[Federal Register Volume 72, Number 221 (Friday, November 16, 2007)]
[Notices]
[Pages 64688-64694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-22425]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56779; File No. S7-26-07]


Notice of Application of the National Association of Realtors for 
Exemptive Relief Under Sections 15 and 36 of the Exchange Act and 
Request for Comment

November 9, 2007
    The National Association of Realtors[supreg] (``NAR'') has 
requested an exemption pursuant to sections 15(a)(2) and 36(a) of the 
Securities Exchange Act of 1934 (``Exchange Act'') from the broker-
dealer registration requirements of section 15(a)(1) and the reporting 
and other requirements of the Exchange Act (other than sections 
15(b)(4) and 15(b)(6)), and the rules and regulations thereunder, that 
apply to a broker or dealer that is not registered with the Commission. 
Subject to the conditions specified in NAR's application 
(``Application'') and discussed below, the requested exemption would 
permit a licensed real estate agent or broker who is predominantly 
engaged in and has substantial experience in the commercial real estate 
market and the real estate brokerage firm with which such agent or 
broker is licensed to receive compensation in the form described below 
for the sale of a TIC Security, as defined below.

[[Page 64689]]

    In order to provide an opportunity for interested persons to 
comment on the Application, the Commission is publishing this notice 
and request for comment pursuant to Rule 0-12 under the Exchange Act. 
The Commission will carefully consider all comments submitted, and, 
should it determine to issue an exemption, could eliminate or add to, 
or modify, the conditions discussed below.

Background

    Section 15(a)(1) of the Exchange Act generally requires any broker 
or dealer who makes use of the mails or any instrumentality of 
interstate commerce to effect transactions in, or induce the purchase 
or sale of, any security to register with the Commission. Section 
3(a)(4)(A) of the Exchange Act generally defines a ``broker'' as ``any 
person engaged in the business of effecting transactions in securities 
for the account of others.'' Absent an exemption, a licensed real 
estate agent or real estate broker who receives compensation for the 
sale of a TIC Security would be required to be registered as a broker 
with the Commission or to be a registered associated person of a 
registered broker-dealer. Similarly, a real estate brokerage firm that 
receives compensation for the sale of a TIC Security would be required 
to register as a broker-dealer.
    Section 15(a)(2) of the Exchange Act authorizes the Commission to 
conditionally or unconditionally exempt from the broker-dealer 
registration requirements of section 15(a)(1) any broker or dealer or 
class of brokers or dealers, by rule or order, as it deems consistent 
with the public interest and the protection of investors.\1\ Similarly, 
but more broadly, section 36 of the Exchange Act authorizes the 
Commission to conditionally or unconditionally exempt any person, 
security, or transaction, or any class or classes of persons, 
securities, or transactions, from any provision or provisions of the 
Exchange Act or any rule or regulation thereunder, by rule, regulation, 
or order, to the extent that such exemption is necessary or appropriate 
in the public interest, and is consistent with the protection of 
investors.\2\
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    \1\ See 15 U.S.C. 78o(a)(2).
    \2\ See 15 U.S.C. 78mm.
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Summary of the Application

