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NAR Proposed SEC Exemption for Commercial Brokers and Agents

By
Commercial Real Estate Agent with Asset Preservation, Inc.

NAR PROPOSED SEC EXEMPTION

FOR COMMERCIAL BROKERS

On November 9, 2007, the SEC released a "Notice of Application of the National

Association of Realtors for Exemptive Relief under Sections 15 and 3 of the Exchange Act

and Request for Comment." The SEC Release and National Association of Realtors (NAR)

Exemption Request can be downloaded at www.1031exchange-tic.com/SEC_Release -

NAR Exemption Request.pdf. NAR has requested an exemption that permits a licensed

real estate agent or broker who is predominantly engaged in commercial real estate and

has substantial commercial real estate experience to receive a "real estate advisory fee" in

connection with the offering and sale of a TIC property sold as a security through a

Registered Rep. who is associated with a registered B/D - provided certain disclosures and

procedures below are followed:

1. The TIC transaction must be completed through a licensed securities B/D.

2. The real estate professional must be predominantly engaged in and have

substantial experience in the sale of commercial real estate. This is defined as

someone who has received a CCIM or SIOR designation or other similar

professional designations and has educational and transaction experience

equivalent to these designations or has participated in at least five (5) commercial

real estate transactions with at least $3 million in total value in the prior five (5)

years - or - at least ten (10) commercial real estate transactions in the last ten (10)

years including three in the past three years.

3. Payment of the "Real Estate Advisory Fee" can be made by the investor or by the

sponsor on behalf of the investor.

4. The securities commission to the B/D could be reduced by the amount of the Real

Estate Advisory Fee.

5. The Real Estate Advisory Fee can be a flat dollar amount or based on a percentage

of the total purchase price.

6. Each investor must receive a deed when purchasing a TIC ownership and the

transactions should be structured to qualify as §1031 replacement property.

7. Prior to the real estate professional discussing a specific TIC security with the

investor, the investor must enter into an exclusive agreement to be represented by

that real estate professional (this is similar to a buyer broker agency agreement.)

8. The agreement must identify all real estate professionals to be compensated or be

amended in writing to add additional real estate professionals and specify the

maximum amount of the fee to be paid to all real estate professionals.

9. The real estate professional may only discuss the real estate characteristics of a TIC

security with the investor and arrange for the investor to visit the property before

referring the investor to a Registered Rep. The real estate professional has to

arrange the introduction to the Registered Rep when the investor advises the real

estate professional they are considering purchasing a specific TIC property.

 

Every investor and real estate professional is urged to seek independent legal/tax guidance on their specific

financial situation and the tax or investment ramifications of various real estate investment

alternatives. No part may be reproduced in any manner without the prior written consent

of Asset Preservation, Inc. © 2008 Asset Preservation, Inc. All rights reserved.

Comments (2)

Rob Aubrey
Cottonwood Heights, UT

I don't know why the SEC should dictate whether a fee can be collected on a 1031 involving a TIC. If it qualifies for the exchange then real property traded hands and a broker is allowed to collect a fee.

I know there may be security issues involved again if it qualifies for the exchange then...

I think the question is. Should a stock broker be allowed to collect a commission on the selling of real property, now matter how it is bundled. Again if it qualifies for the exchange then it is real property.

Feb 25, 2008 01:50 PM
Greg Schowe
Asset Preservation, Inc. - O'Fallon, MO
1031 Exchanges

While TIC ownership is considered an investment in real estate, the actual transaction is

often viewed as a securities transaction, meaning that the people promoting the purchase

of a TIC ownership property must have the necessary securities license. A landmark case

dates back to 1946 in the SEC v. Howey. Howey and others argued in court that the

fractional interests of their orange grove was not a security, and instead was real property.

This court case has created what is often called the "Howey Test", which helps to make

clear whether a regulatory body, such as the SEC, will view an investment as a securities

transaction. The test has three prongs:

1. An investment of money in a common enterprise.

2. The investment is made with the expectation of return.

3. The return is based on the entrepreneurial efforts of another.

If all three "prongs" are met, it is generally thought that the transaction will be viewed as a

security transaction. At this time, it is important to realize the issue of whether TIC

ownership is real estate or a security is still being actively debated.

To learn more about this and other TIC issues, visit the TIC industry's trade

association's website, www.ticassoc.org.

Feb 26, 2008 02:46 AM