billion reconciliation proposal includes nearly $370 billion in climate spending that affects “clean energy” measures important to commercial real estate, the largest federal clean energy investment in U.S. history. (NPR, Aug. 7) (see story below)

CRE Impact

Jeffrey DeBoer, Real Estate Roundtable President and CEO

Real Estate Roundtable President and CEO Jeffrey DeBoer commented today, “The revised Inflation Reduction Act is a welcome step toward boosting economic growth by spurring extensive investments in clean energy and climate measures that benefit both our industry and our country. We applaud Congress for recognizing and protecting the critical role of carried interest provisions in incentivizing the risk-taking necessary for robust economic development. We look forward to working with our partners in industry and government to implement this legislation.”

  • Proposed changes to the taxation of carried interest were cut from the IRA last week at the request of Sen. Kyrsten Sinema (D-AZ). The Roundtable and 14 other national real estate organizations wrote to all members of Congress on Aug. 3 in strong opposition to the measure. (Coalition letter, Aug. 3 | Roundtable Weekly, Aug. 5 )
  • The IRA’s largest tax increase is a 15% corporate minimum tax on businesses with profits over $1 billion whose reported book income exceeds reported taxable income. The measure is estimated to raise $313 billion.
  • The final bill includes a 1 percent tax on what public companies spend on stock buybacks. However, it did not include any changes to the state and local tax (SALT) deduction.  (CQ, Aug. 7)
  • The package also includes protections that would preserve the value of the low-income housing tax credit for investors (typically large banks) that use the credit to reduce their effective tax rate.

In the coming weeks, The Roundtable will continue updating summaries of the tax and energy provisions in the IRA while also analyzing the direct and indirect impact on commercial real estate. (See below for Clean Energy Tax Incentives Fact Sheet)

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Roundtable “Fact Sheet” Summarizes Inflation Reduction Act’s “Clean Energy” Tax Incentives Important to Real Estate

Posted on by Trey Jackson

The Inflation Reduction Act (IRA) that passed Congress today (see story above) – “includes the largest expenditures ever made by the federal government to slow global warming.” (New York Times, Aug. 7) The bill “would spend nearly $370 billion on a raft of tax credits to help stimulate adoption of clean energy technologies.” (POLITICO, July 28)

Key CRE Credits and Deductions (RER Fact Sheet) 

A number of the IRA’s revisions to the federal tax code can help the U.S. real estate sector reduce GHG emissions. The Real Estate Roundtable has prepared a fact sheet summarizing key IRA incentives, including:

  • A revised tax deduction at Section 179D, to encourage existing commercial building “retrofit” projects that cut energy consumption by at least 25%;
  • A revised tax credit at Section 45L, to encourage new energy efficient multifamily construction;
  • An expanded tax credit at Section 48,  to support investments in solar, combined heat and power, microturbines, energy storage, dynamic glass, grid interconnection, fuel cells, geothermal heat pumps, and other clean energy technologies;
  • A new code section to allow businesses that cannot typically benefit from tax incentives because of income limitations (such as REITs) to transfer certain credits to unrelated third parties.

The Senate Finance Committee has provided a summary of all incentives in the IRA’s “Energy Security” Subtitle D. 

Roundtable Advocacy

Capitol building sun and green

  • The Roundtable has long advocated for code changes that can make clean energy incentives more usable for building owners, managers, designers, and financiers. (See Roundtable Weekly, Nov. 19 and May 28, 2021).
  • The IRA includes a number of The Roundtable’s recommended changes. As our analysis of Subtitle D continues, RER’s fact sheet will be updated and revised.

The Internal Revenue Service (IRS) is expected to issue multiple regulations and guidance documents in the coming months that implement the new law. The Roundtable will provide comments as new rules are proposed to help accelerate the CRE industry’s investments in tackling the climate crisis.

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Commercial Real Estate Executives’ Perceptions Of Industry Fundamentals Hold Steady Despite Current Market Conditions

Posted on by Trey Jackson

Commercial real estate executives continue to view current conditions as significantly less favorable than previous quarters due to rising interest rates, increased inflation, supply chain disruptions, and labor shortages. However, leaders’ views of where the markets will be one year from today have improved, indicating a cautiously optimistic outlook for the future, according to The Real Estate Roundtable’s Q3 2022 Economic Sentiment Index. 

