Regulators Consider Restricting Access To Real Estate Funds For Retail Investors

Rising mortgage rates and a lack of home inventory are driving people who would typically be looking to buy homes to seek shelter in the rental market. As the housing supply continues to dwindle and average people are being priced out of the steep real estate market, renting is becoming an unavoidable option. Taking advantage of this shift are those who are moving money into real estate investment trusts (REITs). But non-traded REITs are getting fresh attention from federal regulators. 

According to the Wall Street Journal, the North American Securities Administrators Association (NASAA) is considering new policies establishing limits on how much individuals can invest in a non-traded REIT and new regulatory rules on their disclosures and operations. 

REITs are one of the few ways individuals can get direct investment access to office towers, warehouses, hotels and other commercial properties. Non-traded REIT funds raised a record $36.4 billion in 2021 and could reach that same level in 2022, according to investment banking firm Robert A. Stanger & Co. 

One of the concerns regarding non-traded REIT investments is that while their documents clarify the risks and fees associated with its investment options, the NASAA claims those strategies aren’t necessarily appropriate for the small investors who typically buy them. Some companies offer REIT investment options for as little as $500. 

The NASAA hasn’t revised its policy on non-traded REITS since 2007. It is considering the addition of limits to the amount investors could buy and restrictions on certain practices.

Critics of the new oversight and rules changes claim the NASAA proposal would block investors from pursuing what they believe are sound investment strategies.

Robert A. Stanger & Co. also says that if the policies being floated right now by the association come to fruition and are adopted by states, fundraising by non-traded REITs could drop by 20 percent. 

Anya Coverman, president of the trade organization Institute for Portfolio Alternatives, said, “It is in many ways a solution in search of a problem.” 

Non-traded REITs, which have been available to investors for 20 years, buy the same type of properties as publicly traded REITs. These REITs are not listed on stock exchanges but are purchased through financial advisors and personal brokers. The funds have battled regulators in the past on perceived issues with risk disclosures and fees. 

Today’s Real Estate Investing News Highlights

• The target IRR has been increased to 18.4% for the Baypoint Apartments offering on RealtyMogul. The investment has a target cash yield of 7.9% and an estimated hold period of 4 years. 

• The Flagship Real Estate Fund by Fundrise has acquired a townhome rental community in Charlotte, NC, for approximately $6.3 million. The Flagship Real Estate Fund has produced YTD returns of 6.9% so far in 2022. 

Find more news and real estate investment offerings on Benzinga Alternative Investments

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