New York Codes, Rules and Regulations › Title 13 - DEPARTMENT OF LAW › Chapter II - SECURITIES TRANSACTIONS AND PERSONNEL › Subchapter B - REAL ESTATE SYNDICATES › Part 16 - REAL ESTATE SYNDICATION OFFERINGS › Section 16.11 - Guidelines for non-specified property real estate syndication offerings

Current through Register Vol. 46, No. 28, July 10, 2024
(a) These
				  guidelines apply to nonspecified property syndications (hereinafter called
				  "programs") in the form of limited partnerships. To the extent appropriate,
				  they will also be applied to nonspecified property programs in forms other than
				  limited partnerships. As used herein, the term
nonspecified
				  property
or
blind pool
program shall mean an
				  investment program in which the offering statement or prospectus does not
				  clearly set forth the specific property or properties to be purchased, leased,
				  mortgaged or otherwise financed with at least 75 percent of the net proceeds of
				  the offering; or a program in which the proceeds of any sale or refinancing of
				  properties may be reinvested. Reserves shall be included in the nonspecified 25
				  percent.
(b) This section is not
				  intended to be exclusive. All of the regulations, requirements, standards and
				  policies of the Department of Law otherwise applicable to real estate
				  syndication offerings shall apply to nonspecified property programs.
(c) These guidelines set forth some of the
				  criteria that will be weighed in exercising the discretion contained in
				  sections 352-e (1)-(2), 252-g and
				  359-f (2)  of the General
				  Business Law. The Department of Law retains full discretion to refuse to issue
				  a filing letter or to deny an exemption to a nonspecified property offering
				  which meets all of the conditions of this section, whenever in its sole
				  judgment such refusal or denial is warranted by the particular facts and
				  circumstances and is necessary for the protection of investors.
(d) In determining whether to issue a filing
				  letter or grant an application to exempt from filing a nonspecified property
				  offering, the Attorney General will apply the following guidelines:
(1) Statement of policy regarding real estate
				  programs.
All of the provisions of the "Statement of Policy Regarding
					 Real Estate Programs" adopted by the North American Securities Administrators
					 Association, Inc. and currently in effect, are incorporated herein by
					 reference. Those provisions are an integral part of these guidelines and will
					 be applied to nonspecified property programs except to the extent that
					 particular requirements of this subdivision are more stringent than, and
					 therefore supersede, specific requirements thereof.
(2) Minimum capitalization.
The minimum gross proceeds of the offering must be at least
					 $2,500,000.
(3) Maximum
				  capitalization.
Offerings of total dollar amounts which are excessively
					 large in relationship to the prior experience and demonstrated capabilities of
					 the principals or are otherwise inconsistent with responsible investment
					 criteria, will be denied exemption or refused filing.
(4) Experience of sponsor.
The sponsor(s) or at least one principal must establish
					 that he has had the equivalent of not less than five years experience in the
					 acquisition and management of the type of properties to be acquired; or
					 otherwise must demonstrate to the satisfaction of the Attorney General that he
					 has sufficient related knowledge and experience to acquire and manage the type
					 of properties to be acquired.
(5) Net worth of general partner.
The financial condition of the general partner(s) or other
					 principals liable for the debts of the program, must be commensurate with any
					 financial obligations assumed in the offering and in the operation of the
					 program. As a minimum, the general partners shall have an aggregate financial
					 net worth exclusive of homes, automobiles and home furnishings, of the greater
					 of either $250,000 or an amount at least equal to five percent of the gross
					 amount of all offerings sold within the prior 12 months, plus five percent of
					 the current offering, to an aggregate maximum net worth requirement of
					 $1,500,000. Evaluation will be made of contingent liabilities and the use of
					 promissory notes to determine the appropriateness of their inclusion in
					 computing net worth.
(6)
				  Suitability standards.
Suitability standards for investors must be imposed which
					 are reasonable in light of the type of program, its specific tax orientation,
					 the lack of liquidity, limited transferability and the inherent risk involved.