    NAR requests an exemption to allow any licensed real estate agent 
or broker who is predominantly engaged in and has substantial 
experience \3\ in the sale of commercial real estate \4\ (``Commercial 
Real Estate Professional'') and the real estate brokerage firm with 
which he or she is licensed (``Real Estate Firm'') (collectively, a 
``RE Participant'') to receive a real estate advisory fee (``Real 
Estate Advisory Fee'') from a purchaser of an undivided tenant-in-
common interest in real property (``TIC Interest'') \5\ that is offered 
and sold together with other arrangements that cause it to be deemed to 
be a security under the federal securities laws (``TIC Security'').\6\
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    \3\ The Application defines ``substantial experience'' to mean a 
Commercial Real Estate Professional who (1) has received a Certified 
Commercial Investment Member designation from the Commercial 
Investment Real Estate Institute, a designation from the Society of 
Industrial and Office REALTORS[supreg], or an Accredited Land 
Consultant designation from the REALTORS[supreg] Land Institute; (2) 
has education and transaction experience that is equivalent to those 
required to obtain those designations; or (3) has participated in at 
least five commercial real estate transactions having an aggregate 
value of at least $3 million in the prior five years or at least 10 
commercial real estate transactions having an aggregate value of at 
least $10 million in the prior 10 years, including 3 transactions in 
the prior 3 years. Alternatively, the Application provides that a 
Commercial Real Estate Professional will satisfy the ``substantial 
experience'' requirement based on a combination of at least two of 
the following factors: education in commercial real estate; the 
length of time during which the person has engaged in commercial 
real estate transactions; the dollar value of commercial real estate 
transactions in which the individual has participated; and the 
number of commercial real estate transactions in which the 
individual has participated.
    \4\ For purposes of the Application, ``commercial real estate'' 
includes all real estate categories other than single-family and 
one- to four-unit residential dwellings, including office, retail, 
raw land, multifamily (i.e., greater than four dwellings), 
industrial and others. It does not include TIC Securities.
    \5\ TIC Interests are generally offered as a replacement 
property to individuals seeking to complete tax-deferred exchange 
transactions pursuant to Section 1031 of the Internal Revenue Code 
of 1986, as amended.
    \6\ TIC Securities are sold by a sponsor through a registered 
broker-dealer acting as a placement agent (``Lead Placement 
Agent''). Such Lead Placement Agent may be the sole distributor of 
the TIC Securities or may enter into an agreement with one or more 
other registered broker-dealers to sell the TIC Securities as 
participating brokers (each, a ``Selling Broker-Dealer''). A Lead 
Placement Agent also may act as a Selling Broker-Dealer.
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    Under NAR's exemptive request, a Real Estate Advisory Fee could be 
paid by the purchaser directly or on behalf of the purchaser by the 
sponsor or issuer of the TIC Security, which could, thereby, reduce the 
commission or other compensation received by a registered broker-dealer 
involved in the TIC Security transaction. The Real Estate Advisory Fee 
generally would be paid to the Real Estate Firm with which the 
Commercial Real Estate Professional is licensed. The Firm would 
distribute all or a previously agreed upon percentage of the Real 
Estate Advisory Fee to the Commercial Real Estate Professional that 
signed a buyer's agent agreement with the client and to any other 
Commercial Real Estate Professional or Real Estate Firm that was added 
to the agreement with the consent of the client.
    As proposed by NAR, in order for any Commercial Real Estate 
Professional or any Real Estate Firm with which such person is licensed 
to receive or share in a Real Estate Advisory Fee in reliance on the 
requested exemption, the Commercial Real Estate Professional, the Real 
Estate Firm, the Selling Broker-Dealer and the Lead Placement Agent for 
the TIC Security transaction would comply with the following 
conditions, as applicable:
(1) General Conditions
    a. A Real Estate Advisory Fee shall only be paid to or shared with 
a Commercial Real Estate Professional who is predominantly engaged in 
sales of real estate other than TIC Securities, has substantial 
experience in commercial real estate,\7\ is appropriately licensed in 
compliance with the applicable state real estate laws, and is 
identified in the buyer's agent agreement (as further described below) 
with the client.\8\
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    \7\ See note 3.
    \8\ Although not proposed as a condition to NAR's requested 
exemption, NAR states in its application that it ``believes'' the 
buyer's agent agreement ``should include'' a representation that the 
Commercial Real Estate Professional who receives or shares a Real 
Estate Advisory Fee has substantial experience in commercial real 
estate.
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    b. Each client of the RE Participant purchasing a TIC Security must 
receive at closing a deed representing his or her undivided fractional 
interest in the TIC Security property and the TIC Security must qualify 
as a ``replacement property'' for purposes of an IRC section 1031 
exchange, regardless of whether the client is purchasing the TIC 
Security for that purpose.
    c. The TIC Security transaction must be effected through a 
registered broker-dealer.
(2) Buyer's Agent Agreement and Introduction to Selling Broker-Dealer
    a. Prior to the Commercial Real Estate Professional discussing a 
specific TIC Security property with his or her client, the client must 
enter into a written buyer's agent agreement with the RE Participant, 
which shall obligate the RE Participant to solely represent the client 
in connection with the purchase of a TIC Security.
    b. The buyer's agent agreement must identify any other RE 
Participant who is

[[Page 64690]]

