FINRA issued Regulatory Notice 13-18 on compliance with the communications with the public rule concerning communications about unlisted REITS and other real estate investments. Among other things, FINRA is concerned about the use of pictures of real property in the marketing materials.
FINRA Rule 2210 regulates broker-dealer communications with the public. Clearly, based on the Regulatory Notice, FINRA is concerned about disclosures and marketing when it comes to private real estate. The Regulatory is focused on private REITs and direct participation plans, not private equity real estate. However, the guidance may be applicable to a placement agent involved in fundraising.
It was the limitation on pictures that caught my attention. One of the unique aspects of real estate funds is that you can show pictures of the investments. There is little guidance on how you need to treat the pictures or whether the pictures could be considered misleading. So the FINRA Regualtory Notice caught my eye.
Communications for a new program often include photographs or other images of properties owned by investments managed by the program’s sponsor that are similar to properties the program expects to purchase. In order to be clear that investors will not acquire an interest in the pictured property, prominent text must accompany each depiction explaining that the property is owned by an investment managed by the sponsor and not the program. Once the real estate program has acquired a portfolio, the communication may include depictions of properties that are limited to investments owned by the program.
That’s not much of a help. You can’t include pictures of non-fund properties unless you disclose that they are owned by a different fund.