Summary
In 2023, the Securities and Exchange Commission (SEC) proposed changes to require SEC-registered investment advisers to put all their clients’ assets, including all digital assets like Bitcoin and certain physical assets like real estate, with “qualified custodians.” The proposal would also require a written agreement between custodians and advisers, expand the “surprise examination” requirements, and enhance recordkeeping rules. These rules were originally designed for digital assets. “Reasonable” safeguarding requirements is ambiguous as applied to real estate. Furthermore, the SEC’s release contains an inaccuracy regarding the way deeds evidencing ownership of real estate are recorded.
RER sees no policy reason to impose the proposed rule on real estate and has advocated for an exception for real estate.
Key Takeaways
Due to a variety of factors, real estate cannot readily be stolen, making the rule seem irrelevant to this asset class.
In addition to the proposed Custody Rule, the SEC has a number of proposed rulemaking measures that could have a chilling effect on real estate capital markets, further impair liquidity, and be a “death by a thousand cuts” for commercial real estate.
Capital formation is vital when credit markets tighten to restructure maturing debt.
See the full fact sheet.
Grant an Exemption for Real Estate: RER believes that the SEC’s policy reasons for imposing the rule on real estate seem irrelevant.
SEC Proposal