The Difference Between Reg A & D Offerings
How do Regulation A and D offerings compare?
As an individual investor interested in the potential to diversify your portfolio through alternatives such as commercial real estate, you may find yourself reviewing offering materials referencing “Regulation A” and “Regulation D.” You may be wondering what these terms mean, and why does it matter? This article will provide background on securities laws and explain the different types of offerings so you can make more informed decisions about which opportunities may be a fit for you.
Let’s start with a brief history of securities laws. Following the stock market crash of 1929 and the Great Depression, Congress enacted several reforms intended to provide additional transparency for investors and created standard rules for the formation of investment companies. These laws include the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940 (“40 Act”). To this day, the 40 Act governs many types of investments such as mutual funds and also defines what qualifies as an “investment company.” Under the 40 Act, investment companies must register with the Securities and Exchange Commission (SEC) before initiating an offering to the public. The law provides exemptions from some SEC regulations for certain types of investments, including those for Regulation A and Regulation D offerings.
JOBS Act of 2012
Over the past 10 years, as technology and digital marketing have become growing sources of consumer engagement across global industries, legislators revisited the securities laws during the Obama administration and ultimately passed the Jumpstart our Businesses Act of 2012 (“JOBS Act”). The modernized laws allow individual investors to access investments that may have previously been out of reach. Now, investors can learn about investments through social media and access opportunities through easy-to-use digital investment platforms. This model can allow many investors to pool their capital together with a direct line of communication to the sponsor who is managing the investment. Following the JOBS Act, the SEC published rules in 2015 further defining Regulation A and Regulation D and the associated accredited investor requirements.
Regulation D Explained
In general, Regulation D offerings are available only to accredited investors. To qualify as accredited, investors must have an income of $200,000 ($300,000 if filing jointly) or a net worth of $1 million (excluding primary residence). As of 2020, roughly 10% of all American households qualify to participate in Regulation D offerings, according to the CCAF 2018 report. Accredited-only offerings often feature higher investment minimums and are with limitations on marketing to new investors. There are two primary types of Regulation D offerings: 506(b) offerings that prohibit general solicitation and 506(c) offerings which can be advertised more broadly but require additional paperwork requirements to verify the investor’s accredited status. In real estate, Regulation D offerings are often utilized to capitalize single property acquisitions or fund investments in the form of limited partnership interests.
Regulation A Explained
In contrast to Regulation D, Regulation A offerings are available to the general public, subject to some limitations. For example, for non-accredited individuals, the investment amount cannot exceed 10% of an individual’s income or net worth. This framework allows a much wider pool of investors to access alternative investments as compared to the 10% who qualify for Regulation D offerings. Because these offerings are available to a broader group of investors, the SEC requires detailed initial public filings including an offering circular, which discloses the offering’s investment strategy and potential risks. Issuers are required to file audited financial statements and ongoing reports publicly via the SEC Edgar website. According to a March 2020 SEC report, Regulation A offerings have grown rapidly since 2016 raising a total of $2.4 billion from 183 issuers in that timeframe.
In August 2020, the SEC announced an expanded definition of accredited investors to include new categories based on their professional knowledge, experience or certifications such as FINRA licenses 7, 65 or 82. These changes took effect in October 2020 and expand the number of individuals who may qualify for Regulation D offerings. In November 2020, the SEC also amended rules to increase the maximum offering amount through Regulation A+ Tier 2 offerings in a 12-month period from $50 million to $75 million.
Why does this matter?
At Jamestown, we are committed to increasing access to commercial real estate through cutting-edge technology, allowing U.S. investors to participate in our projects for the first time. Jamestown Invest is the first direct-to-consumer platform to be launched by a global real estate institution, connecting individuals directly with real estate managed by Jamestown. For our first fund offering Jamestown Invest 1, LLC, we utilized Regulation D for an initial private placement followed by a Regulation A offering that launched at the end of 2019. Unlike many other crowdfunding opportunities, Jamestown Invest features co-investment from Jamestown’s principals, access to a fully integrated real estate platform, and a 37-year track record of navigating economic cycles. Additional information is available for both accredited and non-accredited investors by creating an account on our website.
Investing in Jamestown Invest 1, LLC’s common shares is speculative and involves substantial risks. The Risk Factors section of the offering circular contains a detailed discussion of risks that should be considered before you invest. These risks include, but are not limited to, illiquidity, complete loss of invested capital, limited operating history, conflicts of interest, blind pool risk, and any public health emergency. In addition to the foregoing risks, the adverse economic effects of the COVID-19 pandemic are unknown and could materially impact this investment. Further, there is no assurance that Jamestown Invest 1, LLC will be able to achieve its investment objectives or to access targeted investments like those identified.
The views expressed above are presented only for educational and informational purposes and are subject to change in the future. No specific securities or services are being promoted or offered herein.
This communication is not to be construed as investment, tax, or legal advice in relation to the relevant subject matter; investors must seek their own legal or other professional advice.
Performance Not Guaranteed
Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are not guaranteed and may not reflect actual future performance.
Risk of Loss
All securities involve a high degree of risk and may result in partial or total loss of your investment.
Liquidity Not Guaranteed
Because of the illiquid nature of our shares, you should purchase our shares only as a long-term investment and be prepared to hold them for an indefinite period of time.
Posted by John Wilson
John Wilson is a Director at Jamestown and Fund Manager of Jamestown Invest. Previously, he led teams responsible for value creation in mixed-use office and retail projects, including Ponce City Market in Atlanta and Chelsea Market in New York until its sale to Google in 2018. Mr. Wilson is a registered representative of North Capital Private Securities and has FINRA Series 7 and 63 registrations. He earned a Bachelor of Arts in Government from Dartmouth College and an MBA in Real Estate and Finance from The Wharton School, University of Pennsylvania.