SEC Division of Trading and Markets no-action letter: Cole Credit Property Trust II

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
April 1 1,2007 DIVISION OF
MARKET REGULATION
Lauren Burnham Prevost
Morris, Manning & Martin, LLP

1600 Atlanta Financial Center

3343 Peachtree Road, N.E.
Atlanta, Georgia 30326- 1044
Re: Cole Credit Property Trust 11,Inc.
Request for Exemptive Relief under Rule 102 of Regulation M File No.: TP 07-58 Dear Ms. Prevost:
In your letter dated April 9,2007, as supplemented by conversations with the staff, you request that the Commission grant an exemption from Rule 102 of Regulation M to permit Cole Credit Property Trust II, Inc. (the "REIT") to effect redemptions of shares of its common stock pursuant to its Share Redemption Program. We have attached a copy of your letter to this response to avoid reciting the facts. Unless otherwise noted, terms in this letter have the same meaning as in your letter. Response:
As a consequence of the continuous offerings of the REIT'S shares of common stock, the REIT will be engaged in a distribution of shares of its common stock pursuant to Rule 102 of Regulation M. As a result, bids for or purchases of shares of its common stock or any reference security by the REIT or any affiliated purchaser of the REIT are prohibited during the restricted period specified in Rule 102, unless specifically excepted by or exempted from Rule 102. On the basis of your representations and the facts presented, but without necessarily concurring in your analysis, the Commission hereby grants an exemption fiom Rule 102 of Regulation M to permit the REIT to repurchase shares of its common stock under its Share Redemption Program while the REIT is engaged in a distribution of shares of common stock. In granting this exemption, we considered the following facts, among others:
shareholders of the REIT must have held the shares of common stock in the REIT for at least one year to participate in the Share Redemption Program. The one year holding requirement may be waived in the event of a stockholder's bankruptcy; there is no trading market for the REIT's common stock; the REIT will repurchase shares of its common stock at a price lower than, and fixed in relation to, the public offering price of its common stock;

Lauren Burnham Prevost
Morris, Manning &Martin, LLP
April 1 1,2007 the number of shares redeemed by the REIT under its Share Redemption Program during any calendar year will not exceed 3.O% of the weighted average number of shares outstanding during the prior calendar year, however, that shares subject to a redemption requested upon the death of a stockholder will not be subject to such cap; and the terms of the Share Redemption Program Plan will be fully disclosed in the REIT's prospectus. This exemption is subject to the condition that the REIT shall terminate its Share Redemption Program during the distribution of its common stock if a secondary market for its common stock develops. The foregoing exemption fiom Rule 102 is based solely on your representations and the facts presented to the staff, and are strictly limited to the application of Rule 102 to the Share Redemption Program as described above. The Share Redemption Program should be discontinued, pending presentation of the facts for our consideration, in the event that any material change occurs with respect to any of those facts or representations. In addition, your attention is directed to the anti-fiaud and anti-manipulation provisions of the federal securities laws, particularly Section 1 O(b) of the Exchange Act, and Rule lob-5 thereunder. Responsibility for compliance with these and any other applicable provisions of the federal securities laws must rest with the REIT. The Division of Market Regulation expresses no view with respect to any other question that the Share Redemption Program may raise, including, but not limited to, the adequacy of the disclosure concerning, and the applicability of other federal or state laws to, the Share Redemption Program. For the Commission, by the Division of Market Regulation, pursuant to delegated authority, Associate Director Office of Trading Practices & Processing Division of Market Regulation Attachment

