Ch. 17 Real Estate
Equity Trust Mortgage Trust
2 Types of REITS
Equity Trust
A company that invests in real estate itself or in several real estate projects
The Department of Corporations, The California Bureau of Real Estate, The Department of Corporations
What is the correct order of regulatory agency jurisdiction changes to non-corporate California real estate syndicates since The Real Estate Syndicate Act's inception in 1970?
Mortgage Trust
A company that invests in mortgages and other types of real estate loans/obligations
2 Types of REITS
Equity Trust Mortgage Trust
Real Estate Syndicate Act
Turning the regulation of ALL REITS to the Department of Corporations, where it remains
Real Estate Syndication
Gives a person the chance to channel his or her private savings into real estate investments for which other financing cannot be obtained or is not available because of the large amount of money involved. In addition, allows for professional management
Forms of Syndication (4)
The Corporate Form The General Partnership, or Joint Venture The Limited Partnership The Limited Liability Company
Limited Partnership
offers many of the advantages found in both of the above syndication forms: the corporate advantages of limited liability and centralized management, and the tax advantages of a partnership. Because of this, it is one of the most frequently used organizational forms for real estate syndicates. *
The Department of Corporations
regulates all REITs and has the authority to grant either a permit or an exemption in deciding whether a given form of business for pooling investment money constitutes a securities offering
Combination Trusts
trust companies that engage in both equity AND mortgage trust investments
3 Phases of Syndication
1.) Origination (planning and buying the property, following registration and disclosure mandates, etc.) 2.) Operation (in which the sponsor generally manages BOTH the syndicate and the actual property) 3.)Completion or Liquidation (the property's resale)
1.) Origination (planning and buying the property, following registration and disclosure mandates, etc.) 2.) Operation (in which the sponsor generally manages BOTH the syndicate and the actual property) 3.)Completion or Liquidation (the property's resale)
3 Phases of SYndication
REIT Trust Qualification Regulation (4)
1. The REIT must be beneficially owned by at least 100 investors. 2. No five, or fewer, persons may hold more than 50 percent of the beneficial interests. 3. Transferable shares or certificates of interest must prove the beneficial interest. 4. In California, each share or certificate of interest must carry with it an equivalent vote
REIT Trust Requirement (Basic)
One of these requirements is that the company must distribute at LEAST 90% or MORE of its income to its shareholders
A Combination Trust
Alexandra and Marita have formed a REIT. They have their investors and resources and are ready for business. The REIT will be investing in an assorted portfolio of real estate and mortgage investments. What type of REIT have Alexandra and Marita formed?
T he company only pays federal taxes on the retained earnings, which are taxed at corporate rates
Alexandra and Marita's company has qualified as a trust. It has distributed 96% of its income to its shareholders. Which earnings require the payment of federal taxes?
Alexandra is right Section 25206 was added to the corporations code making obtaining a broker dealer license optional
Marita tells Alexandra they must obtain their broker-dealer license from the Department of Corporations to engage in the sale of real estate syndicate security interests. Alexandra disagrees with Marita, explaining they both have their broker licenses and that is sufficient. Who is correct and why?
1. The REIT must be beneficially owned by at least 100 investors. 2. No five, or fewer, persons may hold more than 50 percent of the beneficial interests. 3. Transferable shares or certificates of interest must prove the beneficial interest. 4. In California, each share or certificate of interest must carry with it an equivalent vote
REIT Trust Qualification Regulation (4)
California Revised Limited Partner Act (RLPA)
Says that a limited partner is NOT liable as a GENERAL partner UNLESS that limited partner is ALSO NAMED as a general partner in the certificate of limited partnership OR IF that limited partner participates in control of the business
Real Estate Investment Trust (REIT)
a type of company that sells securities specializing in real estate ventures, and requires a minimum of 100 investors
LLC
added in 1994, includes a liability limitation not unlike that offered to corporation shareholders.
Section 25206
added to the Corporations Code making obtaining a broker-dealer license optional
Corporation Form
allows for both centralized management and limited liability for the investors, but, on the downside, has negative tax features that make it unappealing for modern syndicates.
General Partnership or Joint Venture
avoids the double taxation (which a "regular" corporation would incur), but, on the negative side, there is an unlimited liability provision, as well as a lack of centralized management.
Real Estate Syndication (Simp)
combines the money of individual investors, along with the management of a sponsor, to invest in real estate and achieve a good rate of return on that investment
REIT (CONT.)
created in 1960 as an aspect of the federal tax law to encourage small investors to combine their resources with the resources of others so the companies could, together, raise venture capital for real estate transactions. invest in an assorted portfolio of real estate and mortgage investments