Rule 506 of Regulation D is the exemption that almost every US CRE syndication uses to avoid SEC registration of the securities being offered. The rule has two distinct subsections that produce very different operational realities for the sponsor.
Rule 506(b) permits the sponsor to raise unlimited capital from an unlimited number of accredited investors and up to 35 non-accredited but sophisticated investors, but it prohibits general solicitation and general advertising entirely. The offering must be made through a pre-existing substantive relationship between the sponsor and the prospective investor, or through a placement agent functioning in that capacity.
Rule 506(c) was added by the JOBS Act of 2012 and flipped the historical posture. It permits general solicitation and advertising including public-facing pitch decks, social media campaigns, podcasts, and conference presentations, but it restricts participation to accredited investors only and requires the sponsor to take reasonable steps to verify accredited status.
Self-certification through a checked box on a subscription agreement, which has long been the operational norm under 506(b), is not sufficient under 506(c). The sponsor must collect and review documentary evidence of accreditation (recent W-2s and tax returns for income tests, brokerage statements and asset verifications for net worth tests) or rely on a third-party verification service or written confirmation from a CPA, attorney, or registered broker-dealer.
The practical strategic choice between the two subsections turns on the sponsor's investor base and marketing posture. A sponsor with a developed proprietary investor network typically prefers 506(b) because the verification burden under 506(c) is meaningful and the prohibition on solicitation isn't binding when the deal will fill from existing relationships anyway.
Sponsors building a new investor base or relying on public-facing content marketing typically prefer 506(c) because the ability to advertise without restriction is critical to reaching new capital. State Blue Sky notice filing requirements apply under both subsections and are not exempted by the federal 506 election.
Bad-actor disqualification under Rule 506(d) applies to both.
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