Roundtable President and CEO Jeffrey DeBoer said, “Our Q3 Sentiment Index reflects many of the challenges our economy and industry have faced since early 2022. While these challenges will continue to be bottlenecks in the near term, CRE leaders are optimistic about the future, as underlying real estate fundamentals, such as housing, remain in high demand.

DeBoer added, “Industrial and multifamily continue to be a source of strength, but office and retail still struggle to regain momentum following the pandemic. These are uncertain times, but quality assets and owners will persevere as they continue to meet fundamental demand.”

The Roundtable’s Overall Q3 2022 Sentiment Index—a reflection of the views of real estate industry leaders—registered an overall score of 44. The Economic Sentiment Overall Index is scored on a scale of 1 to 100 by averaging the scores of Current and Future Indices. Any score over 50 is viewed as positive. The Current Index registered at 38, a 19-point decrease compared to Q2 2022; however, the Future Index registered a score of 51, a 5-point increase from the previous quarter, reflecting leaders’ optimism in future conditions. ­­­­

Topline findings:

  • The Q3 2022 Real Estate Roundtable Sentiment Index registered an overall score of 44, a decrease of 7 points from the previous quarter’s overall score and 34 points lower than a year earlier.
  • Survey respondents are cautious of rising interest rates, increased inflation, supply chain disruptions, and other issues but remain optimistic regarding the underlying fundamentals for real estate.
  • While fundamentals, such as industrial and multifamily, remain strong in terms of supply and demand, there is concern over current market conditions for other asset classes, particularly office and retail.
  • Although in the short-term the pandemic has led to a lack of enthusiasm for office and retail assets, industry leaders expect strong, long-term demand for assets that allow increased flexibility by providing tenants with more amenities and higher quality accommodations.
  • Rising interest rates and general market uncertainty represent clear challenges facing asset pricing; where trades are taking place, they have been occurring at a discount relative to recent high-water marks.
  • In terms of capital markets, participants noted that capital is available, though market uncertainty has induced hesitancy for risk-taking and tightening across both debt and equity.

Data for the Q3 survey was gathered in July 2022 by Chicago-based Ferguson Partners on The Roundtable’s behalf. Read the full Q3 report.

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Business Coalition Succeeds in Extending the Comment Period for NASAA Proposal Affecting REITS

Posted on by Trey Jackson

NASAA logo border

A coalition of 17 business organizations, including The Real Estate Roundtable, wrote this week to the North American Securities Administrators Association, Inc. (NASAA) requesting an extension of the comment period on proposed revisions to the NASAA Statement of Policy Regarding Real Estate Investment Trusts.  In response to our coalition letter, NASAA has extended the comment period from August 11 to September 12, 2022. (NASAA extension request, Aug. 2)

The coalition is also preparing to submit a comment letter raising concerns about these proposed revisions to the NASAA Statement of Policy Regarding Real Estate Investment Trusts. (NASAA Request for Public Comment, July 12)

Proposed Changes

  • The NASAA proposal would negatively impact publicly registered, non-traded REITs by linking conduct standards for brokers selling non-traded REITs to the SEC’s Best Interest conduct standard, according to the coalition letter.
  • Specifically, the proposal has four revisions that would affect individual net income and net worth requirements; add a uniform concentration limitation; and include a new prohibition against using gross offering proceeds to fund distributions. (Roundtable Weekly, July 29 and the Institute for Portfolio Alternatives)

Wide Impact

San Franciso

  • The NASAA rules would also negatively impact highly regulated investment vehicles—including mutual funds, exchange-traded funds, interval funds, tender offer funds and business development companies.
  • These investment funds direct long-term capital to geographically diverse opportunities across a range of property types—office, industrial, multifamily, retail, self-storage, medical, and real estate debt—throughout the United States and its territories.
  • The funds would face arbitrary restrictions within the proposal that, if implemented, would limit investor choice during a time of stock market volatility and high inflation.
  • Additionally, the NASAA proposal would affect federally regulated, non-traded REITs— particularly NAV REITs. These investment vehicles are a growing source of capital to the acquisition and development of affordable housing, commercial properties for small businesses, and other types of real estate that support economic growth and employment.

