Updated 6 months ago on .
Understanding 3(c)(5), 506(b), and 506(c) Exemptions
If you’re raising capital for a real estate fund or syndication, you’ve probably heard terms like 3(c)(5), 506(b), or 506(c) thrown around. These are critical exemptions that determine how you can structure and market your offering — and who you can accept as investors.
Here’s a simple breakdown:
Private funds and syndications require two different types of exemptions from SEC registration.
One - from the Investment company act for the overall fund structure. 3(c)(5) is an exemption from the investment company act for real estate funds.
Two - from the securities act for the investments within that fund structure. 506(b) and 506(c) are exemptions under the securities act, which allow different methods for marketing the funds/syndications.
More detailed breakdown:
🔹 3(c)(5) — The Real Estate Fund Exemption
This is part of Regulation D under the Investment Company Act of 1940. It lets real estate funds avoid registering as investment companies if at least 55% of their assets are “qualifying real estate” (like fee ownership or loans secured by real estate) and at least 80% are real estate–related assets.
🔹 Rule 506(b) — The “Quiet Raise”
This is part of Regulation D under the Securities Act of 1933. It allows you to raise unlimited capital from accredited investors and up to 35 sophisticated but non-accredited investors, but you can’t publicly advertise the offering.
🔹 Rule 506(c) — The “Public Raise”
Also under Regulation D, but allows general solicitation and advertising — as long as every investor is accredited and you verify accreditation (not just take their word for it).
Together, these exemptions form the backbone of private capital raising for real estate funds.
I help sponsors and fund managers navigate which exemptions fit their strategy — and handle the Form D filings and structuring to stay on the right side of SEC rules. Reach out and I can share insight based on your situation.