California Code of Regulations › Title 10 - Investment › Chapter 3 - Commissioner of Financial Protection and Innovation › Subchapter 2 - Corporate Securities › Article 4 - Standards for the Exercise of the Commissioner's Authority › Subarticle 10 - Real Estate Programs › Conflicts of Interest and Investment Restrictions › Section 260.140.114.1 - Sales, Leases and Loans

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Sales and Leases to Program. A program
						shall not purchase or lease property in which a sponsor has an interest unless:
(1) The transaction occurs at the formation
						of the program and is fully disclosed in its prospectus, and
(2) The property is sold upon terms fair to
						the program and at a price not in excess of its appraised value, and
(3) The cost of the property and any
						improvements thereon to the sponsor is clearly established. If the sponsor's
						cost was less than the price to be paid by the program, the price to be paid by
						the program will not be deemed fair, regardless of the appraised value, unless
						some material change has occurred to the property which would increase the
						value since the sponsor acquired the property. Material factors may include the
						passage of a significant amount of time (but in no event less than 2 years) the
						assumption by the promoter of the risk of obtaining a re-zoning of the property
						and its subsequent re-zoning, or some other extraordinary event which in fact
						increases the value of the property.
(4) The provisions of this paragraph
						notwithstanding, the sponsor may purchase property in its own name (and assume
						loans in connection therewith) and temporarily hold title thereto for the
						purpose of facilitating the acquisition of such property or the borrowing of
						money or obtaining of financing for the program, or completion of construction
						of the property, or any other purpose related to the business of the program,
						provided that such property is purchased by the program for a price no greater
						than the cost of such property to the sponsor, except for compensation
						permitted by Sections
						260.140.113.3 and
						260.140.114.6 hereof, and provided
						there is no difference in interest rates of the loans secured by the property
						at the time acquired by the sponsor and the time acquired by the program, nor
						any other benefit arising out of such transaction to the sponsor apart from
						compensation otherwise permitted by these Rules. Accordingly, all income and
						expenses allocable to the period during which the property was held by the
						sponsor shall be treated as belonging to the program upon the purchase of the
						property by the program.
In no event shall the program purchase property from
						  the sponsor pursuant to this subparagraph (a)(4) if the sponsor has held the
						  property for a period in excess of 12 months prior to commencement of the
						  offering. The sponsor shall not sell property to the program pursuant to this
						  subparagraph (a)(4) if the cost of the property exceeds the funds reasonably
						  anticipated to be available to the program to purchase the property. The
						  prospectus and program agreement shall set forth a reasonable and satisfactory
						  methodology to be utilized for determining which properties will ultimately be
						  transferred to the program when the cost of the property acquired by the
						  sponsor on behalf of the program exceeds program funds available to purchase
						  the property.
(5)
						Notwithstanding subparagraphs (a)(1) through (4) of this Section, the program
						may purchase property from a program formed by the sponsor upon exercise of the
						rights of first refusal required by Section
						260.140.114.9. In such a case the
						cost of the property to the program shall not exceed its appraised value at the
						time such rights are exercised.