Other Investment Concerns

  • The proposed revisions also have the potential to influence other sets of NASAA Guidelines under development, including those for Asset-Backed Securities, Commodity Pools, Equipment Leasing, Mortgage Programs and Real Estate Programs other than REITs. (NASAA Request for Public Comment, July 12)
  • With the deadline extended to Sept. 12, the coalition is continuing to refine its comment letter and welcomes input from our members.

The Real Estate Roundtable is working with several other organizations on the coalition’s responses to NASAA. Roundtable members can direct their comments and questions to Roundtable Senior Vice President Chip Rodgers or call 202-639-8400.

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Senate Democrats Strike Deal to Speed-Up Federal Permits for Major Energy Projects

Posted on by Trey Jackson
Department of Energy building in Washington, DC

Sen. Joe Manchin (D-WV) and Democratic Senate leadership reached a side deal on federal energy permitting this week, separate from the larger reconciliation bill agreement addressing climate, taxes, and drug pricing reform. (PoliticoPro, One-page summary of agreement and Washington Post, Aug. 1)

Energy Permitting Provisions

  • An outline of the energy permitting agreement shows that an eventual bill would direct the President to designate and periodically update a list of at least 25 high-priority energy infrastructure projects and prioritize their approvals by federal agencies.
  • The agreement could lead to policies that accelerate federal approvals for long-distance transmission lines needed to help “clean the grid” and deliver renewable energy generated in rural areas to cities.
  • The agreement would also limit National Environmental Policy Act (NEPA) reviews for major federal projects to two years, and one year for lower-impact projects. NEPA requires federal agencies to assess alternatives to their proposed actions that have lesser environmental impacts. (EPA fact sheet)
  • The Democratic senators agreed with House Speaker Nancy Pelosi (D-CA) that the permitting agreement could be added to a stopgap spending measure to fund the government after Sept. 30. (BGov, Aug. 3)
  • In May, the Biden administration released a Permitting Action Plan to strengthen and accelerate Federal permitting and environmental reviews. Another package of White House changes to permitting rules is expected later this year. (Roundtable Weekly, April 22 | White House news release, May 11 | BGov, Aug. 4).

Climate Financial Risk Tool

OFR Climate and Analytics Hub
  • The Treasury Department launched its Climate Data and Analytics Hub pilot, which aims to provide regulators with data, software and tools to gauge climate change risk to the financial system. (Treasury Department Fact Sheet)

Initial access to the pilot will be limited to the Federal Reserve Board of Governors (FRB) and the Federal Reserve Bank of New York (FRBNY), with the goal of expanding access to all of the Financial Stability Oversight Council (FSOC) member agencies.

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Proposed Carried Interest Provisions, Opposed by Real Estate Industry, Cut From Reconciliation Bill

Posted on by Trey Jackson

Senator Kyrsten Sinema (D-AZ) at RER's 2022 Spring MeetingProposed changes to the taxation of carried interest were cut from Senate Democrats’ broad Inflation Reduction Act (IRA) yesterday at the request of centrist Sen. Kyrsten Sinema (D-AZ). The Roundtable and 14 other national real estate organizations wrote to all members of Congress on Aug. 3 in strong opposition to the measure. (Coalition letter, Aug. 3 | Wall Street Journal, Aug. 4 |Tax Notes, Aug. 5). Photo above: Sen. Sinema at The Roundtable’s 2022 Spring Meeting.

Vote on Revised Reconciliation Bill 

  • Sinema announced her decision in a statement released Thursday night, commenting she would “move forward” with the $790 billion reconciliation bill after removal of the carried interest provision—subject to the Senate Parliamentarian’s review of the revised bill.
  • Yesterday, Senate Majority Leader Chuck Schumer (D-NY) announced that the chamber will begin consideration of the bill on Aug. 6, setting up a weekend process of around-the-clock votes on hundreds of amendments to the bill.
  • Real Estate Roundtable President and CEO Jeffrey DeBoer commented today, “The wide-ranging climate measures in the revised bill include the most extensive clean energy investments ever considered by Congress—a positive step welcomed by the real estate industry. We are also pleased to see that carried interest provisions in the original version of the Inflation Reduction Act are out, since they would have clearly harmed the residential and commercial real estate industries, job creation and the economy.” 

