Last Friday, the SEC
finally, after 3 years, adopted final rules to permit companies to offer and
sell securities through crowdfunding.  But,
to me, the more interesting SEC news is what’s on the horizon (keep reading to
the end of this article for more details). 
What does this mean to commercial real estate investors—both those who
are considering using crowdfunding to raise money for their next deal and those
who would like to use crowdfunding to invest in more real estate deals?
At the outset, as
most of my readers know, I am a syndicator (although I prefer joint ventures) and
commercial real estate investor as well as a syndication lawyer.  With that “dual capacity”, I look at every
investing strategy wearing those two hats. 
I first ask myself, as an investor, is this a strategy I would use
myself.  If it makes sense from that
business analysis, I then analyze the legal pros and cons.  I would never recommend an investment
strategy to any of my clients that I, myself, have not used or would not use.
With that preliminary
explanation of my mindset, it is my personal opinion that crowdfunding is not,
in its current form and under current laws (which can and will change in the
future), any better, less expensive, easier, faster or safer of a strategy to
raise money for your deals than taking advantage of any one of multiple exemptions
to the securities laws which have been in place for decades.
This latest
development (the SEC’s approval of crowdfunding rules) doesn’t change my
opinion, despite all the media brouhaha (which unfortunately generally contains
a lot of misinformation and more often results in confusion than clarity).  Basically, the new rules would:
  • Permit a company to raise a
    maximum aggregate amount of $1 million through crowdfunding offerings in a
    12-month period;
  • Permit individual investors, over
    a 12-month period, to invest in the aggregate across all crowdfunding
    offerings up to:
    • If either their annual income or
      net worth is less than $100,000, than the greater of:
      • $2,000 or
      • 5 percent of the lesser of their
        annual income or net worth.
    • If both their annual income and
      net worth are equal to or more than $100,000, 10 percent of the lesser of
      their annual income or net worth; and
  • During the 12-month period, the
    aggregate amount of securities sold to an investor through all crowdfunding
    offerings may not exceed $100,000
In addition, all transactions relying on the new
rules would be required to take place through an SEC-registered intermediary,
either a broker-dealer or a funding portal.
The rules also prescribe disclosure requirements,
which are far more extensive and burdensome than what would be required under
several already-available securities laws exemptions.
For investors who are hoping these new crowdfunding
rules will give them “better” opportunities to invest, all I can say is that
they will give them more opportunities to invest.  Whether or not those opportunities are any “better”
than are already available is a matter of opinion and must be evaluated on a
deal by deal basis.  I have just two
words for those thinking of jumping in to a crowdfunded opportunity: “Investor
Beware”, and make sure you get good advice before making your final decision.
I am much more intrigued by the news that also came
out of the SEC last Friday, but for whatever reason nobody seems to be talking
about.  According to the SEC press
release, it is considering whether to propose amendments to Regulation D, Rule
504.  Those proposed amendments would increase
the aggregate amount of securities that may be offered and sold under Rule 504
in any 12-month period from $1 million to $5 million.  If that amendment is passed, that would be
probably the most impactful securities development in decades for commercial
real estate investors.  Why?  Because Rule 504 has two big advantages over
every other SEC exemption: (1) it allows you to advertise, and; (2) it allows
you to sell to non-accredited investors without the heavier disclosure requirement
of other exemptions. 
We help investors around the country raise money
for the deals, whether through syndication or joint ventures (which allow you
to raise money without worrying about the securities laws).  Whichever strategy you use, YOU MUST work
with an experienced lawyer.  Since I am
an investor as well as a lawyer, I can help and understand you in ways other
lawyers cannot. Just read some of the many testimonials from satisfied clients.
If you would like to discuss this or any
other real estate matter in greater detail, call our office to schedule your
private strategy session with me. You’ll get the special attention of me and
our dedicated staff and we’ll make you feel right at home.  Every one of
our clients is like family.  We firmly believe that you can’t do any
better than having our firm represent you.  Let us prove it to you.
Jeff Lerman
The Real Estate
Investor’s Lawyer

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