MORRIS,MANNING& MARTIN,LLP
ATTORNEYS AT LAW
April 9,2007 Lauren Burnham Prevost
404-504-7744
Iprevost@mmmlaw.com
VIA FACSIMILE (2021772-93551
AND FEDERAL EXPRESS
Mr. James Brigagliano, Assistant Director C.
Office of Trading Practices and Processing D/hsiii .I i/ Division of Market Regulation if tli~ U.S. Securities and Exchange Commission Stop 6628 100F Street, N.E. Washington, D.C. 20549 Re: Cole Credit Property Trust 11, Inc. Request for Relief under Rule 102(e) of Regulation M Dear Mr. Brigagliano:
We are counsel to Cole Credit Property Trust 11, Inc. (the "REIT"). The REIT is currently conducting a "best efforts" public offering of up to 54,140,000 shares of common stock at $10.00 per share and is offering up to 1,202,000 shares pursuant to a distribution reinvestment plan at the greater of (a) $9.50 per share or (b) 95% of the estimated value per share (the "Initial Offering"). The prospectus contained in the registration statement for the Initial Offering describes the terms of the REITys share redemption program (the "Share Redemption Promam"). Prior to the declaration of effectiveness of the Initial Offering by the Commission, the REIT requested exemptive relief under Rule 102(e) of Regulation M with respect to the Share Redemption Program. Such exemptive relief was granted by the Commission in a letter dated May 24,2005, a copy of which is enclosed. The REIT has now filed a new registration statement under the Securities Act of 1933, as amended (Registration No. 333- 138444), pursuant to a "best efforts" public offering of up to 125,000,000 shares of common stock at $10.00 per share and up to 25,000,000 shares pursuant to a distribution reinvestment plan at the greater of (a) $9.50 per share or (b) 95% of the estimated value per share (the "Second Offering"). The Commission has informed the REIT that the registration statement for the Second Offering has been granted "no review" status; however, the REIT has not yet requested effectiveness of the Second Offering. The REIT will terminate the Initial Offering prior to commencement of the Second Offering. Atlanta 1600 Atlanta Financial Center With offices in Washington, D.C.
404.233.7000 3343 Peachtree Road, N.E. Charlotte, North Carolina
Atlanta, Georgia 30326-1 044
Fax: 404.365.9532

MORRIS,MANNING&MARTIN, LLP
April 9,2007
The prospectus contained in the registration statement for the Second Offering also contains a description of the terms of the Share Redemption Program. In general, these terms are the same as those contained in the registration statement for the Initial Offering, with the following modifications:
the administrative fee that the REIT will charge with respect to a Uniform Commercial Code search that is used to determine whether there are any liens held against the shares to be redeemed has been changed from $250 to the lesser of $250 or 4% of the original purchase price of the shares to be redeemed (any additional costs in conducting the search will be borne by the REIT); the administrative fee will be waived if the redemption occurs upon the death of a stockholder or if the REIT's advisor, in its sole discretion, determines that the redeeming stockholder has suffered an economic hardshp; the REIT may waive the one-year holding requirement for the redemption of shares in the event of a stockholder's bankruptcy; during any calendar year, the REIT will not redeem in excess of 3% of the weighted average number of shares outstanding during the prior calendar year, provided, however, that shares subject to a redemption requested upon the death of stockholder will not be subject to such cap; and if the REIT is unable to purchase all shares presented for redemption in any quarter, based upon insufficient cash available or the limit on the number of shares that the REIT may redeem during any calendar year, the REIT may give priority to the redemption of a deceased stockholder's shares, rather than attempting to honor all redemption requests on a pro rata basis. The REIT believes that these modifications are consistent with the terms of other share redemption programs that have been granted exemptive relief by the Commission under Rule 102(e) of Regulation M, and in any event, are not material modifications to the terms of the Share Redemption Program that was granted exemptive relief by the Commission on May 24, 2005. As a result, and on behalf of the REIT, we request that the Division of Market Regulation grant the REIT an exemption fiom the prohibitions of Rule 102(a) of Regulation M promulgated under the Securities Exchange Act of 1934, as amended, with respect to redemptions by the REIT of shares of its common stock pursuant to terms of the Share Redemption Program contained in the registration statement of the Second Offering.

MORRIS,MANNING&MARTIN,LLP
April 9,2007
If you have any questions regarding this request, or if you need any additional information, please do not hesitate to contact me at (404) 504-7744 or my colleague, Heath D. Linsky, Esq. at (404) 504-7691. Very truly yours, MORRIS, MANNING & MARTIN, LLP Lauren Bumham Prevost

Enclosure

cc: Blair D. Koblenz

Heath D. Linsky, Esq.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C.20549 ,d
DIVISIONOF
?4dRl:ET REGULATION May 24,2005
Lawan Burnham Provost

Morris, Manning &Martin, LLP

1600Atlanta Financial Center

3343 Peachtree Road, N.E.

Atlanta, Georgia 30326-1044

Re: Cole Credit Property Trust II?Inc.