Real Estate’s Carried Interest Opposition 

Construction mixed use real estate

  • The real estate coalition urged policymakers to preserve current carried interest law and detailed major concerns with the proposed changes to carried interest that were in the original IRA, brokered last week between Sens. Schumer and Joe Manchin (D-WV). (Coalition letter, Aug. 3 and Roundtable Weekly, July 29)
  • The Aug. 3 coalition letter noted, “The carried interest proposal would slow housing production, discourage the capital needed to reimagine buildings to meet post-pandemic business needs, hamper job creation and create an additional unknown in an already confusing economic environment.”
  • The real estate coalition letter concluded, “Now is not the time to impose a tax increase on the countless Americans who use partnerships to develop, own, and operate housing and other commercial real estate. We urge you to preserve current tax law as it relates to carried interest.” 

Senate Considers Changes 

Capitol 3 flags flying

  • Senate Democrats are making additional changes to the package, including adjusting the minimum tax on corporations and adding a 1% excise tax on stock buybacks. (New York Times, Aug. 4 and Punchbowl News, Aug. 5)
  • Before a final Senate vote can be held, the Senate Parliamentarian must ensure the bill complies with special budget reconciliation rules, which require provisions directly relate to spending and revenue—not policy.
  • One hurdle before the Parliamentarian is a clean energy tax credit that proposes a bonus incentive to developers who pay prevailing wages on certain projects. If it is determined to be a policy change, it will be dropped from the bill. (POLITICO Power Switch, Aug. 3)
  • A number of the IRA’s proposed revisions to the federal tax code could leverage greater private sector investments in clean energy building technologies, including:
    • A deduction to help make commercial and multifamily buildings more energy efficient (Section 179D),

    • A credit to encourage investments in renewable energy generation and other low carbon equipment such as solar panels, energy storage, and combined heat and power systems (Section 48), and

    • A credit to incentivize installations of EV charging stations (Section 30C). 

The Roundtable continues to work with its policy advisory committees and national real estate organization partners to assess how details in the bill language could impact CRE. These policies will be a focus of discussion during The Roundtable’s Sept. 20-21 Fall Meeting in Washington, DC. 

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Sens. Schumer and Manchin Agree on Reconciliation Bill With Carried Interest and Energy Efficiency Provisions

Posted on by Trey Jackson

Sens. Joe Manchin and Chuck Schumer

An unexpected agreement announced Wednesday night between Senate Majority Leader Chuck Schumer (D-NY), above right, and Sen. Joe Manchin (D-WV), left, on a $790 billion reconciliation proposal includes $14 billion in increased taxes on carried interest and a 15% corporate minimum tax—in addition to $369 billion in climate spending that affects “clean energy” measures important to commercial real estate.

Senate Democrats are hoping to pass some version of the Schumer-Manchin language on a party-line vote before the upper chamber begins its summer recess on Aug. 8. (Senate Democrats’ joint statement and one-page bill summary, July 27 | Committee for a Responsible Federal Budget, July 28)

Legislative Details

Reconciliation Bill - Roundtable Town Hall

  • Today, The Real Estate Roundtable held an all-member virtual town hall to discuss major provisions within the 725-page Inflation Reduction Act (IRA) of 2022. The Roundtable is working with its policy advisory committees and national real estate organization partners to assess how details in the bill language could impact CRE.
     
  • Real Estate Roundtable President Jeffrey DeBoer stated, “The Roundtable is engaged with policymakers and Capitol Hill staff on the potential impact of the proposed bill on real estate capital formation, economic growth, clean energy investments, and affordable housing development. The industry is working together to mitigate any negative consequences for CRE before policymakers hold an eventual vote on a final bill.”

Taxes & Clean Energy

Capitol side bright

  • The IRA’s largest tax increase is a new 15% corporate minimum tax on businesses with profits over $1B whose reported book income exceeds reported taxable income. The measure is estimated to raise $313B. The package also includes protections that would preserve the value of the low-income housing tax credit for investors (typically large banks) that use the credit to reduce their effective tax rate.
  • The smallest tax increase would raise $14B in revenue by extending the capital gains holding period requirement for carried interest from 3 years to 5 years, although there is an exemption for real estate. Additionally, there are technical reforms to the holding period rules for measuring the 3- or 5-year holding period. (Deloitte Tax News & Views, July 29)
  • The carried interest holding period change includes a real estate exception for gain associated with assets used in a real property trade or business. The language in the IRA on carried interest is identical to text in the House Ways and Means Committee’s previous reconciliation bill last year—language that was dropped from the version that passed the full House. (Roundtable Weekly, Sept. 17, 2021)
  • The Schumer-Manchin agreement also proposes significant reforms to Section 179D—the tax code’s main provision to incentivize energy efficient commercial buildings. The 179D reforms are geared to encourage more existing building “retrofits” although maximum incentives amounts depend on compliance with heightened wage and labor standards.
  • Tax incentives are also included to encourage investments in solar panels, energy storage, and EV charging stations. (See Summary of the bill’s Energy Security and Climate Change Investments)

