New SEC Rules Open Up Opportunities for Real Estate Investors
Millions of people in the country may be able to invest in real estate now that the SEC has opened up the platform for online syndications. With the help of online platforms, crowdfunding real estate investments may become easier very soon. This is due to the fact that the SEC has reduced the burden on firms looking to build and people looking to invest.
The Securities and Exchange Commission (“SEC”) approved regulations in March 2015 that would expand options for raising money for property investments. Regulation A+, as it is known, will allow real estate investments to come from a pool of funds raised by non-accredited investors. The regulation will make this sort of investment efficient and accessible for both accredited and non-accredited investors nationwide.
Private capital markets in the U.S. have transformed significantly over the past three years. The adoption of Title II of the JOBS Act has offered a way for the regulations to be put in place. This framework was also supported by the creation of the Rule 506(c) of Regulation D.
Platforms such as RealCrowd allow investors to pool together funds online and crowdfund real estate projects that many see as ideal investments. This is made possible by the removal of the prohibition of no “solicitation or advertising” for accredited investors, provided that such investors demonstrate that they meet such definitions.
The JOBS Act (Jumpstart Our Business Startups Act) is a law that has greatly transformed the scene for new businesses looking to expand their offerings. Equity crowdfunding was the single most important feature of this act. Unfortunately, the SEC has not yet adopted the proposed implementing regulations. Some states have grown impatient waiting for the SEC and have begun adopting their own crowdfunding rules that only apply intrastate. Real Estate developers, investors and companies can now access funds from millions of non-accredited individuals who were previously excluded from such deals. The participation in these syndications has been opened up and democratized for all.
Title II of the JOBS Act went into effect in September 2013, allowing crowdfunding for accredited investors,while in October 2015, Title III is expected to be enacted. The bill’s provisions allow for an increase in the number of shareholders a company may have before it is required to go public. Company assets can now reach $10 million and some 500 accredited owners can be part of the mix of owners before SEC regulations tighten.
Regulation A+ states that:
- The amount raised from non-accredited investors can total up to $50 million.
- Issuers can file offerings with the SEC exclusively.
These two features come as great news for both investors and corporations. The $50 million limit is much higher than the previous $5 million cap and many new commercial property ventures are said to be made possible because of it. In addition, the companies are exempted from filing their reports with individual states and can go directly to the SEC. This reduces the burden on the company and developers by cutting red tape.
However, the oversight of the SEC does mean higher reporting requirements, audited financials and increased oversight. The added scrutiny could be easily compensated for by increased transparency and less friction while raising funds.
Many commercial real estate operators may be encouraged to join crowdfunding platforms to more quickly attain the funds necessary to buy valuable property, thereby stimulating the economy and offering individual investors new, profitable opportunities.