The North American Securities Administrators Association, Inc. (NASAA) has requested public comment on proposed amendments to its Statement of Policy Regarding Real Estate Investment Trusts (known as the REIT Guidelines).

The crux of NASAA’s proposed changes to the REIT Guidelines is the introduction of a uniform “concentration” limit applicable to an investor’s purchase of interests in a non-traded real estate investment trust (Non-Traded REIT or NTR).

Highlights of the proposal

This NASAA Proposal, if adopted, would require the following:

  • An NTR 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 NTR program, as well as affiliates of that NTR and all other NTRs, 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 NTR (selling agents) would be required to maintain records for a period of 6 years, which records would include the information relied upon to determine that each investor’s purchase met the concentration standards.
  • The NTR’s 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.
  • The NTR’s Declaration of Trust would be required to include the concentration limit approved by the state securities administrators.

Expansive effect of the proposal

Although for years certain states have imposed concentration limits for NTRs, currently fewer than 10 states typically require the concentration limit to apply to all NTR investments by an investor, and fewer than 20 states typically require a concentration limit at all. The proposal would expand the accredited investor exception to all states, unless otherwise determined by a state securities administrator.

Commenting on the proposal

Comments are due to NASAA by September 26, 2016.