Timeline

DC night iconic buildings moon

  • There are several challenges to the Senate Democrats’ timeline for passage of the bill in early August. 
  • Senate Democrats need all 50 members of their caucus present for an eventual budget reconciliation vote, along with Vice President Kamala Harris to break an anticipated tie with 50 Republicans. Yet Covid-19 infections have caused recent absences. (The Hill, July 28) 
  • The bill was sent to Senate Parliamentarian Elizabeth MacDonough to see if it conforms with reconciliation budget rules, a process that will spill over into next week. (BGov, July 29)
  • Arizona Democratic Senator Kyrsten Sinema is a key centrist vote, considering she has long opposed changes to the taxation of carried interest. Sinema’s spokesperson Hannah Hurley said yesterday that the Senator is “reviewing the text and will need to review what comes out of the parliamentarian process.” (BGov, July 29) 

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Economic Uncertainty Follows Inflation and Interest Rate Increases

Posted on by Trey Jackson

Fed Reserve building close-up

This week’s flurry of key economic data offered mixed signals about the state of the economy and whether the Federal Reserve’s interest rate increases can slow inflation without causing a significant increase in unemployment—a “soft landing” that could prevent a full-blown recession before the mid-term elections. (The Hill, July 28)

Economic Slowdown & Inflation

  • POLITICO described the week as a “Category 5 storm of economic news.” Developments included a drop in the consumer confidence index for the third straight month; an increase in the Fed funds rate by another 75 basis points; and a drop in the gross domestic product (GDP) at an annual rate of 0.9 percent.
  • Additionally, the Commerce Department reported today that the personal consumption expenditures price index (PCE)—a key inflation gauge closely tracked by the Fed—rose 1.0% increase last month and increased 6.8% since last June, the largest spike since January 1982. (Reuters and CNBC, July 29)
  • President Biden responded, “It’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation.” (White House statement, July 28)
  • Fed Chair Jerome Powell commented after the increase in interest rates. “I do not think the U.S. is currently in a recession. And the reason is there are just too many areas of the economy that are performing too well. The labor market has remained extremely tight, with the unemployment rate near a 50-year low, job vacancies near historical highs, and wage growth elevated. We think there’s a path for us to be able to bring inflation down while sustaining a strong labor market.” (Federal Reserve press conference transcript, July 27)
  • The recent rise in interest rates are starting to hamper commercial real estate transactions and values. The Wall Street Journal reported on July 26 that “banks are lending less and charging higher interest rates for the loans they make to owners and buyers of office buildings, shopping centers and other commercial real estate.”

GDP & Jobs

National Bureau of Economic Research logo

  • Treasury Secretary Janet Yellen yesterday addressed this week’s drop in GDP. “Most economists and most Americans have a similar definition of recession: a broad-based weakening of our economy. That is not what we’re seeing right now.” She added, “Job creation is continuing, household finances remain strong, consumers are spending, and businesses are growing.” (Treasury Department press conference transcript, July 28)
  • Two straight quarters of economic contraction is usually considered a “technical” recession. Yet The National Bureau of Economic Research (NBR), as the official designator of recessions, has not released a decision yet based on the recent economic data. NBR bases its analysis of a wide variety of economic indicators such as employment, personal income, durable goods, housing permits, and other factors. (The Washington Post, July 27 and CNBC, July 26)
  • White House economist Brian Deese commented on NBR and this week’s economic data on CNBC yesterday. “We’re certainly in a transition and we are seeing slowing as we all would have expected,” Deese said, “but if you look at the full data and the type of data that NBR looks at, nothing signals that this period in the second quarter is recessionary in the labor market.” (CNBC, July 28)

Roundtable Chair John F. Fish on Bloomberg Markets

Roundtable Chair John F. Fish (Chairman & CEO, Suffolk), above, was interviewed July 27 on Bloomberg Markets: Americas about current economic conditions and real estate. He commented on the industry’s challenges, including fractious land use policy, supply shortages, and cost drivers. National economic conditions affecting CRE and the Fed’s monetary policies will be a focus during The Roundtable’s Fall Meeting on Sept. 21-22 in Washington, DC.