Request for Exemptive Relief under Rule 102of Regulation M

Dear Ms. Prevost:
Inyour l&er htcdMay 6,2005, as supplemented by conversalionswith the stdq you request that the Commission grmt an exemption fiom Rule 102of Regulation M to permit Cole Credit Property Tlust IK,hc. (the "REXT'') to effect redemptions of shares of its ~omrno~l stock puxsumt to its proposed SharcRedemption Progam. 'Wehave attached a copy of your letter to this response to avoid reciting the facts. Unless ~tbe,~se notd, terms in this lett~r have tho same meaning as in your letter.

Response:
As a consequence of the continuous offberings of thc REIT's shares of common stock, the REIT will be engaged in a distn'bution of shares of its common stock pursuant to Rulc 102of Regulation M. As a result, bids for or purchases of shares of its common stock or anyrefmcnce securityby the REIT or any affiliated purchaser of the REIT are pro'hibited during the restricted period specified in Rule 102,unless specifically exceptedby or cxcmpted from Rule 102. On the basis of your representations and thc factsprcscntcd, but without ncc~ssarily concurringin your analysis, the Commission hmcby gmb an exemption ffom Rule 102 of Regulation M to permit the REIT to repurchase shares ofits common stock under its Share Rdmption Program while the REIT is engaged ina distribution of shares of common stock. :h granting this exmption, we considered the fbllowingfacts, among others:
shareholders of the REIT must haveheld ihe shares of common stock in the REIT for at least one year to participate in the ShareRedeniptionProgran~; m there is no trading mmlcet for the REIT'S common stock; Received May-24-2005 05:lBpm From- To- Page 002

Lauren Bumham Prevost
ILIlo~-ris,Manning &Martin, IJLP
May 24,2005
0 the REIT will repurchase shares of its common stock at a plice lower than, and fixed in relation to, the public offea price OFits common stock; o at no time during the calmdar year will thc numbm of shares redeemed by the REXT under its Share Redemption Program exceed 3.0% of the weighted average number of shascs outstandingduring the prior calendar year; and m the tern ofthe ShareRedemption Program Plan willbe hlly disclosed in the REIT's prospectus. This exemption is subject to the condition that the REIT shall terminate its Share Redemption Program during the distribution ofits common stock ifa secondarymarket for its common sto~kdwc~ops. The foregoing exemption fromRule 102is based solelyon your representarions and rhe factspresented to the staff, anit are strictly limited to the application of Rule 102to the Share Redemption Program as described above. Thc Share Redemption Program should be discontinued, pending pr~scntationofthc fa& for our consideration,in the event that any material change occurs with respect to my of those facts or representations. In addition, your attmtion is dircctcd Lo the anti-fiand and anti-mnnlpulation provisions of the kdcral securities laws, particularly Section 10(b) of the ExchangeAct, and Rule lob-5 thereunder. Responsibility for compliance with these and any other appli~ablsprovisions ofthe federal securitieslaws must rest with theISEIT. The Division of Market Regulation exprcswsno vicw with respect to any other qucstion that the Share Redemption Program may raise, including, but not limited to, the adequacyof Ihc disclosure concerning, and the applicabilityof other fderal or state laws to, the ShareRedemptionProgram. For the Commission,by the Division of Maskct R~gulzltion, p~usuanto delegated authority, James A, Brigagliano Assistiant Director Office of 'Trading Practices &Processing Division of Market Regulation Attachment TOTAL P. 03 Received May-24-2005 05: 18pm From- To- Page 003