to receive or share in the Real Estate Advisory Fee and any such other 
RE Participant may only be added to the buyer's agent agreement with 
the consent of the client.
    c. The buyer's agent agreement must state the aggregate maximum 
amount of the Real Estate Advisory Fee to be paid by the client to all 
RE Participants, including any RE Participant that is added to the 
agreement, which shall be expressed as either a fixed dollar amount or 
as a dollar amount that is determined in accordance with a 
predetermined formula (e.g., a fixed percentage of the property's full 
purchase price or a fixed percentage of the cash paid for the 
property).
    d. The aggregate maximum amount of Real Estate Advisory Fee that is 
actually paid by the client to all RE Participants, including any RE 
Participant that is added to the buyer's agent agreement, will not 
exceed the amount of the contracted Real Estate Advisory Fee even if 
the client, the sponsor, or another person is willing to pay a higher 
fee.
    e. The Commercial Real Estate Professional may discuss the real 
estate characteristics of a TIC Security property with the client and 
arrange for the client to inspect a TIC Security property and any other 
non-securities property before introducing the client to the Selling 
Broker-Dealer, but shall arrange such introduction upon the client 
advising the Commercial Real Estate Professional that he or she is 
considering the purchase of a specific TIC Security property.
(3) Restrictions on Conduct of the RE Participant
    A RE Participant that, directly or indirectly, receives a portion 
of a Real Estate Advisory Fee will not:
    a. List or otherwise advertise the availability of TIC Securities 
or advertise that the RE Participant represents clients in connection 
with the purchase of TIC Securities;
    b. Share a Real Estate Advisory Fee with any person not permitted 
to receive such Fee under the requested exemption;
    c. Handle customer funds or securities in a TIC Security 
transaction;
    d. Negotiate the terms and conditions of the purchase of any TIC 
Security on behalf of the client with a broker-dealer or sponsor 
selling a TIC Security or have any power to bind the client in the TIC 
Security transaction, but may transmit documents and information 
between the parties and may attend meetings between the Lead Placement 
Agent, Selling Broker-Dealer, and the sponsor and the client (solely in 
order to assist the client);
    e. Represent the client as a ``purchaser representative,'' as 
defined in Rule 501(h) of the Securities Act of 1933;
    f. Participate in the structuring of a TIC Security investment 
offered to the client;
    g. Have the authority to close a purchase of a TIC Security on a 
client's behalf; or
    h. Assist a client that purchases a TIC Security to obtain 
financing, except to provide a list of potential lenders.
(4) Other Obligations of the RE Participant
    a. The RE Participant must deliver a copy of the executed buyer's 
agent agreement to the Lead Placement Agent at closing.
    b. Any Commercial Real Estate Professional that is to receive, 
directly or indirectly, a portion of a Real Estate Advisory Fee must 
not be subject to any ``statutory disqualification,'' as that term is 
defined in section 3(a)(39) of the Exchange Act (other than 
subparagraph (E) of that section), and will deliver a representation in 
writing to that effect to the Lead Placement Agent at closing. To the 
extent the statutory disqualification representation is included in the 
buyer's agent agreement, it must be updated at closing with respect to 
each Commercial Real Estate Professional that may, directly or 
indirectly, receive any portion of a Real Estate Advisory Fee.
(5) Obligations of the Selling Broker-Dealer and Lead Placement Agent
    a. Before the TIC Security transaction is effected, the Selling 
Broker-Dealer must perform a suitability analysis of the TIC Security 
transaction in accordance with the rules of the Selling Broker-Dealer's 
applicable self-regulatory organization (``SRO'') as if the Selling 
Broker-Dealer had recommended the TIC Security transaction and must 
deliver a representation in writing to that effect to the Lead 
Placement Agent at closing or, if the Selling Broker-Dealer is the Lead 
Placement Agent, must make a representation in writing to that effect 
at closing.
    b. The Selling Broker-Dealer will inform the customer if the 
Selling Broker-Dealer determines that the TIC Security transaction to 
be effected for the customer is not suitable under the rules of the 
Selling Broker-Dealer's applicable SRO, and will not effect the TIC 
Security transaction unless it obtains the customer's written 
affirmation that the customer wants to proceed with the TIC Security 
transaction notwithstanding the Selling Broker-Dealer's determination. 
The Selling Broker-Dealer must deliver the written affirmation to the 
Lead Placement Agent at closing or, if the Selling Broker-Dealer is the 
Lead Placement Agent, must maintain the written affirmation as 
specified below.
    c. The Lead Placement Agent must maintain a copy of each of the 
documents that is to be made and/or delivered at closing pursuant to 
the requested exemption (i.e., the buyer's agent agreement, the 
statutory disqualification representations, the suitability 
representation, and, if applicable, the customer's written 
affirmation), the relevant part of the real estate closing documents 
that evidences the amount of the Real Estate Advisory Fee paid to any 
RE Participant involved in the TIC Security transaction, and any other 
records that are required to be maintained in accordance with the 
recordkeeping requirements of the federal securities laws for a period 
of three (3) years in accordance with Exchange Act Rule 17a-4(f).

Summary of Reasons for the Exemption

    NAR states that the requested exemption would allow a potential 
purchaser of a TIC Security to benefit from the real estate expertise 
of a Commercial Real Estate Professional, while receiving necessary 
protections afforded by federal and state securities laws and 
regulations. NAR states that the proposed conditions would limit the 
role of a Commercial Real Estate Professional and Real Estate Firm with 
which such person is licensed that would receive a Real Estate Advisory 
Fee. As a result, NAR states that an exemption from registration and 
regulation of the Commercial Real Estate Professional and the Real 
Estate Firm with which such person is licensed as a broker-dealer would 
be appropriate in the public interest and consistent with the 
protection of investors.
    NAR has waived its request for confidential treatment and the 
Application is available on the Commission's Web site (http://www.sec.gov/rules/other.shtml) and at the Commission's Public Reference 
Room, 100 F Street, NE., Washington, DC 20549, on official business 
days between the hours of 10 a.m. and 3 p.m.