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New Treasury Guidance Allows Greater Flexibility in Using COVID-19 Rescue Funds for Affordable Housing

Posted on by Trey Jackson

Housing construction

The Biden administration issued new guidance this week that gives local and state governments greater flexibility when using their share of $350 billion in COVID-19 federal relief funds for affordable housing. The changes are in line with the administration’s recent Housing Supply Action Plan, which aims to boost the supply of affordable housing in communities throughout the nation. (Treasury Dept. news release, July 27 and Roundtable Weekly, May 20)

Expanded Use of Pandemic Funds

How-To Guide

How-To Guide Treasury and HUD cover

  • Treasury and the Department of Housing and Urban Development have also jointly published a “How-To” Guide to show governments ways of combining pandemic aid with other sources of federal funding.
  • According to the guide, recipients of Coronavirus State and Local Fiscal Recovery Funds (SLFRF) can “acquire properties that will be transitioned into affordable housing for households that experienced the negative economic impacts of the pandemic. This could include acquisition of market rate rental properties, motels, or commercial properties that will be converted to affordable housing, or acquisition and preservation of publicly supported affordable housing.”
  • SLFRF may also be used to “finance retrofits and weatherization of properties to improve energy efficiency, potentially by leveraging new federal funding such as the Department of Energy’s Weatherization Assistance Program, or infrastructure resources.”
  • Over the coming months, Treasury plans to conduct a series of webinars and briefings with states, local governments, nonprofits, and private sector entities involved in the development and preservation of affordable housing.

Multifamily Response

  • The National Multifamily Housing Council (NMHC) and National Apartment Association (NAA) applauded the flexibility provided by the new guidance.
  • NMHC also unveiled new research this week showing the need for the U.S. to produce 4.3 million more apartments by 2035 to address the underbuilding of housing after the 2008 financial crisis.

In conjunction with the study’s release, the website www.WeAreApartments.org breaks down the data by each state and 50 key metro areas.

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Proposed NASAA Rules Target REIT Guidelines, May Impact Real Estate Capital Formation

Posted on by Trey Jackson

NASAA logo border

The North American Securities Administrators Association (NASAA) is seeking public comment on proposed revisions to its Statement of Policy Regarding Real Estate Investment Trusts. The July 12 proposal would update the conduct standards for brokers selling non-traded REITs with references to the SEC’s Best Interest conduct standard. (NASAA news release, July 12 and Investment News, July 25)

Proposed Changes

  1. 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.
  2. Update to the individual net income and net worth requirements—up to (a) $95,000 minimum annual gross income and $95,000 minimum net worth, or (b) a minimum net worth of $340,000—in the suitability section, by adjusting upward to account for inflation since 2007.
  3. 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 carve out for accredited or other sophisticated investors.]
  4. 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.”

Potential Impact

Chicago skyward

  • The proposed revisions have the potential to influence other sets of NASAA Guidelines under development, including those for Asset-Backed Securities, Commodity Pools, Equipment Leasing, Mortgage Programs and Real Estate Programs other than REITs. (NASAA Request for Public Comment, July 12)
  • NASAA works to coordinate state regulation of broker-dealers, investment advisers and securities offerings—including non-traded REITs, which are publicly offered REITs not listed on any exchange.
  • NASAA’s Corporation Finance Section Committee Chair and Ohio Securities Commissioner Andrea Seidt said, “The REIT guidelines have not been updated for more than 15 years and these revisions are long overdue. If adopted, the proposed revisions will make key inflationary adjustments to existing suitability standards and promote uniformity in state concentration limits, both of which are key to limiting retail investor risk.” (NASAA news release, July 12)

Final comments on NASAA’s 44-page request are due by Aug. 11, 2022. The Real Estate Roundtable is working with several other organizations on a coalition response. Roundtable members can direct their comments and questions to Roundtable Senior Vice President Chip Rodgers or call 202-639-8400.

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