Quick Facts on Top 10 Regulatory Areas Relevant to Real Estate Fund Managers – Finance & Banking


There are many advantages to setting up a mixed real estate investment fund. These include providing a pool of capital to draw on quickly when competitive opportunities arise and enabling an investor to build a brand as an asset manager. However, to reap the many benefits of managing a real estate fund, it is necessary to have a working knowledge of the complex regulatory environment. Below is a high-level summary of some quick-to-know facts about the top ten relevant regulatory areas that impact real estate fund managers.

1. Securities Act of 1933

In order to attract investors to a fund, managers must offer and sell them securities of the fund. Securities that are offered and sold to investors must be sold under an applicable registration statement or exemption from registration. A private placement under Rule 506 (b) or 506 (c) is the most common exemption used by real estate fund promoters and allows the sale of securities to an unlimited number of “accredited investors”.

2. Investment Advisers Act 1940

The fund manager should register as an investment advisor if, for a fee, the manager gives advice on buying and selling “securities”. The total amount of “securities” must exceed a threshold of $ 100 million in assets under management (or $ 150 million in assets under management for private funds) in order to register at the federal level. The basic question is whether the manager of the real estate fund provides advice regarding “securities” as defined for these purposes. A fee simple interest in real estate is no security, but investments in real estate investment trusts or passive minority interests in real estate companies or joint ventures are likely securities.

3. Investment Companies Act 1940

All private real estate fund managers will want to avoid registering their funds as “investment companies”. Being inadvertently defined as an “investment firm” is a problem due to the many strict federal requirements that affect almost every decision a firm will make. There are several exemptions which are generally used to avoid registration as “investment companies”. If the investment company invests in “non-securities”, including fee simple interests in real estate, it will not meet the definition of “investment company”. Second, if there are titles, other exemptions may apply. For example, Article 3 (c) (1) provides an exemption for investment funds with no more than 100 investors and Article 3 (c) (7) provides an exemption for sales to “buyers. qualified ”, an investor qualification standard well that of“ accredited investors ”.

4. 1986 Tax Code

Laws, regulations and tax rules, including the Internal Revenue Code, are essential for private real estate funds and their investors. It is beyond the scope of this article to address tax issues other than to stress that it is extremely important for a private real estate fund to take advantage of the expertise of its tax advisers for its structure and operations, especially when it is tax exempt or non-US. taxpayers are investors.

5. Employees Retirement Income Security Act 1974 (ERISA)

If at least 25% of the shares of a real estate fund are owned by “benefit plan investors”, then the rules under the complex Employee Retirement Income Security Act of 1974 (ERISA) must be analyzed. If this threshold is reached and the fund is not a real estate operating company (REOC), then the manager will have to act as a “trustee” towards the investors of the benefit plan whose functions are often incompatible with the other interests and duties of the manager. The 25% calculation should exclude any investor exercising discretionary control over the assets of the real estate fund (such as the manager and its affiliates).

6. Committee on Foreign Investments in the United States (CFIUS)

Historically, the CFIUS primarily had the power to review transactions in which a foreign investor invested in a US company. According to the recent strengthened regulations of February 13, 2020, CFIUS has expanded the authority to review pure real estate transactions that are found in a wide range of United States military training centers, close to sensitive United States government facilities or other sensitive categories. Certain common types of real estate transactions are excluded from the jurisdiction of the CFIUS. If a real estate fund manager has a foreign manager or foreign investors, it may be worthwhile to perform an appropriate CFIUS analysis.

7. Foreign Investment in Real Estate Property Law of 1980 (FIRPTA) and Economic Analysis Office of the Ministry of Commerce (BEA)

Another complication associated with the fact that non-US investors invest in a real estate fund results from the FIRPTA. Non-U.S. Investors investing in real estate funds, which are generally structured as flow-through tax entities (for example, limited liability companies or limited partnerships), will generally require investors to file U.S. income tax returns and comply with the withholding tax requirements. However, using an alternative structure such as a private real estate investment trust for an investment vehicle can be a way to address the unwanted impacts of FIRPTA. If your fund has foreign investors, you will also need to analyze which BEA form needs to be filed to describe the foreign investment in a US company.

8. Gramm-Leach-Bliley Act (GLBA) and California Consumer Privacy Act of 2018 (CCPA)

Many real estate discoveries have already been submitted to the GLBA, which requires financial institutions to disclose their consumer information practices and protect that information. The CCPA came into effect on January 1, 2020, and while personal information submitted to the GLBA is exempt, it adds new complexities to the scope of real estate fund privacy regulations. For example, GLBA only covers information about existing investors, but CCPA would also cover potential investors. The ACCP also grants additional rights to consumers, such as the right to request the deletion of personal information and the right to know what specific consumer information has been collected.

9. Fight against money laundering (AML) and Office of Foreign Assets Control (OFAC)

Anti-money laundering laws relate to the identification of movements of illegally earned money and OFAC laws relate to blocking transactions with certain persons and specified countries. It is good practice for a real estate fund manager to be aware of these laws and to have a compliance program in place to deal with the most serious AML and OFAC risks to the business.

10. State laws

For many of the categories described above, there are also applicable state laws that require analysis. For example, if an investment advisor does not meet the AUM threshold required for federal registration, they may still be required to register as a state investment advisor or meet an applicable exemption. . In addition, even if an offer and sale of securities meets a federal exemption from registration, the fund manager should still review applicable state securities laws.


It is clear that real estate investment funds operate in a very complex and fragmented regulatory environment. While this article has provided a very short summary of the relevant regulatory areas that impact real estate fund managers, it has only scratched the surface. Allen Matkins can advise your business on the most important regulatory issues in building and maintaining a real estate investment fund.

Originally posted May 6, 2021

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


About Lillian Coomer

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