)(,I1 MORRIS,MANNING & MARTIN, LLP
', ,'rTTORNS IS AT LAW
May 6,2005 Lauren Burnham Prevost
404-504-7744
Iprevost@mmmlaw.com www.mmmlaw.com
VIA FACSIMILE (202-942-9638) AND FEDERAL EXPRESS Mr. Jaines Brigagliailo, Assistant Director Office of Trading Practices and Processing Division of Market Regulation U.S. Securities and Excha~lge Coininissio~l Stop 10-01 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Cole Credit Property Trust 11, Inc. Request for Relief under Rule 102(e) of Regulation M Dear Mr. Brigagliailo:
We are cou~lsel to Cole Credit Property Trust 11, Inc. (the "REIT"). 011behalf of the REIT, we request that the Division of Market Regulation grant the REIT an exelnption fi-om the prollibitions of Rule 102(a) of Regulation M prolnulgated under the Securities Exchange Act of 1934, as amended (the "Exchanae Act"), with respect to redelnptions by the REIT of shares of its colnllio~l stock pursuant to its proposed share redeinption progranl (the ''Share Redenlption Pro.qa111"). Cole Credit Property Trust 11, Inc. The REIT was incorporated in Maryland on September 29, 2004, and was fol-lned primarily to invest in commercial real estate properties, generally freestanding, single tenant con~mercial properties net leased to investment grade and other creditwoi-thy tenants. The REIT intends to qualify as a real estate investment trust under federal tax law. The REIT has filed a registration statement under the Securities Act of 1933, as amended (the "Securities Act") (Registration No. 333-121094), with respect to 50,000,000 shares of its colnnlon stock. Up to 45,000,000 of the shares are being registered in coilllection with a11 initial public offering (the "Offering") and 5,000,000 of the shares are being registered in coilnectioll with the REITys distributioil reiilvestlneilt plan (the "Reinvestment Plan"). The REIT proposes to sell the shares in the Offering on a "best efforts" basis at $10.00 per share, and at $9.15 per share under the Reillvestinellt Plan. The Conlnlissio~~has not yet declared the Offering effective. Atlanta 1600 Atlanta Financial Center With offices in Washington, D.C.
404.233.7000 3343 Peachtree Road, N.E. Charlotte, North Carolina
Atlanta, Georgia 30326-1 044
Fax: 404.365.9532 #I258983 $4- COIC:I~C~ kc]I~C~LI~S~

May 6,2005
The REIT has no cui-rei~t plan to cause its shares of commoll stock to be listed for trading on any natiollal securities exchange or for quotatioil on The Nasdaq Stock Market, nor does it anticipate that such shares will be the subject of bona fide quotes on any inter￾dealer quotation system or electronic comnu~lication network. To provide stockholders with limited liquidity for their common stock, under certain circuinsta~lces, the REIT illtends to adopt the Share Redemption Program. If a secondary trading market does develop, however, the REIT will terminate the Sllare Redeinptioil Prograin. The Share Redemption Program The REIT's board of directors has approved the Share Redemption Program for the REIT, the teilns of which are fully disclosed in the prospectus included in the registration statenlent described above. The REIT's board of directors has delayed the implenlelltatioil of the Share Redeinption Program until the earlier of the (1) coinpletioll of the Offering (approximately two years from the effective date of the Offering) or (2) receipt of the relief requested by this letter. During the tell11 of Offering, the redelnption price per share will depend on the length of time the stockl~older has held such shares. After one year from the purchase date, the redemption price per share will be 92.5% of the amount the stockholder paid for each share. This percentage will increase to 95.0% after two years from the purchase date, then to 97.5% after three years from the purchase date and to 100.0% of the purchaser price after fbur years fiolll the purchase date (in each case, as adjusted for ally stock dividends, combinations, splits, recapitalizations and the like with respect to the REIT's colninoll stock). At any time the REIT is engaged in an offering of shares, the per share price for shares purchased under the Share Redemption Plan will always be equal to or lower than the applicable per share offering price. Thereafter the per share redemption price will be based on the then-current net asset value of the shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock). The REITys board of directors will announce any redemption price adjustment and the time period of its effectiveness as a part of its regular communications with our stoclholders. At any time the redemption price is determined by any method other than the net asset value of the shares, if the REIT has sold property and has made one or more special distributions to the stockholders of all or a portion of the net proceeds from such sales, the per share redelnption price will be reduced by the net sale proceeds per share distributed to investors prior to the redemptioil date as a result of the sale of such property in the special distribution. The board of directors will, in its sole discretion, determine which distributions, if any, constitute a special distribution. While the REITys board of directors does
not have specific criteria for determining a special distribution, it is anticipated that a special distributioil will only occur upon the sale of a property and the subsequent distribution of the net sale proceeds. Subject to the waiver of the one-year holding period requirement, shares required to be redeemed in

