Popular Topics
All Topics
- 5 Pointz
- Advertising
- Advertising Law
- affordable housing
- AirBNB Lawsuit
- ALTA
- ALTA ACSM Standards
- Assemblages
- Bloomberg BNA
- Breach
- Broker-LawyerRelationship
- Broker’s license
- Building Loan Soft Costs
- Certified B corporation
- checklist
- Climate Change
- Commercial Condo
- Commercial Tenant Harassment Law
- commerical real estate
- Condo Developers
- condominium
- condos
- Contract
- Copyright, Trademark and Other Intellectual Property
- Corporate social responsibility
- Court Decisions
- Crowdfunding
- Crowdfunding Rules
- CSR
- Delaware Good Faith
- Dodd-Frank Act
- environment, social and governance
- ESG
- FinCEN
- Fraud
- ground leases
- Inequitable Conduct
- Insurance Company
- Intellectual Property
- Internal Revenue Code
- ISLA
- Jennifer Plan
- Job Act Rules
- Joint Venture Agreements
- leasehold condominiums
- Limited Liability
- Limited Partnerships
- LLC
- LLC Agreement
- LLC Agreement Questions
- LLC Checklist
- LLC Mergers
- LLC taxation
- Loan Agreements
- Mom and Pop Tenants
- Mortgage Subordination
- mortgages
- New York
- New York Attorney General
- New York City Council
- New York City Surveys
- New York Real Estate Journal
- Non-profit Organization
- NY Attorney General
- NY Real Estate in 2016
- NY Real Estate in 2018
- NYREJ
- NYS Land Surveyors Association
- NYS Lien Law
- Offering Plan
- online database listing
- opportunity zones
- Passive Investors
- Public benefit corporation
- Public Policy
- Purchase Contracts
- quality control
- Real Estate
- Real Estate Development Company
- Real Estate Financing Bureau
- Real Estate Litigation
- Real Estate LLC Agreements
- Real Estate Taxes
- Real Property Tax (RPT)
- Real-estate-advertising
- retail lease
- Rights of First Refusal
- ROFRs
- Sales
- Sales Tax
- section 1031 exchanges
- Securities & Exchange Commission
- Sellers
- Sole Discretion
- Specific Disclaimers
- Tax
- tax escalation clause enforcement
- tenancies in common
- TRIA
- VARA
- Visual Artists Rights Act
- Visual Examinations
- “High Volatility” (HVCRE) loans
Recent Posts
- NYREJ Publishes Article by Thomas Kearns on Mortgage Break-Up Fees
- NYREJ Publishes Article by Thomas Kearns on Creating Social Responsibility LLCs
- NYREJ Publishes Article by Thomas Kearns and Bryan Anderson on Carefully Drafting ROFRs
- NYREJ Publishes Article by Thomas Kearns on NYC’s Climate Mobilization Act
- NYREJ Publishes Article by Thomas Kearns on Using LLCs for Succession Planning
- NYREJ Publishes Article by Thomas Kearns on Top Legal Developments of 2018 in NY Real Estate
- NYREJ Publishes a Review of 2018 by Thomas Kearns
- NYREJ Publishes Article by Thomas Kearns on Affordable Housing Solutions
- NYREJ Publishes Article by Thomas Kearns on Commercial Leasehold Condominiums
- NYREJ Publishes Article by Thomas Kearns on the Complications of Ground Leases and Assemblages
Archives
- December 2019
- September 2019
- July 2019
- May 2019
- April 2019
- February 2019
- January 2019
- November 2018
- September 2018
- July 2018
Contact Us
Thomas D. Kearns
tkearns@olshanlaw.com
@TDKearns
212.451.2273
New Crowdfunding Rules Adopted on October 30
The following article was published in the November 24, 2015 issue of the New York Real Estate Journal
On October 30, the SEC adopted new rules for Title 3 of the Federal Jobs Act after significant delays. Title 3 is the portion of the act which authorizes investments in businesses and real estate by individuals who are not accredited investors. Prior Jobs Act rules relaxed the advertising restrictions for offers to accredited investors.
The new rules may be of limited value for the typical New York real estate sponsor, however.
First, Title 3 crowdfunding must be accomplished through approved funding portals. Experts are mixed as to the likelihood that the portals will be able to create a sustainable business at prices that will be acceptable. There is a cap of $1 million per business per 12 months, thereby limiting the effectiveness for large or even middle market real estate transactions in New York.
Investors are limited to investments of the greater of $2,000 or 5% of their annual income or net worth if their annual income and net worth are both less than $100,000 or 10% of their annual income or net worth if the annual income or net worth is equal to or greater than $100,000. Having many small investors is an administrative challenge in terms of disclosure, answering questions, etc. While intermediaries may offer services to deal with the administrative aspects, the additional costs may be problematic. And, of course, for all offerings whether under Title 3 or not, potential liability for claims of securities fraud remain and a New York real estate sponsor may want to avoid dealing with the less sophisticated investors that are expected to participate in the new portals.
While Title 3 is affected by these issues, the Title 2 rules which loosened the restrictions on general solicitation including advertising to accredited investors remain in effect. My overall impression is that there have been only limited numbers of closed deals in New York using the Title 2 rules. Title 2 does not require a portal, any website will work, but it does require a reasonable investigation of the qualification of each investor as an accredited investor and, if a broker is used, the broker must be a federally licensed securities broker unless a limited exception is available. Sites like Patch of Land and Fundraise have started to close real estate crowdfunding deals although not many in New York.
Another issue is whether the crowdfunding for a particular deal is structured as debt or equity. In the majority of the real estate deals I have seen, it has been structured as debt which has surprised me – the investor gives up the possibility of a big return in exchange for the more modest debt returns without getting the benefit of leverage while at the same time having many of the same risks as equity. Lenders are just now starting to grapple with the ramifications of additional debt in the capital stack. But equity crowdfunding is much more complicated involving the potential for phantom tax and other thorny issues.
The crowdfunding method of capital raising for real estate will continue to develop and sponsors, brokers and lenders should follow the area closely.
Tom Kearns is a partner at Olshan Frome Wolosky, New York, N.Y.