NASAA extends comment deadline on REIT reform proposal

State regulators are allowing more time for public input on a proposal to reform policies related to real estate investment trusts following strong financial industry pushback.

The North American Securities Administrators Association said Thursday it would extend the comment deadline to Sept. 12 after originally setting it at Aug. 11 when it released the proposal last month. The organization said it received a letter from a group of trade associations on Tuesday and met with one of them on Wednesday.

The industry representatives asked for more time to respond to the REIT proposal, which would tighten rules surrounding the sales of nontraded REITS. The changes include raising the broker standard of conduct, increasing net-worth and net-income thresholds for purchases, imposing a 10% concentration limit and prohibiting nontraded REIT issuers from using gross offering proceeds to fund distributions.

“This proposal is six years in the making following the release of the first iteration back in 2016,” Ohio Securities Commissioner Andrea Seidt said in a statement. Seidt chairs NASAA's Corporation Finance Section Committee.

“NASAA’s existing investor income and net worth standards have not been adjusted for inflation in over 15 years," Seidt added. "If one additional month gives industry stakeholders the time they need to fully frame their thinking and provide data that is responsive to NASAA’s proposal, the committee is more than happy to grant the extension.”

The group that NASAA officials met with this week was the Alternative and Direct Investment Securities Association.

“We are grateful for the willingness of various NASAA members and staff to meet with us on short notice and are pleased that NASAA has provided more time for submitting comments on the proposal,” John Grady, co-chair of ADISA’s legislative and regulatory committee and chief operating officer and general counsel at ABR Dynamic Funds, said in a statement. “As we discussed with those who attended our call earlier this week … we will use the time provided to gather additional supportive data so that our submission is as informative and useful as possible.”

The Institute for Portfolio Alternatives said the additional time for comments is necessary given the scope of the NASAA proposal.

“This sweeping proposal not only impacts REITs but the framework that’s adopted will be applied to other products,” Anya Coverman, IPA senior vice president for government affairs and general counsel, wrote in an email. “Both institutional and retail investors need access to the alternatives needed to diversify their portfolios. The proposal on the table would prevent them from doing so. The additional time NASAA just granted will allow us all to provide state regulators with a better understanding of the current market for non-listed REITS.”

The tension between regulators and the alternatives sector is likely to continue beyond the NASAA comment request. State regulators often cite complex products like nontraded REITs as a primary cause of investor harm. On the other hand, substantial market losses and volatility have bolstered arguments for using such investments for portfolio diversity.