Request for Comment

    The Commission invites any person to submit comments or other 
information that relates to the exemptions requested in the 
Application, including whether the exemption should be granted, whether 
the conditions are appropriate, and whether conditions should be added, 
eliminated, or modified. In

[[Page 64691]]

particular, the Commission requests comment as to the following:
     Is the Application's definition of ``substantial 
experience in commercial real estate'' appropriate? Should 
``substantial experience in commercial real estate'' be defined 
differently? If so, how?
     Should a Commercial Real Estate Professional be considered 
to have ``substantial experience in commercial real estate'' if he or 
she meets a combination of two subjective factors (such as education 
and dollar value of transactions), or should substantial experience 
only be demonstrated by the specific education or transactional 
benchmarks enumerated in the Application?
     Should the quantitative factors included in the 
Application's definition of ``substantial experience in commercial real 
estate'' be periodically adjusted for inflation? If so, how often and 
which measure of inflation should be used?
     Are there education and experience designations from 
groups other than those affiliated with NAR that would be appropriate 
to name specifically as evidencing ``substantial experience in 
commercial real estate''?
     Should the exemption include a quantitative threshold to 
describe when a Commercial Real Estate Professional would be 
``predominantly engaged'' in the sale of real estate other than TIC 
Securities? If so, what should that threshold be? For example, should 
85 percent of the dollar value of a Commercial Real Estate 
Professional's sales during one or more prior calendar years be in real 
estate other than TIC securities in order to meet the predominance 
requirement?
     Should the exemption be conditioned on the buyer's agent 
agreement including a representation that the Commercial Real Estate 
Professional who receives or shares a Real Estate Advisory Fee has 
substantial experience in commercial real estate?
     Is there a possibility that the exemption, if granted, 
could create an incentive for Commercial Real Estate Professionals to 
sell TIC Securities instead of non-security forms of commercial real 
estate investments to their clients? Are there countervailing factors 
that would mitigate or neutralize any such incentive? Should the 
possibility of any such incentive be addressed by one or more 
conditions, for example, by requiring Commercial Real Estate 
Professionals to disclose in the buyer's agent agreement the various 
fees they would receive for selling TIC Securities and non-security 
forms of commercial real estate investments? Are there other conditions 
that could address this incentive?
     Are the proposed conditions that would impose obligations 
on registered broker-dealers appropriate? Would they be sufficient to 
accomplish the desired goals, including maintaining investor 
protection? Should any be eliminated or modified, or should additional 
conditions be included? Commenters are invited to suggest conditions 
and explain their purpose.
    For further information, contact Catherine McGuire, Chief Counsel; 
Brian Bussey, Assistant Chief Counsel; or Michael Hershaft, Special 
Counsel, at (202) 551-5550, Office of Chief Counsel, Division of Market 
Regulation, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-6628.

Submission of Comments

    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml); or
     Send an e-mail to [email protected]. Please include 
File No. S7-26-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. S7-26-07. This file number 
should be included on the subject line if e-mail is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/other.shtml). 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File No. S7-26-07 and should 
be submitted on or before December 17, 2007. The Commission will take 
final action on the Application no earlier than December 18, 2007.

Paperwork Reduction Act Analysis

    Certain provisions of the requested exemption contain ``collection 
of information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995.\9\ The Commission has submitted these 
information collections to the Office of Management and Budget 
(``OMB'') for review in accordance with 44 U.S.C. 3507(c) and 5 CFR 
1320.10. These collections of information under the requested exemption 
are new, and OMB has not yet assigned a control number for them. An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid control number.\10\
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    \9\ 44 U.S.C. 3501, et seq.
    \10\ 44 U.S.C. 3512.
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A. Delivery of the Buyer's Agent Agreement to the Lead Placement Agent 
at Closing

1. Collection of Information
    The requested exemption would be conditioned on the RE Participant 
delivering a copy of the executed buyer's agent agreement to the Lead 
Placement Agent at closing.
2. Proposed Use of the Information
    The proposed buyer's agent agreement is designed to assist in 
implementing the requested exemption and monitoring for compliance. The 
proposed delivery requirement is designed to ensure that the Lead 
Placement Agent has a copy of the buyer's agent agreement in order to 
comply with its recordkeeping obligations discussed below, which would 
facilitate monitoring compliance with the requested exemption.
3. Respondents
    The proposed collection of information would apply to RE 
Participants who rely on the requested exemption.
4. Reporting and Recordkeeping Burden
    The Commission estimates that approximately 800 RE Participants 
\11\ would rely on the requested exemption and each RE Participant 
would, on average, deliver to the Lead Placement Agent a copy of an 
executed buyer's agent agreement 6.63 times \12\ a year.

