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The Difference Between Reg A & D Offerings

How do Regulation A and D offerings compare?

As an individual investor interested in the potential to diversify your portfolio through alternatives such as commercial real estate, you may find yourself reviewing offering materials referencing “Regulation A” and “Regulation D.” You may be wondering what these terms mean, and why does it matter? This article will provide background on securities laws and explain the different types of offerings so you can make more informed decisions about which opportunities may be a fit for you.

History Lesson

Let’s start with a brief history of securities laws. Following the stock market crash of 1929 and the Great Depression, Congress enacted several reforms intended to provide additional transparency for investors and created standard rules for the formation of investment companies. These laws include the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940 (“40 Act”). To this day, the 40 Act governs many types of investments such as mutual funds and also defines what qualifies as an “investment company.” Under the 40 Act, investment companies must register with the Securities and Exchange Commission (SEC) before initiating an offering to the public. The law provides exemptions from some SEC regulations for certain types of investments, including those for Regulation A and Regulation D offerings.


JOBS Act of 2012

Over the past 10 years, as technology and digital marketing have become growing sources of consumer engagement across global industries, legislators revisited the securities laws during the Obama administration and ultimately passed the Jumpstart our Businesses Act of 2012 (“JOBS Act”). The modernized laws allow individual investors to access investments that may have previously been out of reach. Now, investors can learn about investments through social media and access opportunities through easy-to-use digital investment platforms. This model can allow many investors to pool their capital together with a direct line of communication to the sponsor who is managing the investment. Following the JOBS Act, the SEC published rules in 2015 further defining Regulation A and Regulation D and the associated accredited investor requirements.

Regulation D Explained

In general, Regulation D offerings are available only to accredited investors. To qualify as accredited, investors must have an income of $200,000 ($300,000 if filing jointly) or a net worth of $1 million (excluding primary residence). As of 2020, roughly 10% of all American households qualify to participate in Regulation D offerings, according to the CCAF 2018 report. Accredited-only offerings often feature higher investment minimums and are with limitations on marketing to new investors. There are two primary types of Regulation D offerings: 506(b) offerings that prohibit general solicitation and 506(c) offerings which can be advertised more broadly but require additional paperwork requirements to verify the investor’s accredited status. In real estate, Regulation D offerings are often utilized to capitalize single property acquisitions or fund investments in the form of limited partnership interests.

Regulation A Explained

In contrast to Regulation D, Regulation A offerings are available to the general public, subject to some limitations. For example, for non-accredited individuals, the investment amount cannot exceed 10% of an individual’s income or net worth. This framework allows a much wider pool of investors to access alternative investments as compared to the 10% who qualify for Regulation D offerings. Because these offerings are available to a broader group of investors, the SEC requires detailed initial public filings including an offering circular, which discloses the offering’s investment strategy and potential risks. Issuers are required to file audited financial statements and ongoing reports publicly via the SEC Edgar website. According to a March 2020 SEC report, Regulation A offerings have grown rapidly since 2016 raising a total of $2.4 billion from 183 issuers in that timeframe.


Recent Changes

In August 2020, the SEC announced an expanded definition of accredited investors to include new categories based on their professional knowledge, experience or certifications such as FINRA licenses 7, 65 or 82. These changes took effect in October 2020 and expand the number of individuals who may qualify for Regulation D offerings. In November 2020, the SEC also amended rules to increase the maximum offering amount through Regulation A+ Tier 2 offerings in a 12-month period from $50 million to $75 million.

Why does this matter?

At Jamestown, we are committed to increasing access to commercial real estate through cutting-edge technology, allowing U.S. investors to participate in our projects for the first time. Jamestown Invest is the first direct-to-consumer platform to be launched by a global real estate institution, connecting individuals directly with real estate managed by Jamestown. For our first fund offering Jamestown Invest 1, LLC, we utilized Regulation D for an initial private placement followed by a Regulation A offering that launched at the end of 2019. Unlike many other crowdfunding opportunities, Jamestown Invest features co-investment from Jamestown’s principals, access to a fully integrated real estate platform, and a 37-year track record of navigating economic cycles. Additional information is available for both accredited and non-accredited investors by creating an account on our website.

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by John Wilson

Fund Manager

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Investing in Jamestown Invest 1, LLC’s common shares is speculative and involves substantial risks. The Risk Factors section of the offering circular contains a detailed discussion of risks that should be considered before you invest. These risks include, but are not limited to, illiquidity, complete loss of invested capital, limited operating history, conflicts of interest, blind pool risk, and any public health emergency. In addition to the foregoing risks, the adverse economic effects of the COVID-19 pandemic are unknown and could materially impact this investment. Further, there is no assurance that Jamestown Invest 1, LLC will be able to achieve its investment objectives or to access targeted investments like those identified.

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The NPI is a quarterly, composite total return for private commercial real estate properties located in the United States. The NPI includes operating office, retail, industrial, apartment, or hotel properties accounted for on a market value basis and includes the impact of leverage employed on the properties in the index. The NPI Levered Index is illustrative of historical average annualized commercial real estate returns on a gross property level leveraged basis, and these historical returns may not be indicative of future results. Leverage adds additional risks because leverage providers generally get paid first and may have a full or partial recourse claim against a portfolio. Such real estate return data should not be used to estimate returns of Jamestown Invest investments. While Jamestown Invest 1, LLC may acquire properties that meet some of the NPI criteria, it may acquire properties that do not meet such criteria. Further, Jamestown Invest property returns may have a better or worse average annualized return performance compared to the index as each real estate investment is unique in nature, which is inherently problematic for benchmarking to the composite returns of a highly diversified index.