Crowdfunding (alternately, crowd financing, equity crowdfunding, crowd-sourced fundraising) is the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations. Crowdfunding is used in support of a wide variety of activities, including disaster relief, citizen journalism, support of artists by fans, political campaigns, startup company funding, motion picture promotion, free software development, inventions development, scientific research, and civic projects.
Crowdfunding can also refer to the funding of a company, property or asset by selling small amounts of equity to many investors. This form of crowdfunding has recently received attention from policymakers in the United States with direct mention in the JOBS Act; legislation that allows for a wider pool of small investors with fewer restrictions. While the JOBS Act awaits implementation, hybrid models, such as those of some organizations, are using existing securities laws to enable the public in approved states to invest directly in clean energy projects as part of a crowd.
Crowdfunding has its origins in the concept of crowdsourcing, which is the broader concept of an individual reaching a goal by receiving and leveraging small contributions from many parties. Crowdfunding for real estate is the application of this concept to the collection of funds through small contributions from many parties in order to finance a particular real estate project or venture.
Crowdfunding models for commercial real estate projects are newer and evolving. However, most models for real estate projects have one central theme and common participants. They include the people or organizations that propose the ideas and/or projects to be funded, called the INVESTMENT SPONSORS OR DEVELOPERS. And, the crowd of people who support the proposals. called the INVESTORS.Crowdfunding is then supported by an organization, such as EXCEEDANT, theONLINE SYSTEM OR PLATFORM, which brings together the project sponsor or initiator – and the crowd.
This is an idea that is very exciting for both seasoned and novice real estate investors. In my experience over many years in the commercial real estate industry working with clients and partners, including lenders, in projects comprised of a total of millions of square feet and a wide variety of property types, I have worked on various sites in all phases of funding including:
High profile sites comprised of shopping centers or strip malls, office or industrial business parks or mixed-use sites, where solutions like lease restructuring and other financial-only methods work to add value and turnaround real estate investments for greater equity to investors to attract funding with better terms or conditions. Other properties requiring funding include investment and lease-up sites which are primed with minor work effort or capital outlay through adaptive reuse with or without existing structures, rezoning, entitlements and more. More capital intensive and challenging sites include properties requiring demolition, site preparation, and other work for new build-to-suit development. Sites including major brownfield properties (former power plants, chemical manufacturing sites, etc.) are the most challenging for funding.
Easier funding outlays by lenders can be obtained for existing income producing properties, (e.g. multifamily residential, retail shopping malls and strip centers, office buildings or business parks, senior or student housing, medical care centers, such as in-patient surgery facilities, urgent care centers, industrial properties such as leased distribution and warehoused facilities.) “Green” sites or land on high traffic, signaled corridors with existing Retail 100/200 in urban and suburban regions with higher population and job growth, many new residential construction developments, and so on are also generally easier sites to obtain capital for.
Many of the property types above require innovative financing solutions or what I refer to as layered funding and out-of-the-box thinking in order to
turn a dream into a reality. Online crowdfunding platforms can serve as a solid solution for the future of real estate investing and redevelopment.
How does a crowdfunding online platform, like the Exceedant Commercial Real Estate Crowdfunding(sm) (CREC) System work?
Exceedant has developed an online commercial real estate (CRE) investment platform that uses the internet to pool investors into funds that hold an interest in a pre-identified private CRE investment property or asset. It is very important to divide property types by sector: retail, medical, office, industrial, multifamily and other asset types. Accredited investor members have online access to select the real estate sector investment opportunities which they are most interested in, securely and safely view such information, reports, updates and other materials on these myriad of property types which are available for investment opportunities or share participation. Monetary investment amounts (e.g. minimum levels depend on the project and other factors,) in exchange for a share of a property through a secure crowdfunding platform Fund, may be made.
CROWDFUNDING: AN ONLINE PLATFORM FOR COMMERCIAL PROPERTY OWNERS, CALLED INVESTMENT SPONSORS AND DEVELOPERS, TO RAISE CAPITAL OR FINANCING IN AN EASIER, FASTER PROCESS UTILIZING THE POWER OF THE INTERNET
Why can it be helpful for you to raise money for your CRE investments and development projects through a crowdfunding platform?
