Real estate fund managers that are not registered with the Securities and Exchange Commission (SEC) as investment advisers should be reviewing now each of their current and planned funds to determine whether they should be registering to meet fast approaching SEC deadlines. This review should be done by both public and private real estate fund managers.
Traditionally, real estate fund managers have not been required to register as advisers with the SEC under the Investment Advisers Act of 1940 (Advisers Act) in reliance on a variety of regulatory compliance approaches. The fundamental changes made to the Advisers Act by the Dodd-Frank Wall Street reform and Consumer Protection Act, however, have created a question as to the need for some real estate fund managers to register as advisers. The absence of specific guidance for the industry either in the relevant laws and regulations or from the SEC has created considerable confusion post Dodd-Frank on this critical point. Pre and post Dodd-Frank Act interpretations should be used to assess whether the structure and assets of each fund act a potential trigger for adviser registration. In this analysis, it is necessary to take into account the special features of different types of real estate fund management and how it has been viewed as different from other types of fund management, e.g., hedge fund management.
The nonregistered status of a real estate fund manager has now become an issue of interest also to fund investors and accountants who often ask for an explanation of the fund manager’s decision not to register. There can be substantial consequences of non-registration for an adviser that should be registered under the Advisers Act. Although we believe that registration is not required for certain types of real estate managers, the need for registration cannot be eliminated without a specific review of the manager and each of its funds.
Recommendation: Prompt Fund Review
To address this legal risk management issue, we recommend that each unregistered real estate fund manager promptly review each of its current and planned funds to determine:
- Is the manager still excluded from the definition of an investment adviser under the Advisers Act, i.e. not required to register with the SEC;
- If it is not excluded, is there an exemption from registration available?
If registration is required, the manager should promptly initiate the registration process to ensure timely completion and filing of the adviser registration form by February 14, 2012, the deadline to meet the registration deadline this quarter. There are pre-filing deadlines that for practical purposes move the initial prefiling deadline to this month.
Please contact the author for additional information as to the type of analysis helpful for your real estate fund management business.