There is a significant gray area that exists where real estate interests meet real estate securities. However, the distinction is a vitally important one, as securities are subject to regulatory requirements, such as registration with the SEC.
Thanks to a Supreme Court case, there is a 4-part test to determine if your real estate interests are classified as securities. If they could be considered securities, there are numerous regulatory implications—such as the requirement to register with the SEC.
Section 15(a)(1) of the Exchange Act makes it unlawful to facilitate the sale of securities without registering with the SEC, joining FINRA, and meeting a number of other federal and state regulatory requirements.
The issuer exemption is a safe harbor from the broker-registration requirement. However, it can only be applied narrowly, and many issuers that falsely believe they fall under its umbrella may actually be violating the law.