It can be much easier to raise capital through a crowdfunding platform, such as the Exceedant CREC System. In contrast to the time generally required to secure funding through most banks and lenders, the submission of your investment or development project, analysis, approval or denial, listing and funding can be completed in a fraction of the time. In addition, a crowdfunding platform helps you obtain an intelligent funding source since all investors are accredited or pre-screened. Furthermore, the crowdfunding platform manages all investor relationships for you, and pools all accredited investors into a single LLC entity, allowing you to concentrate on your commercial real estate project. You leave the investor management and 24/7 communications, reporting, updates, education, and more to the crowdfunding platform’s experienced team supervised by attorneys, accounting and financial professionals, as well as supporting staff.
What kind of commercial real estate investments is a crowdfunding platform, such as Exceedant, less willing or not currently considering for posting to investors?
Since, for example, Exceedant’s goal is to offer investors passive, re-occuring income on a monthly or quarterly basis, Exceedant currently, generally refrains from funding construction projects or ground up development projects. However, that said, there are special circumstances, such as for commercial real estate projects involving geographic regions and growing populated areas where medical, healthcare, student housing, senior housing, multifamily apartments, or retail shopping is lacking in supply, high in demand, but are currently underserved. Some crowdfunding platforms, such as Exceedant, will consider funding and capital raising for these projects for specific circumstances. It is up to the Investment Sponsor or Developer to prove the facts, and show concrete, verifiable evidence of the above circumstances. It is important to note that, with Exceedant, these types of CRE projects are presented to Accredited Investors who have stated in their applications that they are willing to take a higher risk level in their investments, in exchange for a prospective higher level of return and/or faster equity and value investment growth potential.
How do investors earn returns?
When an investor funds a debt investment opportunity (usually in the first position and secured by a commercial real estate asset or property) the fund invested in will receive monthly interest payments. A share of these payments will be deposited directly into a bank account of the investor’s choice in accordance with the terms of the operating agreement for the fund. If funding is made in an equity investment opportunity (such as a commercial property or portfolio of properties,) the fund invested in will receive periodic payments of cash flow from rents and/or a share of the proceeds when/if a property or portfolio is sold. Similar to debt instruments, a share of those payments will be deposited directly into the investor’s selected bank account in accordance with the terms of the operating agreement for the fund. Both Investment Sponsors and Investors must carefully review the operating agreement for the specific investment opportunity which is being considered and offered to investors for further information.
What is the cost to raise capital through a crowdfunding platform such as, Exceedant?
Commercial real estate owners and developers that raise capital through our system are required to reimburse Exceedant for its out of pocket expenses related to establishing and managing the fund that invests in your project. These costs generally include legal, accounting, compliance, as well as a marketing package, (e.g. Investment Sponsor or Developer Corporate Profile, Investment Profile, supporting video and/or audio material, and other selected tools) and related costs which help generate investor interest for your specific commercial real estate investment or development project. The exact amount of the reimbursement will depend on the specific investment opportunity and can be better determined by our team after receipt of your application online. For example, we recommend marketing selections for your Investment Sponsor or Developer Profile Marketing Package through our easy, online Order Form. These tools can showcase investment experience, credentials, credibility, past projects, successful turnarounds, rebranding, or leasing results, and more to help build and generate a stronger response by investors for your project.
How do you list your commercial real estate investment opportunity on a crowdfunding platform, such as Exceedant?
Typically, you would fill out and submit the online application on the specific page of this website, Upon receipt of your application, a team will review the same, and respond to you within a specified number of business days to let you know whether it is accepted. If accepted, the crowdfunding platform will request additional information and materials on your investment project in order to ascertain whether it is a good match for the platform’s Accredited Investor members.
If you are not an Accredited Investor, can you raise money through a crowdfunding platform, such as Exceedant?
Yes. There is no requirement in order to raise capital that Commercial Real Estate Investment Sponsors, their principals or agents be Accredited Investors as defined by the SEC, Rule 501 of Regulation D.
How long will it take to raise capital?