IMORRIS,MANNTNG& MARTIN,LLP
May 6,2005 co~ulection with the death of a stockholder may be repurchased without the one-year activity period requirement, at a purchase price equal to the price actually paid for the shares. Prior to the time the REITys shares are listed on a national securities exchange or for quotation on The Nasdaq Stock Market and pursuant to the temls of the Share Redeinption Program, a stockholder who has held shares of coinillon stock for at least one year may, with appropriate notice, present all or a portion consisting of at least 25% of such stocltholder's shares for repurchase, subject to the requirements described below. During each calendar year, the REIT will not redeem in excess of 3.0% of the weighted average number of shares outstanding during the prior calendar year. The cash available for redemption will be limited to the proceeds from the sale of shares pursuallt to the Reinvestment Plan. The REIT will redeem shares on a quai-terly basis. If the REIT does not have sufficient funds set aside to accominodate all of the redemption requests made duri11g ally quarter, or the REIT has reached the limit on the number of shares it may redeem during any calendar year, then the REIT will attempt to honor all requests on a pro-rata basis. The unsatisfied portion of any redemption request will be treated as a request for redemption the following quarter. The requestor may (1) withdraw its request for redemption at any time prior to the last day of the new quarter or (2) ask that the redemption request be honored at such time, if, any, when sufficient funds are available and the REIT has not reached its calendar year redemption limit. Such pending requests will generally be honored on a pro rata basis. The REITys redeemed shares will become authorized but unissued shares of the REITys common stock. The REIT does not intend to reissue the shares without registratioil under the Securities Act or an exeinption therefrom. The Share Redeinption Program will terminate upon the development of a trading inarltet for the REITys shares of colnlno~~ stock. In addition, the board of directors may choose to amend, suspend or teilninate the Share Redelnptio~l Prograin upon 30 days notice at any time and will be required to discontillue sales of shares under the Reinvestment Plan on the earlier of (i) two years following the date the Offering is declared effective, or (ii) the date the REIT has sold 5,000,000 shares under the Reinvestment Plan, unless the REIT has filed a new registration stateine~lt with the Securities and Exchange Conlmission and applicable states. Because the redemption of shares will be funded with the net proceeds the REIT receives from the sale of shares under the Reinvestment Plan, the discontinuance or termination of the Reinvestnlent Plan will adversely affect the REIT's ability to redeenl shares under the Share Redemption Plan. The REIT will notify the stockl~olders of such developlnents (i) in its annual or quarterly reports or (ii) by
lnealls of a separate mailing, accompanied by disclosure in a cull-ent or periodic report under the Exchange Act. During the Offering, the REIT will also include this information in a prospectus supplement or post-effective amendment to the registration statement, as required under federal securities laws.

Momrs, MANN~NG & MARTIN, LLP
May 6,2005
Discussion
Rule 102(a) of Regulation My which is intended to preclude inanipulative conduct by those with an interest in the outcome of a distribution, prohibits issuers and those affiliated with issuers, from among other things, bidding for, purchasing or attempting to induce another to bid for or purchase a security that is the subject of a distribution while such distribution is unde~way. Rule 102(e) of Regulation Myhowever, authorizes the Commission to exempt from the provisions of R~lle 102 any transaction or series of transactions, either uilconditionally or subject to specified terms and conditions. The REIT respectfully requests that the Division of Market Regulation grant it an exemption from the prohibitions of Rule 102 of Regillation My thereby pellnitting the REIT to effect redemptions under its Share Redemption Program. The REIT will not actively solicit shares for redemption, and redemptions will not be made with the purpose of and will not have the effect of manipulating the price of the REITys stock. The REIT has no current plans to cause such shares to be listed on any securities exchange or The Nasdaq National Market, nor does it anticipate that such shares will be the subject of bona fide quotes on any inter-dealer quotation system or electronic colnmunications network. The Share Redemption Program was created solely to address the illiquidity by providing stockholders of the REIT with a vehicle through wl~ich, after having held shares for at least one year, they could liquidate all or a portion of their investinent in the REIT's common stock. Should a secondary trading market for the REIT's shares develop, the REIT will temlinate the Share Redemption Program. Altl~ougll stocldlolders of the REIT are apprised of the availability of the Share Redemption Progranl at the time they purchase their shares by means of a description in the prospectus, the REIT will not actively solicit its stockholders' participation in the program. Stockholders desiring to present all or a portion of their shares for repurchase will do so of their own volitioil and not at the behest, invitation or encourageinent of the REIT. In addition, the REITys only role in the program will be the ministerial facilitation of redemption requests. To date, no shares of coinmoil stock have been issued to the public by the REIT and no shares have been redeemed pursuant to the Share Redemption Program. Repurchasing shares under the Share Redemption Program during the Offering would not manipulate the REIT's stock price because the repurchase price under the Share Redemption Program will be fixed at an amount less than or equal to the offering price of the REIT's common stock. Moreover, the scope of the Share Redeinptioil Program is liinited by (1) the requirement that redemptions be funded solely from the net proceeds received from the sale of shares under the Reinvestment Plan and (2) the prohibition on redemptions during any calendar year in excess of 3.0% of the weighted
average number of shares outstanding during the prior calendar year. The potential for manipulation is further reduced by the Share Redemption Program's one-year holding requirement. These and all other tenns of the Share

