Local company hopes to raise $7 million for project from investors
Vestor, a startup crowdfunding site for real estate investments based at the Keith Building, 1621 Euclid Ave., has signed on to try to help developers fill a sudden $7 million hole in the $64 million plan to transform three dilapidated buildings at 1101 Euclid Ave. into a LeMeridien hotel.
The emergency aspect loomed as Sandusky-based hotel consultant Lonnie Burghardt was close to ending a five-year quest to turn part of the stretch of Euclid into a 206-room hotel with a 150-seat, first-floor restaurant. Investor groups, the Starwood Hospitality Inc. brand and the capital stack were ready to go.
However, a key piece of the plan fell out as the project was cut off from a funding source — federal New Market Tax Credits allocations — as the region washed out in the latest round of awards.
That’s where personal contacts Burghardt forged through the city of Cleveland’s economic development department came into play. He knew Matthew Moss, Vestor co-founder and CEO, when Moss worked as a project assistant at the city, before Moss seized on the idea of a Midwest-based crowdfunding program to aid real estate development.
Moss said his experience with the city demonstrated to him how much difficulty developers have financing good projects.
Burghardt said he was willing to try Vestor crowdfunding at its infancy because he has confidence in Moss and his partners. He read widely about real estate crowdfunding ventures popular on the East and West coasts and even touched base with a few before the latest financing gap surfaced in May.
“I think it’s a very attractive form of financing for real estate,” Burghardt said. “You have the security of real estate, of a building, compared to some other types of businesses.
“It allows smaller investors to get involved in real estate at lower cost and without having to operate a property.”
If Vestor can raise the cash for LeMeridien, Moss believes it will be the first crowdfunded real estate project in Ohio. It is also the beginning for Vestor, which can be used to raise debt or equity from qualified investors to assist other would-be property owners and real estate developers.
Vestor posts projects on its site after extensive review. It uses the capabilities of Cleveland-based Crowdentials to vet the credentials of qualified investors under U.S. Securities and Exchange Commission rules.
Sizing up potential projects is where Moss and co-founder Scott Schirg’s real estate backgrounds come into play. Before becoming Vestor’s chief development officer, Schirg was a business development associate who managed research for business development at the Cleveland office of Mohr Partners, a national tenant rep advisory firm and economic development services provider.
The technological component is handled by the third co-founder, chief technical officer Jeff Chen, a computer science graduate of Case Western Reserve University and alum of several web, mobile and software solutions. Chen’s bio notes he began writing computer code while he was in high school.
Vestor is housed at Flashstarts, a business accelerator in the Keith Building led by serial technology entrepreneur Charles Stack. Besides an initial investment of $25,000 upon being accepted for Flashstarts, it provides coaching and other business growth assistance for new companies.
If Vestor cannot raise the investment the LeMeridien needs, Burghardt said he will simply go to more traditional sources of capital to fill the hole in the project’s financing plan.
Most recently, Burghardt and his partners in the project planned to open the hotel by January 2016. However, that schedule may slip some because of the financing hiccup.
Although the region would benefit from having LeMeridien’s rooms in place when the Republic National Convention lands in town later that year, Burghardt said getting the boost from the convention is not an essential part of its game plan.
“You never base a project on a single event like that,” said Burghardt, who has 30 years of experience in hotel development consulting. “It’s in town a week. Then it’s gone.”
Instead, Burghardt said, “We’re going forward because of what has already happened in Cleveland with the medical market, casino and aquarium.
“Our analysis shows the market is short of hotel rooms.” ?