[[Page 64692]]

Based on these estimates, the Commission estimates that this 
requirement would result in approximately 5,304 disclosures \13\ per 
year. The Commission also estimates that a RE Participant would spend 
approximately five minutes per disclosure to the Lead Placement Agent. 
Thus, the estimated total annual reporting and recordkeeping burden for 
this requirement is 442 hours \14\ for the RE Participants.
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    \11\ Based on discussions with industry participants on the 
number of registered representatives currently involved in TIC 
Security transactions, the Commission estimates that approximately 
800 Commercial Real Estate Professionals would rely on the requested 
exemption. Although this collection of information covers RE 
Participants, which includes Commercial Real Estate Professionals 
and the real estate brokerage firms with which they are licensed, 
the Commission expects that the Commercial Real Estate 
Professionals, and not the firms, would actually fulfill the 
delivery requirement.
    \12\ Based on discussions with industry representatives, we 
understand that there were approximately 312 TIC Security offerings 
in 2006 and approximately 17 participants per offering for a total 
of 5,304 TIC Security transactions. For purposes of calculating the 
reporting and recordkeeping burden, the Commission estimates that 
all TIC Security transactions would be conducted pursuant to the 
requested exemption. The Commission recognizes that it is highly 
unlikely that all TIC Security transactions would involve a RE 
Participant pursuant to the requested exemption in light of the 
existing broker-dealer sales channel for TIC Securities. However, 
the Commission does not have sufficient information to estimate 
participation rates of less than 100 percent, and thus has chosen 
the most conservative estimate for calculating the reporting and 
recordkeeping burden. Accordingly, 5,304 TIC Security transactions/
800 RE Participants = 6.63. The Commission has rounded its 
calculation to two decimal places. Assuming a relatively even 
distribution of transactions among potential respondents, some 
respondents would deliver to the Lead Placement Agent a copy of an 
executed buyer's agent agreement six times a year, and others would 
do so seven times a year.
    \13\ 6.63 x 800 = 5,304.
    \14\ 5,304 TIC Security transactions x five minutes per 
transaction = 26,520/60 = 442.
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5. Collection of Information is Mandatory
    This proposed collection of information would be mandatory for RE 
Participants who rely on the requested exemption.
6. Confidentiality
    The proposed collection of information would be provided by the RE 
Participant to the Lead Placement Agent and would be available for 
inspection by the Commission and the applicable SRO.
7. Record Retention Period
    The requested exemption does not contain a separate record 
retention period.\15\
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    \15\ The Lead Placement Agent, as a registered broker-dealer, 
would be subject to the record retention provisions of Exchange Act 
Rule 17a-4. OMB has approved the collection of information related 
to these record retention provisions. See OMB control number 3235-
0279.
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B. Delivery of the Statutory Disqualification Representation at Closing

