By David Drake, Crowdfunding Beat Guest Editor,
The true power of the crowd lies in its ability to find its place in the market and to make investment decisions itself. Nowhere is this more true than in the real estate crowdfunding space. Despite the present limitations required in the JOBS Act that only accredited investors can play the equity crowdfunding game, the power of the crowd is already being unlocked and is now awaiting for a full blast once non-accredited investors enter the game.
One can sense the potential impact of the crowd in these words from Bruce Lipnick, Founder and CEO of Crowd Alliance, an equity crowdfunding platform going into real estate crowdfunding:
In 2013, there were 8.6 million accredited investors, including angels that invested a total of $24.8 billion. In 2012, a mere 4 percent of that number, 265,000 business angels, invested $22.5 billion. I see this freedom to advertise private offerings under the Reg D 506c Act, passed 23 September 2013, as the future of opportunities.
With that as a backdrop, these projects made history for each of the real estate crowdfunding platform featured because each project stood as witness of what the crowd can do. Here’s a rundown of the five real estate projects which made history in their communities:
Described as the “the oldest black bookstore in the nation,” Marcus Books faced the threat of eviction in San Francisco when new owners decided to use the property on which it was located for other purposes. It received a great deal of support in raising the acquisition cost of $2.6 million from Westside Community Service, a non-profit group (which offered a loan of about one third), and the San Francisco Community Land Trust launched a campaign to raise the remainder. Fundrise, a real-estate crowdfunding platform, encouraged accredited investors to help in the effort. Despite these efforts, the eviction was completed on May 6, 2014 but not before crowdfunding had demonstrated its social values and commitment.
Hard Rock Hotel Palm Springs
The owners of the property announced in July 2014 that they had sold a 15 percent stake for $1.5 million to 85 investors in a crowdfunding exercise. The exercise was overseen by crowdfunding platform Realty Mogul based in Beverly Hills on behalf of the owners Kittridge Hotels & Resorts. This is the first of its kind as a fundraising exercise because it involves an existing hotel rather than a new property development. Investors were offered additional perks such as faster bookings, discounts on room rates, and free use of a poolside cabana. The owners were looking to raise money within four weeks and the minimum investment required from investors was $10,000.
Anderson School project
McMenamins Inc, which operates 52 hotels, pubs and other entertainment venues, has closed its first-time funding round from outside investors for its largest project so far, transforming an old school in downtown Bothell into a hotel complex. It has raised $6.3 million from 23 investors in the North West who contributed an average of around $274,000 each. This clears the way for construction to start on the $25.3 million project on the school which has long been lying vacant and the rest of the funding will come with a combination of debt and equity. This is believed to be one of the largest crowdfunding exercises in the North West to be completed without the involvement of a third party investment specialist.
Phoenix Mixed-Use 7th Gate Center
This is a 43,426 square-foot project which closed for just over $5 million. Crowdfunding platform RealtyShares Inc. helped Cole Valley Partners in raising equity for the transaction. This is believed to be the largest crowdfunding transaction in the commercial real estate space in downtown Phoenix so far. This represented an opportunity to participate in an attractive asset available at a discount to the replacement value in an area where availability and supply is restricted.
Hamptons Luxury Waterfront Residence
Crowdfunding platform Fundrise has announced that it has achieved its target to raise $1 million in crowdfunding for this upmarket waterfront project in Hamptons. Sixty-four (64) accredited investors participated in the transaction, and they are expecting a gross annual return of 10.5 percent when the property which is close to completion is sold. The project is being undertaken by Chatham Development Company, the largest developer on Long Island, which has more than 30 years of experience and has completed more than 1,500 luxury residences. This project made history in that it showed that the crowd can access luxury properties not just residential or commercial properties in order to have greater returns.
David is the founder and chairman of Victoria Global, a corporate communications firm, LDJ Capital, a family office advisory firm, and The Soho Loft Media Group, a global financial media company. You can contact him at email@example.com