The North American Securities Administrators Association, or NASAA, announced that it is requesting public comment on proposed amendments to its Statement of Policy Regarding Real Estate Investment Trusts, also known as REIT Guidelines.
This proposal follows up on a previous proposal to amend the REIT Guidelines issued by NASAA on July 12, 2022. While retaining substantial portions of the 2022 proposal, one significant change is the removal of the prohibition on the use of gross offering proceeds for investor distributions. The three proposed revisions to the REIT Guidelines would:
- Update the conduct standards for brokers that sell non-traded REITs to incorporate the U.S. Securities and Exchange Commission’s Regulation Best Interest, or Reg BI;
- Update the net income and net worth thresholds in the suitability section to account for inflation since they were last updated in 2007; and
- Establish a uniform concentration limit in the suitability section.
According to the REIT Guidelines, various updates have also been made to the three revisions since the 2022 proposal. For example, in response to comments made in 2022, the proposed incorporation of Reg BI has been updated to specify that the conduct standards would only apply to the sponsor or persons selling shares on behalf of the sponsor of the REIT. Inflation adjustments have also been updated since 2022, and the proposed concentration limit was revised to delete the term “affiliates” and provide a definition for “direct participation program,” among other updates.
“The REIT Guidelines have not been updated since 2007 despite significant changes in the financial markets and regulatory standards. I appreciate the substantial time and effort put forth by NASAA’s corporation finance section and corporation finance direct participation programs project group to update these important standards while engaging with industry participants,” said Leslie Van Buskirk, NASAA president and Wisconsin securities administrator. “NASAA welcomes feedback on this revised proposal.”
NASAA stated that REIT guidelines seek to mitigate risk for investors and to help ensure that retail investors are afforded some basic protections from excessive fees, conflicts of interest of the sponsor and adviser with the program and its investors, the use of leverage by the REIT and limits on certain types of investments by the REIT. The REIT Guidelines also require the sponsor and adviser to honor their fiduciary duties to investors. NASAA also said that REITs are a disproportionate source of investor complaints compared to other types of securities.
According to the REIT Guidelines, sales of non-traded REITs have grown substantially since they were last updated in 2007. In 2007, non-traded REIT sales totaled $11.5 billion. By 2022, REIT sales had grown to $33.3 billion, although sales have fallen in subsequent years.
Comments are due on or before May 28, 2025, and will only be accepted by email. All comments received in response to this request will be posted to NASAA’s website after the close of the comment period.
The proposed amendments to NASAA’s REIT Guidelines are now available on NASAA’s website.
NASAA’s membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, the 13 provinces and territories of Canada, and the country of Mexico. NASAA members are responsible for administering state and provincial securities laws.
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