					 Unless the Department of Law approves a lower suitability standard, each
					 investor shall have a minimum annual gross income of $35,000 and a net worth of
					 $35,000 or alternatively, a net worth of $100,000. For high risk offerings,
					 higher suitability standards may be required. Net worth shall be determined
					 exclusive of home, home furnishings and automobiles.
(7) Suitability reports.
The sponsor or general partner of the program shall file a
					 pre-effective undertaking with the Attorney General that all New York residents
					 purchasing interests in the program will be appropriate in light of the
					 required suitability standards and a post closing affidavit (which may be based
					 on written representations of the underwriters and purchasers) confirming that
					 the suitability requirements have been met with respect to such
					 purchasers.
(8) Minimum
				  investment.
A minimum initial cash purchase of $2,500 per investor
					 shall be required. However a minimum of $1,000 shall apply to a purchase by an
					 individual retirement account. Subsequent transfers of such interest shall be
					 in units of not less than $2,500, except for transfers by an individual
					 retirement account, transfers by gift, inheritance, intra-family transfers,
					 transfers subsequent to the preceding, and transfers to affiliates.
(9) Investment objectives.
(i) The prospectus must contain an accurate
				  and detailed statement of the investment pruposes of the program, the types of
				  properties to be acquired and, to the extent practicable, the investment
				  criteria to be applied. The size and scope of projects shall be consistent with
				  the objectives of the program and the experience of the sponsor.
(ii) The prospectus must restrict investments
				  in unimproved and nonincome producing property to not more than 15 percent of
				  the proceeds available for investment.
(10) Reinvestment.
(i) The program must provide that if acquired
				  property is sold or refinanced and the proceeds are reinvested, acquisition or
				  other fees or commissions for reinvestment may be paid directly or indirectly
				  to the sponsors or their affiliates only if the limitation on maximum
				  compensation for investment in properties is not exceeded.
(ii) Offerings not registered with the SEC
				  will generally be required to return to the partners all net proceeds upon the
				  sale or refinancing of property.
(11) Escrow required.
(i) The prospectus must contain an
				  undertaking that prior to the initial closing of the offering, all moneys
				  received from subscribers will be held in trust for their benefit in a special
				  escrow account; that all moneys received from subscribers after an initial
				  closing will also be held in trust for their benefit in a special escrow
				  account; and that a subscriber's funds will only be released to the issuer
				  pursuant to a closing at which the subscriber becomes a partner or other
				  participant.
(ii) The prospectus
				  must contain an undertaking that proceeds of the offering will be received by
				  the issuer at any closing to be used only for the purposes set forth in the
				  prospectus and that any proceeds not invested or committed within two years
				  from the date of effectiveness (except for necessary operating capital) shall
				  be distributed
pro rata
to the partners as a return of
				  capital.
(12)
				  Nonspecified status.
The cover page identification of material risks shall
					 include an appropriate statement to the effect that prospective investors will
					 not have the opportunity to evaluate any real properties to be acquired by the
					 partnership because the partnership owns no real property, has not identified
					 any specific property it intends to purchase and does not have an operating
					 history. Include a cross-reference to further information in the
					 prospectus.
(13)
				  Cross-reference sheet.
A cross-reference sheet must be submitted for each
					 nonspecified property program, setting forth:
(i) the specific location in the partnership
				  agreement and/or prospectus of compliance with, or variance from, each of the
				  provisions of these guidelines;
(ii) the specific variance from each
				  provision, including the provisions of the NASAA "Statement of Policy Regarding
				  Real Estate Programs" (paragraph [1] of this subdivision) or that specific
				  provisions are inapplicable; and
(iii) the specific section of the partnership
				  agreement incorporating each provision which NASAA "Statement of Policy
				  Regarding Real Estate Programs" (paragraph [1] of this subdivision) requires to
				  be included in the partnership agreement.