December 17, 2007
To the attention of Nancy Morris, Office of Chief Counsel, Division of Market Regulation
Dear Ms. Morris,
Thank you again for this comment period regarding the NAR proposal #34-56779, file S7-26-07. As this is the final day for comments, and many of us (securities broker/dealers and registered reps) have been meeting and discussing this issue over the last month since the NAR letter was made public, I am submitting a few summary comments to follow up on my initial comments of November 13th:
The protection of Reg D issues, protection of the investor and the entire process is at risk IF the procedures suggested by the NAR letter were followed. I strongly believe that a real estate party should simply be referred to a securities rep and their Broker/Dealer to start the entire process (education, determination of suitability, property suggestions, subscriptions, closing, followup). I would not support that the real estate parties should be able to contact and work directly with the sponsors or make property suggestions to their clients. This is the function of the trained securities representative (who often IS a commercial realtor, by the way). Otherwise we are opening a pandora's box of problems.
This could be pertinent to the SEC for several reasons. First, if the client is referred immediately to the securities side, a suitability and accreditation study will be done. Secondly, the securities rep will have the full knowledge of all sponsors and product and be able to serve the investor best (rather than a commercial realtor who may only know a few sponsors and may only suggest a few deals - not serving the investor Let the people who are trained in this professional handle it).
If the real estate professional is not a TIC securities specialist, why would they be offering and suggesting properties anyway? How could they be knowledgable of the sponsor, track record, details of the structure and properties? I am a commercial realtor - if a client asks if I can assist in a residential transaction, or in a commercial deal outside my area of expertise, I do not accept and rather refer them to a specialist in that area.
Pre-selling and offering of a security by an unlicensed party will not be an issue if this altered procedure is followed. (It could be an issue with the suggested NAR proposal). The securities party would present the properties and order the PPMs on the properties for the client and realtor, who can opine and the broker/dealer will be involved immediately.
While many reps would like to be able to pay a limited referral fee to a referring realtor, many of us would also reject or be extremely unhappy with the Exemption if it is not limited severely. We URGE you to contemplate this.
We strongly urge that a cap or limit be suggested by the SEC and NAR for this referral fee rather than let 'market conditions' dominate. What may well happen is that the realtor will 'shop' around to find the securities party who will give them the highest split rather than focus on quality, and again, does this serve the investor?
If the SEC is ready to take the step of allowing a referral fee (vs advisory fee), which is not easy and maybe should not happen, then why not keep it VERY simple for all parties involved. I am a proponent of allowing any validly licensed real estate party refer their PRE-EXISTING client to a securities party and gain a referral fee IF the realtor is entirely limited to the capacity of referral (and perhaps opining on the RE) and never leading the process. The securities rep is the professional who leads the transaction, and in many cases he or she is also a commercial realtor, whose job and livelihood rests on evaluating the TIC deals - the commercial real estate side as well as the securities side and the elusive intricacies to these transactions. This simplicity would eliminate the ardous task for the Broker/dealers and securities reps of trying to 'qualify' the commercial realtor and their credentials and experience, and would not force any 'policing'. The realtor would simply submit a copy of their real estate licensing along with the existing relationship/client document.
If a real estate licensee is going to do more than a few TIC transactions per year, we strongly believe they should become securities licensed.
Thank you for your time and efforts to review the many comments on this issue. Many of us hope that if the SEC is going to contemplate all of the comments and revise the NAR request before ruling, that there may be in fact a second comment period allowed. The bottom line is that we want to make sure, in the field, that this is workable and that we can comply with whatever the SEC grants. We want to be sure that the investors are protected and the securities laws and procedures we follow are also protected.