Each commercial real estate investment opportunity, like real estate or land itself, is unique and the time period it takes to secure capital through online crowdfunding platforms such as the Exceedant CREC System, can vary widely depending on various factors, including general investor preferences for certain property types, industries, and geographic regions as well as current trends, media and news. In addition, please note most online crowdfunding platforms, like Exceedant, cannot guarantee that capital or sufficient capital will be secured for your commercial real estate investment or project. Time periods for raising funds can range from approximately 7 business days to a few months or more, depending on the investment opportunity factors above as well as other uncontrollable events.
Will your application and supporting information regarding your investment or project be confidential on a crowdfunding platform, such as Exceedant?
All application materials and information are confidential and private, reviewed only by Exceedant’s internal team, prior to your obtaining written approval by an authorized Exceedant representative, and completion of your Investment Sponsor/Developer Profile, Investment Opportunity Profile and opportunity listing(s) with supporting materials online. However, once posted online, our crowdfunding platform, for example, Exceedant, will share your pre-approved information about your investment opportunity with our registered Accredited Investors in order to allow these individuals to review the same for capital investment consideration to your potential benefit.
CROWDFUNDING: AN ONLINE PLATFORM FOR INVESTORS TO FUND REAL ESTATE OPPORTUNITIES AND PARTICIPATE IN INVESTMENTS RESERVED FOR LARGE INSTITUTIONS IN THE PAST, AS WELL AS TO OBTAIN PASSIVE REOCCURING INCOME
Why can it be beneficial for you to use crowdfunding as a method to invest in commercial real estate (CRE)?
Crowdfunding permits you to passively invest in professionally managed CRE investments with seasoned, experienced owners and developers, often for as little as $10,000, $15,000 or $25,000, (each crowdfunding platform and/or investment property opportunity has different minimum funding requirements depending upon the project and other factors,) with ease and convenience online. As an Accredited Investor member, you have access to prescreened properties in a wide variety of real estate sectors, property types (retail, office, industrial, multifamily, etc.) and geographic regions. In the past, participation in these types of CRE investments were generally limited to large institutions only. Now, with crowdfunding, you can invest in CRE opportunities like never before. For example, the Exceedant Investor Support Center or Portal allows you to securely monitor your investments, cash distributions, as well as receive 24/7 communications, reports, updates, education and more.
What type of commercial real estate investments does, for example, a crowdfunding system, like Exceedant offer?
Through the Exceedant Commercial Real Estate Crowdfunding (CREC) System, accredited investors can participate in a wide variety of commercial real estate (CRE) investment sectors or classes, including: retail, office, medical, industrial, multi-family residential, and mixed-use as well as outdoor media, cell towers, and other assets. These sector opportunities are limited to current availability. Accredited investors can also participate in both debt investments in the form of first-position loans secured by commercial properties and other asset types generally yielding a fixed interest rate annually (see individual opportunities for more rate information) as well as equity investments in commercial properties offering varying cash flows during hold periods and a portion of profits in the event of a sale of the property or asset type.
How do crowdfunding online platforms, such as Exceedant, ensure compliance with applicable laws and regulations?
Exceedant has an experienced team comprised of counsel, commercial real estate and financial advisors as well as other professionals who possess over 50 years experience in compliance with applicable laws, regulations and statutes as well as policies, including Federal Securities Laws.
More importantly, Exceedant’s commercial real estate (CRE) investment, property and related asset offerings are considered private placements which are exempt from registration pursuant to the Securities Act of 1933 Section (4) (a) (2) and Rule 506(b) of Regulation D.
However, as a precautionary measure and in keeping with Federal Securities Laws, all Exceedant offerings presented through this platform are currently limited to only Accredited Investors.
What is an Accredited Investor?
The Securities and Exchange Commission (SEC) defines “Accredited Investor” under Rule 501 of Regulation D to include a natural person with (1) a net worth or joint net worth with the person’s spouse exceeding $1 million, not including the value of the primary residence, and/or (2) annual income of $200,000 in each of the two most recent years, or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income in the current year.
Does Exceedant verify that investors are accredited?
Yes. Since Exceedant’s investor community is currently limited to only Accredited Investors, during the application process, each applicant investor must provide specific required information which is used by our assessment team to perform further research, analyze and create a report on whether the applicant is an Accredited Investor. For example, each applicant investor must indicate which criteria he/she satisfies.
