Darryl Steinhause

It seems like every year Darryl Steinhause is adjusting to a new securities rule that has impacted his clients interested in real estate investments.

The real estate securities and tax attorney deals with complex transactions like tenant in common, real estate investment trusts and Delaware statutory trusts, but now he's dealing with real estate platforms - websites that list properties for people to invest in.

These platforms are a result of the Securities and Exchange Commission not taking action last year against two startup investment platforms, AngelList and FundersClub. They both connect accredited investors to startups in need of capital without the traditional broker-dealers. The process eventually hit real estate.

"My practice is evolving from broker-dealer to more platform-based," Steinhause said. "I don't know where the equilibrium will occur. It will be a 50/50 practice. The biggest fear I have is that somebody is going to do something that will hurt everyone."

The SEC didn't take action since it found the two platforms complied with 2012's Jumpstart Our Business Startups Act, or the JOBS Act, with legally functioning as venture capital fund advisers. The amendment of Rule 506 of Regulation D of the Securities Act of 1933 also fueled online investing with allowing companies to advertise for new investors in line with JOBS. Prior to 2013, Regulation D strictly prohibited companies from using the Internet, radio, TV and print to openly advertise for investors.

Though platforms are still regulated by the federal government and apply for accreditation, they handle the information necessary to complete the transaction. The issue is investors usually work with a broker-dealer, who counsels them on the best areas to invest, monitors the exchanged paperwork, and acts as the point-of-contact between the investor and company. Some platforms have acquired a broker-dealer to ease investors' worries, but Steinhause said it's still difficult to forecast the future of platforms.

"If this continues on pace, these platforms will probably raise tens, if not hundreds of millions dollars in a transaction," he said. "It's the new way of investing that's really developing in this country. The good news is it has really opened the marketplace up, so people can see all the potential deals out there. The downside is all the protections the government has built in with FINRA [Financial Industry Regulatory Authority] and SEC are circumvented."

To ensure clients don't experience trouble through investing online, Steinhause consults with clients prior to them investing through a platform to make sure all required information like the private placement memorandum, which states all the risks, objectives and terms of the investment, is drafted.

"I do think it's interesting," he said. "It shows how the Internet is starting to change our world, how it's gone through everything to investing our retirement money."

Steinhause is currently working with several clients on properties outside of California where many real estate hotspots reside, such as North Carolina and Georgia.

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