November 16, 2007
I am both securities licensed (Series 7 and 8) as well as a licensed real estate broker in the State of California. I'd like to first make certain that my understanding of the proposed Exemption is not completely off base. I have been under the assumption that the proposed Exemption would NOT replace the role of the properly registered securities professional with a non-securities licensed real estate professional. To do so would likely invite many of the problems that others have suggested on this forum.
Rather, I was under the assumption that the intent of the proposed Exemption is simply to allow certain qualified real estate professionals the ability to legally receive a referral fee from a licensed broker/dealer (or Sponsor), for their role as an advisor on the real estate in a TIC transaction. Assuming that the transaction must go through a properly licensed securities professional, I would think that Registered Reps would actually welcome the idea of commercial real estate professionals being exempted from the current prohibition against compensation to unregistered individuals. If I read the proposed Exemption correctly, it mentioned that the real estate professional could NOT be a Purchasers Representative as defined in Rule 501 (h).
To me, this Exemption (again with the above assumptions in place) would only enhance the referral opportunities available to Registered Reps, as well as provide increased confidence to all involved that the underlying real estate in the TIC transaction is sound. The client suitability, general solicitation rules, portfolio diversification aspects, etc., of the transaction should naturally be handled by the properly licensed Registered Representative. The experienced real estate professional can then advise on the fundamentals of the underlying real estate in the transaction.
Under this scenario, I see a potential win-win-win between the investor, the commercial real estate broker, and the securities representative.
I have three additional general comments, as follows:
1. Consideration should also be given to the eligibility of Delaware Statutory Trusts (DSTs), since (properly structured) DSTs can provide the same general benefits to investors as fractionalized TIC interests, yet investors do not receive a deed evidencing their fractional ownership in the property General Conditions (1) (b).
2. Consideration should also be given to the inclusion of a real estate professionals experience specifically with TIC interests, in the determination of their level of experience in commercial real estate Summary of the Application, Footnote 4. In many respects, a real estate professional who has focused (or who will now focus) for two or three years on tenant-in-common real estate has a higher likelihood of understanding the underlying fundamentals of the commercial real estate that typically is involved with TIC interests (e.g., very large buildings, CMBS financing, located in markets across the country, etc.) whereas a real estate professional with many years of experience in traditional and/or local commercial real estate may have little or no experience with the types of properties typically found in TIC properties.
3. With respect to the prohibition on real estate professionals advertising that they represent clients in TIC transactions Restrictions on Conduct (3) (a), it is possible that an experienced real estate professional with specific expertise in TIC interests should be allowed to advertise in a GENERIC sense that they ADVISE on TIC transactions, without of course specific mention of properties, sponsors, etc.(same level of accountability as current FINRA General Solicitation rules). Making known their ability to be involved in an ADVISORY capacity in certain tenant-in-common transactions may be helpful to prospective TIC investors. If one purpose of the Exemption is to ensure that the public is protected by working with experienced real estate professionals conversant in the types of properties typically found in TIC transactions, then allowing generic advertising to that end may actually benefit investors searching for such professionals. I readily admit, however, that the permission to advertise, even in a generic sense, could prove to be a slippery slope with respect to General Solicitation concerns.
To conclude, assuming that the commercial real estate professional CANNOT be the Purchaser's Representative (as defined in Rule 501 (h)), as indicated in the proposed Exemption, and with the above mentioned caveats and assumptions, I generally support the proposed Exemption.