What Real Estate Fund Managers Get Wrong About Legal Compliance

Written by:

Steve Marcinuk

Date:

28 Apr 2026

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Private real estate capital has grown increasingly sophisticated over the past decade. However, many fund managers still lack a working understanding of the legal and regulatory frameworks that govern their structures. For emerging managers in particular, that gap between what they know and what they need to know can carry serious financial and reputational consequences.

Ron Geffner, Founding Partner and Head of Financial Services at Sadis & Goldberg LLP, has spent his career at that intersection. After starting as a federal prosecutor at the U.S. Securities and Exchange Commission, then working at Price Waterhouse and a large law firm, Geffner, along with several partners, founded Sadis & Goldberg with a focus on hedge funds, private equity, venture capital, and real estate funds. From that vantage point, the compliance failures he encounters are consistent – and in many cases, avoidable.

When Real Estate Counsel Is Not Enough

One of the most persistent misconceptions in the private real estate fund space is that a capable real estate attorney provides sufficient legal coverage for a fund structure. According to Geffner, that assumption creates real risk.

Setting up a real estate fund involves far more than local real estate law and transactional purchases of hard assets. By creating a commingled investment vehicle – one that pools capital from multiple investors – a manager brings the business under the review of the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Internal Revenue Code, and ERISA, the federal law governing retirement and benefit plan assets. Most law firms that handle only real estate transactions lack experience with asset management regulation.

The practical consequences of that knowledge gap can be severe. Geffner describes a recent case in which his firm was brought in to assist a manager overseeing 17 distinct investment entities. Despite a decade in business, the manager had never registered as an investment advisor and had been presenting performance data in ways that warranted closer scrutiny. Rather than resolving a simple, relatively inexpensive registration process years earlier, the manager now faced the prospect of unwinding a decade of work. “The sponsors of a real estate fund who fail to properly register as an investment advisor may have to return all the fruits and labors of their business,” Geffner says.

The Most Common Mistakes

Registration failure is the most frequent compliance error Geffner sees among early-stage fund managers. The root cause is often a misunderstanding of what constitutes a security. Many operators view their holdings as straightforward real estate. Still, if investors are purchasing interests in a corporate entity – such as a limited partnership or LLC – the manager is providing investment advisor services in most instances and must register accordingly.

Beyond registration, Geffner points to three other recurring issues: improper fund structuring that creates unintended tax liability for investors, managers taking performance fees at the wrong time or outside the terms of their own governing documents, and operators who set up fund structures themselves without legal guidance. In one case, a self-structured fund raised between $50 million and $100 million before attracting SEC scrutiny. “His reputation was shot, let alone the economics,” Geffner says.

Capital Raising and Investor Relations

Fundraising has become more difficult across the board over the past six to twelve months, as higher interest rates and economic uncertainty have made investors more cautious. The operational strain is showing up in unexpected places. Geffner has observed managers failing to build adequate reserves for ongoing expenses, leaving them caught between assets that are not yet ready to sell and vendors expecting payment. When auditors, administrators, or legal counsel go unpaid, fund operations begin to break down.

Investor relations have also become more contentious, particularly among smaller and mid-market managers who raised capital from personal networks. Even when fund documents clearly state that liquidity may not be available for seven to ten years, some investors grow impatient and apply pressure.

Geffner says his firm regularly hears from managers caught off guard by these situations. Many respond poorly – either disengaging entirely or making informal promises over text, WhatsApp, or email that only make the problem worse. “They’re emotional, and they either don’t respond or they make promises that only conflate the problem,” he says. His firm’s approach draws directly on its SEC enforcement experience, applying it to help managers navigate investor disputes before they escalate.

On Regulatory Rollback

With the current administration signaling a lighter regulatory approach toward private funds, some managers have interpreted the environment as an opportunity to ease compliance requirements. Geffner directly pushes back on that reading.

“If you have a broken tail light on your car, you cannot say I’m not going to repair it because the police are pulling over fewer people,” he says. Regardless of enforcement posture, the legal obligations remain unchanged. Managers who cut corners now risk compounding their exposure if scrutiny returns.

Tokenization and the Next Compliance Frontier

One area where regulatory clarity has not yet caught up with market activity is the tokenization of real estate assets – the process of converting ownership interests into digital tokens that can be tracked or traded on a blockchain. Geffner says he is now fielding roughly one inquiry per day from parties seeking to tokenize real estate, and the legal and compliance requirements are still taking shape.

The process involves engaging a third-party service provider to handle operational aspects, revising fund documents to include tokenization language, and building out a compliance framework around anti-money laundering rules and Common Reporting Standards. The central challenge, according to Geffner, is verifying investors’ identities and the sources of funds. “The only way to do that is to have supporting information from a prospective investor so that you can run the analysis properly,” he says.

Offshore jurisdictions – including the Cayman Islands, British Virgin Islands, and Bermuda – have long been part of the toolkit for U.S.-focused real estate funds with international investors. While those relationships are well-established, Geffner notes that local counsel in those jurisdictions is still developing expertise around tokenization-specific compliance.

What Managers Should Do

Looking ahead over the next 12 to 18 months, Geffner is watching two areas closely for his real estate fund clients: tax optimization and the growing role of digital currency in asset distribution. Both require ongoing attention rather than one-time structural decisions.

For managers uncertain about their current legal coverage, his recommendation is straightforward: confirm whether existing counsel has any familiarity with the Investment Advisers Act and the Investment Company Act. If they don’t, the manager can still use that firm for real estate matters – but should also work with a second firm that has asset management regulatory experience.

The broader point from Geffner’s perspective is that compliance gaps in private real estate funds are rarely the result of bad intent. More often, they stem from operators not knowing what they don’t know, and from attorneys practicing outside their area of expertise without flagging it. In a market where capital is harder to raise and investor patience is thinner, those gaps carry more risk than they once did.

About the Expert: Ron Geffner is a Founding Partner and Head of the Financial Services Department at Sadis & Goldberg LLP, a firm he built with a focus on hedge funds, private equity, venture capital, and real estate funds. He began his career as a federal prosecutor at the U.S. Securities and Exchange Commission before working at Price Waterhouse and a large law firm — a background that gives him a distinctive enforcement-informed perspective on the compliance challenges facing private real estate fund managers today.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.