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NASAA Requests Public Comment on Proposed Changes to REIT Concentration Limits

The North American Securities Administrators Association is requesting public comment on proposed amendments to its statement of Policy Regarding Real Estate Investment Trusts (known as the REIT guidelines). NASAA proposes to introduce a uniform “concentration” limit applicable to an investor’s purchase of interests in a non-traded real estate investment trust.

The Alternative and Direct Investment Securities Association’s legislative and regulatory committee (chaired by John Grady, DLA Piper) said that it is closely monitoring the situation and preparing response comments along with other associations.

The committee noted the highlights of the proposal in an alert distributed to its members:

• A non-traded REIT program sponsor would have to establish a concentration limit for its program, which (unless otherwise approved by applicable state securities administrators), would limit an investor’s aggregate investment in the subject non-traded REIT program, as well as affiliates of that non-traded REIT and all other non-traded REITs, to 10 percent of the investor’s liquid net worth.

• Liquid net worth would be uniformly defined as “cash, cash equivalents and readily marketable securities.”

• The proposed concentration would NOT apply to persons who are “accredited investors,” as defined in Regulation D promulgated under the Securities Act of 1933.

• The sponsor AND all persons engaged in selling program interests on behalf of the sponsor or non-traded REIT would be required to maintain records for a period of six years consisting of the information relied upon to determine that the purchase met the concentration standards.

• The non-traded REIT prospectus would have to disclose that the sponsor and selling agents are responsible for making “every reasonable effort” to determine that the investor’s purchase met the concentration standard, based on information provided by the investor regarding his or her financial situation and investment objectives.

NASAA will accept comments on the proposal until September 26, 2016. Comments can be submitted by email, and should be directed to Michael Piecak, chair of NASAA’s corporate finance section, and Mark Heuerman, chair of NASAA’s direct participation programs policy project group (with copies to Anya Coverman and Mark Stewart.)

ADISA said that they plan to release further information regarding their comment and will provide additional encouragement and material for its members on this issue. Updates on the topic are expected in the coming weeks.