1. Collection of Information
    The requested exemption would require any Commercial Real Estate 
Professional that is to receive, directly or indirectly, a portion of a 
Real Estate Advisory Fee to not be subject to any ``statutory 
disqualification,'' as defined in section 3(a)(39) of the Exchange Act 
(other than subparagraph (E) of that section), and to deliver a 
representation in writing to that effect to the Lead Placement Agent at 
closing.\16\
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    \16\ Although the requested exemption would require a Commercial 
Real Estate Professional to update the ``statutory 
disqualification'' representation at closing, if the ``statutory 
disqualification'' notice were already included in the buyer's agent 
agreement, there would be no requirement to include the 
representation in the buyer's agent agreement. Commercial Real 
Estate Professionals would have only one ``statutory 
disqualification'' representation disclosure requirement per 
transaction.
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2. Proposed Use of the Information
    The proposed ``statutory disqualification'' representation would be 
used in implementing the requested exemption and monitoring its use. 
The proposed delivery requirement is designed to ensure that the Lead 
Placement Agent has a copy of the statutory disqualification 
representation in order to comply with its recordkeeping obligations 
discussed below, which would facilitate monitoring compliance with the 
exemption.
3. Respondents
    The proposed collection of information would apply to Commercial 
Real Estate Professionals who would receive, directly or indirectly, a 
portion of a Real Estate Advisory Fee pursuant to the requested 
exemption.
4. Reporting and Recordkeeping Burden
    The Commission estimates that approximately 800 Commercial Real 
Estate Professionals \17\ would rely on the requested exemption and 
each Commercial Real Estate Professional would on average deliver the 
written statutory disqualification representation 6.63 times \18\ a 
year. Based on these estimates, the Commission anticipates that this 
requirement would result in 5,304 disclosures \19\ per year. The 
Commission estimates that approximately 95 percent of Commercial Real 
Estate Professionals would spend approximately five minutes for each 
representation to the Lead Placement Agent. The Commission also 
estimates that approximately five percent of Commercial Real Estate 
Professionals \20\ would spend approximately 30 minutes for their first 
representation to the Lead Placement Agent,\21\ and five minutes for 
each of the 5.63 subsequent representations. Thus, the estimated total 
annual reporting and recordkeeping burden for these requirements is 
458.67 hours \22\ for Commercial Real Estate Professionals.
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    \17\ See note 11.
    \18\ See note 12. The Commission has rounded its calculation to 
two decimal places. Assuming a relatively even distribution of 
transactions among potential respondents, some respondents would 
deliver to the Lead Placement Agent a written statutory 
disqualification representation six times a year, and others would 
do so seven times a year.
    \19\ See note 13.
    \20\ Based on the Commission's experience with disciplinary 
disclosures by registered representatives on Forms U-4, the 
Commission estimates that five percent of Commercial Real Estate 
Professionals could be subject to a statutory disqualification and 
would require more time to make such a determination.
    \21\ The Commission estimates that these Commercial Real Estate 
Professionals would spend 25 minutes to determine whether they would 
be subject to a statutory disqualification and to generate the 
representation, and five minutes to disclose the representation.
    \22\ 800 x .95 x 6.63 x 5 = 25,194/60 = 419.90 total burden 
hours for 95 percent of the Commercial Real Estate Professionals. 
800 x .05 x 1 x 30 = 1,200/60 = 20 hours for the first 
representation by five percent of the Commercial Real Estate 
Professionals. 800 x .05 x 5.63 x 5 = 1,126/60 = 18.77 hours for the 
second and third representations by five percent of the Commercial 
Real Estate Professionals. Thus total burden hours would be 419.90 + 
20 + 18.77 = 458.67. The Commission has rounded its calculations to 
two decimal places.
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5. Collection of Information Is Mandatory
    This proposed collection of information would be mandatory for 
Commercial Real Estate Professionals who rely on the requested 
exemption.
6. Confidentiality
    The collection of information would be provided by the Commercial 
Real Estate Professional to the Lead Placement Agent and to the 
customer and would be available for inspection by the Commission and 
the applicable SRO.
7. Record Retention Period
    The requested exemption does not contain a separate record 
retention period.\23\
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    \23\ See note 15.
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C. Suitability Determination by the Selling Broker-Dealer

1. Collection of Information
    The requested exemption would require a Selling Broker-Dealer to 
deliver a representation in writing that the Selling Broker-Dealer 
performed a suitability analysis to the Lead Placement Agent at 
closing, or, if the Selling Broker-Dealer is the Lead Placement Agent, 
to make such a representation in writing at closing.
2. Proposed Use of the Information
    The proposed suitability representation would be used in

[[Page 64693]]

implementing the requested exemption and monitoring its use. The 
proposed delivery requirement is designed to ensure that the Lead 
Placement Agent has a copy of the suitability analysis in order to 
comply with its recordkeeping obligations discussed below, which would 
facilitate monitoring compliance with the exemption.
3. Respondents
    The proposed collection of information would apply to Selling 
Broker-Dealers, who deliver or make a suitability determination 
pursuant to the requested exemption.
4. Reporting and Recordkeeping Burden
    The Commission estimates that approximately 150 Selling Broker-
Dealers \24\ would either deliver or make a representation at closing 
and each Selling Broker-Dealer would on average deliver or make such a 
representation 33.59 times \25\ a year. Based on the simplicity of the 
record to be created, the Commission also estimates that a Selling 
Broker-Dealer would spend approximately five minutes on each 
disclosure. Thus, the estimated total annual reporting and 
recordkeeping burden for this requirement is 419.90 hours \26\ for 
Selling Broker-Dealers.
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    \24\ The approximate number of Selling Broker-Dealers is based 
on discussions with industry participants.
    \25\ The Commission estimates that there would be approximately 
5,304 TIC Security transactions a year. See note 12. The Commission 
estimates that approximately five percent of all proposed TIC 
Security transactions would be determined to be not suitable for a 
customer under the requested exemption. This estimate is based on 
discussions with industry, which indicated that currently 
approximately five percent of proposed TIC Security transactions are 
determined to be not suitable for a potential purchaser. 
Accordingly, the Commission estimates that Selling Broker-Dealers 
would make or deliver a suitability determination in approximately 
95 percent of all transactions. Thus, a Selling Broker-Dealer would 
make or deliver approximately ((5,304 x .95)/150) = 33.59 
determinations. The Commission has rounded its calculation to two 
decimal places. Assuming a relatively even distribution of 
transactions among potential respondents, some respondents would 
make or deliver a suitability representation 33 times a year, and 
others would do so 34 times a year.
    \26\ (5,304 x .95) x five minutes per transaction = 25,194/60 = 
419.90.
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5. Collection of Information Is Mandatory
    This proposed collection of information would be mandatory for 
Selling Broker-Dealers who rely on the requested exemption.
6. Confidentiality
    The proposed collection of information would be provided by the 
Selling Broker-Dealer to the Lead Placement Agent, or if the Selling 
Broker-Dealer is the Lead Placement Agent, to create the collection of 
information and would be available for inspection by the Commission and 
the applicable SRO.
7. Record Retention Period
    The requested exemption does not contain a separate record 
retention period.\27\
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    \27\ See note 15.
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D. Customer Affirmation by the Selling Broker-Dealer

