State securities regulators are pushing for restrictions on a popular type of property investment trust, saying added protections are needed for small investors who may not fully understand the risks.
The North American Securities Administrators Association, which represents state securities regulators, plans before the end of the year to propose guidelines that, if adopted, would significantly change the way nontraded real estate investment trusts are sold and managed.
States typically adopt the association’s recommendations, and those that do can fine or take other administrative actions against REITs that don’t comply, such as revoking a license to issue securities. The regulations indirectly affect independent brokers as well, by opening them up to enforcement actions from state legislators if they don’t follow guidelines.
Regulators in several states, including Massachusetts, Ohio and Washington, have said they are worried about the rapid growth of the industry.
Industry officials haven’t officially responded to the specific draft guidelines. But Kevin Hogan, chief executive of the Investment Program Association, which represents both nontraded REITs and the independent broker-dealers who sell their shares, said the industry has had “productive, open and candid” discussions about the proposals and that it supports any changes that make these investments more transparent.
Information from The Wall Street Journal