MORRIS,MANNING& MARTIN,LLP
May 6,2005
Redemption Program are clearly set forth in the prospectus included in the REIT's registration statement. Furthermore, because purchasers in the Offering must die in order to take advantage of the potentially more favorable terms applicable upon the death of a stocld~older, the potentially more favorable terms available in such situations would not have a manipulative effect on the RFIT's stock price. T11e REIT believes that the relief it requests in this letter is collsistent with the relief granted by the Division of Market Regulation in CNL Income Properties, Inc. (March 11, 2004), Wells Real Estate Investment Trust 11,Inc. (December 9, 2003), Inland Western Retail Real Estate Trust, Inc. (August 25, 2003), T REIT, Inc. (June 4, 2001) and CNL American Properties Fund (August 13, 1998) under Regulation M and in Escel Realty Trust, Inc. (May 21, 1992) under former Rule lob-6. In particular, except for certain features of the Share Redemption Program limited to repurchases upon the death of a stockl~older,we note that (1) the REIT's stockholders must hold shares of common stock for at least one year to participate in the Share Redemption Program at all; (2) the REIT will terminate its Share Redemption Program in the event a secondary market for its cornnloll stock develops; (3) during the term of the Offering, the shares will be repurchased at a price that is fixed and less than the price of the shares in the Offering; (4) the llunlber of shares to be repurchased under the Share Redemption Program will not exceed, during any calendar year, 3.0% of the REIT'S weighted average number of shares of common stock outstandillg during the prior calendar year; and (5) the tenns of the Share Redemption Program are f~~lly disclosed in the REIT'S prospectus. The REIT believes the requested relief is coilsisteilt with relief granted in Panther Partners, L.P. (March 3, 1994) and Dean Witter Cornerstone Funds 11,I11 arid IV (J~me 3, 1992) with respect to certain limited partnerships under fonner R~lle lob-6 where (1) no secondary market existed or was expected to develop for the limited partnership interests; (2) the motivation for repurchasing limited pal-tnership interests was to create liquidity for limited partners; (3) the limited partnership interests were repurchased at prices that were based on the valuation of the partnerships' net assets; and (4) the repurchase progranls were to be tenninated in the event a secondary market developed. The REIT believes that its proposed Share Redenlption Program is consistent with the programs described in the aforementioned letters and, similarly, poses a very low risk for the type of nlanipulative acts and practices that Regulation M and former Rule lob-6 were promulgated to prevent.

MORRIS,MANNING & MARTIN, LLP
May 6,2005
Page G
If you have any questions regarding this request, or if you need any additional infonnation, please do not hesitate to contact me at (404) 504-7744 or nly colleague, David M. Calhoun, Esq. at (404) 504-7613. Very t1111y yours, MORRIS, MANNING & MARTIN, LLP Lauren Bumhanl Prevost cc: Blair D. Koblenz David M. Calhoun, Esq.