1. Collection of Information
    The requested exemption would require a Selling Broker-Dealer that 
determines that a TIC Security transaction is not suitable to obtain a 
written affirmation that the customer wants to proceed with the TIC 
Security transaction notwithstanding the Selling Broker-Dealer's 
determination. It also would require the Selling Broker-Dealer to 
deliver the written affirmation to the Lead Placement Agent at closing 
or, if the Selling Broker-Dealer is the Lead Placement Agent, to 
maintain the written affirmation consistent with the record retention 
provisions of Exchange Act Rule 17a-4.
2. Proposed Use of the Information
    This proposed information is designed to ensure that the customer 
is informed if a Selling Broker-Dealer determines a transaction is not 
suitable, and, if the customer wants to proceed with the transaction, 
that the customer has made such a decision in light of the broker-
dealer's determination. In addition, the proposed delivery requirement 
is designed to ensure that the Lead Placement Agent has a copy of the 
customer affirmation in order to comply with its recordkeeping 
obligations discussed below, which would facilitate monitoring 
compliance with the exemption.
3. Respondents
    The proposed collection of information would apply to Selling 
Broker-Dealers who deliver or maintain a customer affirmation 
determination pursuant to the requested exemption.
4. Reporting and Recordkeeping Burden
    The Commission estimates that there are approximately 150 Selling 
Broker-Dealers that are potential respondents, those Selling Broker-
Dealers would obtain and then deliver or maintain a written affirmation 
from 265.20 customers who are clients \28\ of Commercial Real Estate 
Participants a year, and each Selling Broker-Dealer would on average 
obtain and then deliver or maintain such an affirmation 1.77 \29\ times 
a year. The Commission also estimates that a customer would spend 
approximately 30 minutes on each disclosure and the Selling Broker-
Dealer would spend approximately 35 minutes on each disclosure.\30\ 
Thus, the estimated total annual reporting and recordkeeping burden for 
this proposed requirement is an aggregate of 132.60 hours for customers 
\31\ and 154.70 hours for the Selling Broker-Dealers.\32\
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    \28\ As discussed in note 25, the Commission estimates that 
approximately five percent of all proposed TIC Security transactions 
would be determined to be not suitable. 5,304 x .05 = 265.20. The 
Commission has rounded its calculation to two decimal places. In 
other words, in any given year the Commission estimates there would 
be either 265 or 266 customers whose Selling Broker-Dealer 
determines that a TIC Security transaction is not suitable.
    \29\ The Commission estimates that there would be approximately 
5,304 TIC Security transactions under the requested exemption. See 
note 12. The Commission estimates that Selling Broker-Dealers would 
obtain and then deliver or maintain the customer affirmation in five 
percent of all transactions under the requested exemption. This 
estimate is based on discussions with industry, which indicated that 
currently approximately five percent of proposed TIC Security 
transactions are determined to be not suitable for a potential 
purchaser. For purposes of calculating the reporting and 
recordkeeping burden, the Commission estimates that all customers 
whose Selling Broker-Dealer determines that a TIC Security 
transaction is not suitable would provide a written affirmation 
pursuant to the requested exemption. The Commission recognizes that 
it is highly unlikely that all customers would provide a written 
affirmation in the face of a Selling Broker-Dealer's determination 
that a TIC Security transaction is not suitable. However, the 
Commission does not have sufficient information to estimate 
affirmation rates of less than 100 percent, and thus has chosen the 
most conservative estimate for calculating the reporting and 
recordkeeping burden. Thus, a Selling Broker-Dealer would obtain 
approximately ((5,304 x .05)/150) = 1.77 affirmations a year. The 
Commission has rounded its calculation to two decimal places. 
Assuming a relatively even distribution of transactions among 
potential respondents, some respondents would obtain an affirmation 
one time a year, and others would do so two times a year.
    \30\ We estimate that it would take the Selling Broker-Dealer 30 
minutes to explain to its customer that the transaction is not 
suitable, and to discuss with and obtain the subsequent affirmation 
from the customer, and five minutes to deliver or maintain the 
affirmation.
    \31\ 265.20 TIC Security transactions (5,304 x .05) x 30 minutes 
per transaction = 7,956/60 = 132.60.
    \32\ 265.20 TIC Security transactions (5,304 x .05) x 35 minutes 
per transaction = 9,282/60 = 154.70.
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5. Collection of Information Is Mandatory
    This collection of information would be mandatory for Selling 
Broker-Dealers who rely on the requested exemption.
6. Confidentiality
    The proposed collection of information would be provided by the 
Selling Broker-Dealer to the Lead Placement Agent, or retained as a

