Regulation of Real Estate Syndications: An Overview

This comment will attempt to make some sense out of the controversy raging around real estate syndications and will attempt to determine what, if anything, should be done to regulate them. First, the mechanism of the real estate syndication and the specific problems it poses for the investor will be briefly examined. Second, the existing legal framework including restrictions imposed on real estate syndications by common law partnership and state and federal securities laws will be examined to determine whether the investor is adequately protected. Third, various proposed regulatory schemes will be examined, including the SEC\u27s proposals for new disclosure rules, the Washington Rules and Midwest Commissioner\u27s Guidelines on real estate limited partnerships. A final section examines the need for federal substantive regulations of real estate syndication. This comment concludes that the regulators at federal and state levels have failed to recognize the basic differences between the two major types of real estate syndications— specific property versus blind pool or unspecified, multiple property syndicates. It is suggested that specific property syndicates can be satisfactorily regulated by disclosure only, as the SEC proposes; blind pool syndicates, on the other hand, appear to require substantive regulation. Failure to structure regulation to fit these two different types of real estate syndicates will potentially distort the syndication process by further limiting the attractiveness and utility of the specific property syndication