What is the JOBS Act and how does it effect crowdfunding platforms, such as Exceedant?
Exceedant is not currently operating under either Title II or Title III of the JOBS Act. All commercial real estate investment offerings made available through Exceedant are done pursuant to existing Regulation D, Rule 506(b) and available only to Accredited Investors behind a secure system. Here is a brief overview of the JOBS Act for those of you who would like to know more about the Act.
President Obama signed the JOBS Act into law in April of 2012. Title II of the JOBS Act become effective on September 23, 2013 and Title III is currently under an SEC review or rulemaking period. Title III is referred to as the “Crowdfunding Exemption” and is designed to allow all investors, both accredited and non-accredited, to participate in private investments similar to the offerings on Exceedant. Exceedant must rely on existing exemptions under Regulation D, Rule 506 which limit our offerings to Accredited Investors only, until the final rules are released. The SEC currently appears to be making progress in its determination: Title II of the JOBS Act, which removes the ban on general solicitation for securities offered under Regulation D, Rule 6, went into effect on September 23, 2013. This means that Private Companies or Commercial Real Estate Owners, Developers and Investment Firms can now advertise their investment opportunities subject to a requirement that they form a reasonable belief that all investors are accredited.
What are my experiences which indicate a need for crowdfunding in order to finance many challenged, but undervalued properties, but where value appreciation can be created?
Years ago, I co-authored a column titled “Business Talk” for the USA national magazine Environmental Protection. Potential sites requiring teams including sustainability and insurance risk management professionals were brought to my attention continually by hundreds of readers. These sites usually lacked in environmental contamination clean up, revitalization and redevelopment funding solutions. Many of these sites still languish in major cities and urban or suburban areas where surrounding properties have increasing values. Today, many people through LinkedIn and other sources bring property and business purchase opportunities for sale, purchase and lease to my attention at Exceedant. Businesses for sale are often masked with real estate challenges, where if the real estate problems are solved through various turnaround and restructuring methods, the businesses can be repositioned, from red to black. Based on our current in-house or client/partner property and/or business-with-real-estate-included decision making criteria, I, together with colleagues, say “yes” or “no”. After years of boot camp in the industry, I find that the most important decision is our ability to weed out the unwanted, so-called opportunities, and just say “no”. However, many properties or other assets get a “yes” or thumbs up, and the adventure begins.
When the right property, in a targeted or “potentially hot” geographic region with value enhancement potential and equity appreciation likelihood which is higher than the average rate for that area, holds a higher probability for success through our systems developed and mastered over many years, it is fairly easy for us to see the vision and end-goal, and to convey that vision effectively to partners and lenders, thus obtain attractive funding solutions.
A Specific Example of the Urgent Need for Funding at Some Challenged, But Promising Properties
The implementation of crowdfunding for real estate redevelopment, especially challenged sites, is an idea I have supported for a long time, which may now be able to bear fruit to serve urgent needs in communities. Years ago, for a very challenged, but high profile brownfield site project in a major U.S. City, (I refrain from naming the City, in order to protect those parties involved,) I assembled a super team of ten top CEOs, including equity partners and lenders, from highly respected local companies to attend rezoning hearings before a panel and meetings with the community regarding a very controversial, massive former power plant laden with asbestos and lead, potentially harming the soil and water in the surrounding neighborhood with families. After discussing how urgent it was to clean up and redevelop the site, as well as put local men and woman laborers to work in order to care for their families, I obtained a letter of endorsement from the major city labor union organization in the City. Our teams successfully obtained over 2 million square feet of community signed petition letters submitted to the court in support of our team’s rezoning and redevelopment plan as well as legal, environmental, engineering, architectural designs, reports, and other materials comprised of over 2,000 pages of evidence.
Crowdfunding may become a tool increasingly used to fill the financial feasibility gap in both high profile, elite sites as well as challenged properties and assets around the world. And, a way for communities and people to take control of their environments to protect their own health, safety and welfare.
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The author Susan Airst JD is a co-founder and managing principal at Exceedant. You can reach Susan through the Contact Form at www.exceedant.com, LinkedIn invitation, or by using the methods below.
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