[[Page 64694]]

record, if the Selling Broker-Dealer is the Lead Placement Agent, and 
would be available for inspection by the Commission and the applicable 
SRO.
7. Record Retention Period
    The requested exemption does not contain a separate record 
retention period.\33\
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    \33\ See note 15.
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E. Recordkeeping by the Lead Placement Agent

1. Collection of Information
    The requested exemption would require the Lead Placement Agent to 
maintain a copy of each of the documents that is to be made and/or 
delivered at closing, as discussed above (i.e., the buyer's agent 
agreement, the statutory disqualification representations, the 
suitability representation, and, if applicable, the customer's written 
affirmation), and the relevant part of the real estate closing 
documents that evidences the amount of the Real Estate Advisory Fee 
paid to any RE Participant involved in the TIC Security 
transaction.\34\
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    \34\ The requested exemption also would require the Lead 
Placement Agent to maintain a copy of any other records that are 
required to be maintained in accordance with the recordkeeping 
requirements of the federal securities laws. See note 15.
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2. Proposed Use of the Information
    The proposed use of this information is to facilitate monitoring 
compliance with the exemption by compelling the Lead Placement Agent to 
maintain records of all documents that are required to be delivered at 
closing.
3. Respondents
    The proposed collection of information would apply to Lead 
Placement Agents that act pursuant to the requested exemption.
4. Reporting and Recordkeeping Burden
    The Commission estimates that approximately 45 Lead Placement 
Agents \35\ would act pursuant to the requested exemption. On average, 
a Lead Placement Agent would maintain copies of the relevant documents 
for approximately 117.87 TIC Security transactions \36\ a year. The 
Commission also estimates that a Lead Placement Agent would spend 10 
minutes per closing to maintain a copy of these documents. Thus, the 
estimated total annual reporting and recordkeeping burden for this 
requirement is 884 hours.\37\
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    \35\ Based on discussions with industry representatives, the 
Commission estimates that there are 45 sponsors of TIC Security 
transactions and that each would have a Lead Placement Agent.
    \36\ 5,304 TIC Security transactions/45 Lead Placement Agents = 
117.87. The Commission has rounded its calculation to two decimal 
places. Assuming a relatively even distribution of transactions 
among potential respondents, some Lead Placement Agents would 
maintain copies of the relevant documents for 117 transactions a 
year, and others would do so for 118 transactions a year.
    \37\ 5,304 TIC Security transactions x 10 minutes = 53,040/60 = 
884.
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5. Collection of Information Is Mandatory
    This proposed collection of information would be mandatory for Lead 
Placement Agents that act pursuant to the requested exemption.
6. Confidentiality
    The proposed collection of information does not address the 
confidentiality of information prepared under this rule; however, the 
collection of information would be available for inspection by the 
Commission and the applicable SRO.
7. Record Retention Period
    As specified, the Lead Placement Agent would be required to 
maintain copies of these documents for a period of three years in 
accordance with its existing obligations under Exchange Act Rule 17a-
4(f).

F. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(A), the Commission solicits 
comments to:
    (1) Evaluate whether the proposed collections of information are 
necessary for the proper performance of the functions of the 
Commission, including whether the information would have practical 
utility;
    (2) Evaluate the accuracy of the Commission's estimate of the 
burden of the proposed collections of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collections of information on those 
required to respond, including through the use of automated collection 
techniques or other forms of information technology.
    Persons desiring to submit comments on the proposed collection of 
information requirements should direct them to the Office of Management 
and Budget, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and should send a copy of their comments to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090, and refer to File No. S7-26-07. OMB is 
required to make a decision concerning the collection of information 
between 30 and 60 days after publication of this notice in the Federal 
Register. Therefore, comments to OMB are best assured of having full 
effect if OMB receives them within 30 days of this publication. 
Requests for materials submitted to OMB by the Commission with regard 
to this collection of information should be in writing, refer to File 
No. S7-26-07, and be submitted to the Securities and Exchange 
Commission, Branch of Records Management, 100 F Street, NE., 
Washington, DC 20549-1110.

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E7-22425 Filed 11-15-07; 8:45 am]
BILLING CODE 8011-01-P