Controlling Real Estate Risk in a Turbulent Market

By Gray Gilchrist, wealthforge, CrowdFundBeat Guest post,

The third quarter of 2015 has been a wild ride for investors. The Dow lost 6.6% in August 2015, the largest percentage decline since May 2010. There are many lingering fears in the minds of investors: a slowdown in China, the Federal Reserve raising interest rates, the Greece crisis, the future of oil – just to name just a few. Many of the risks in equity markets are bleeding into the commercial real estate market. Real estate issuers and investors need to take every step possible to mitigate risk during this turbulent time. One way to control risk in a real estate investment is to use a broker dealer to ensure regulatory compliance of the offering.


Commercial real estate can be a risky business. Investors, issuers, developers, bankers, and everyone else involved in the industry face risk on a daily basis. Typical risks that all commercial real estate professionals need to manage include tenant relationships, development risks, project financing, and even general business issues. While these risks are more common, there are additional risks that need to be considered and addressed when raising private capital for commercial real estate. These include the ability to find investors, manage ongoing investor relationships and, most importantly, address all of the regulatory issues associated with raising private capital. Not everyone appreciates that any time you raise private capital, it is considered a securities transaction. All of the federal and state securities laws and regulations must be followed, regardless of the amount of money that you are raising.

As a result of the financial crisis, the JOBS Act was enacted to help make the process of raising capital a bit easier. But, along with the ease in restrictions on general solicitation came even more rules and regulations. The JOBS Act has opened up new opportunities to market and invest in real estate. These new ways to invest have been beneficial to the industry, but they also brought new compliance standards along with them. Issuing a security seems like a daunting and risky task since one must adhere to SEC and FINRA regulations. However, regulatory and compliance risk surrounding a real estate offering can be mitigated – and it might be one of the few risks in a real estate transaction that can be managed through outsourcing.

Anyone issuing or selling a security can work with a registered broker dealer, which can in turn act as the issuer of the security. Broker dealers can play many roles in the security transaction, but for the most part they can handle the back office processing and assume the regulatory responsibility for the offering. For example, there are companies such as WealthForge, who are registered broker dealers and solely focus on transaction management. WealthForge acts not only as the outsourced back office broker dealer, but also as the risk manager and regulatory partner to help reduce and manage potential liability.

Using a broker dealer to manage the transaction has many benefits other than just assuming the regulatory liability of the deal. First, there is an increased level of confidence that investors will have in the issuer knowing there is a trusted third-party intermediary handling the transaction.

Second, issuers can focus their time and effort interacting with investors to raise more capital and outsource the compliance and regulatory efforts to a trusted partner. This can greatly reduce the total amount of time to complete the transaction. For example, the average amount of time to complete a successful private capital transaction is under 30 days for real estate on the WealthForge platform.

Last, it’s typically cheaper to use an outsourced partner. You can take advantage of a turn key platform that’s available when you need it and doesn’t require you to hire more people, invest in more technology and build out new business processes. Through increased efficiencies, time savings, and a lower cost of capital, issuers can save money by outsourcing the back office involved with raising private capital.

Using a registered broker dealer to reduce regulatory risk in a real estate transaction is an easy way to mitigate overall risk from a real estate deal. You can also increase investor confidence in the offering while taking advantage of outsourcing to decrease the time and costs to complete the capital raise. The benefits of using a broker dealer far outweigh any downside. And, in turbulent markets, investors and issuers need to take every step possible to mitigate risk and increase returns.


Gray Gilchrist
Gray brings experience from a leading international commercial real estate firm to WealthForge where he focuses on helping make raising private capital simple for issuers, broker-dealers, and other intermediaries. With first hand experience in commercial real estate, he brings specific expertise to help make the process of raising private capital faster and easier for firms in the real estate industry.



This article was first publish at


Tags: , , , , , , , , , , ,


Mountain XpressFaces in the crowd: WNC crowdfunding initativesMountain XpressON THE SPOT: The scenes in Luke & Jo will be shot chronologically, which will allow for more improvisation in the dialogue, according to the feature film's crowdfunding page. Andie Morgenlander and E [...]

AZCentral.comTiny companies lure investors under Arizona crowdfunding lawAZCentral.comInvestors who make bets under the state's one-year-old crowdfunding law certainly have the potential to get in on the ground floor, but they must be patient and might not receive any returns. Th [...]

BloombergCouples Desperate For Children Turn to Crowdfunding FertilityBloombergCrowdfunding has become a popular mechanism for many couples who can't afford the high costs of IVF, or adoption and surrogacy. “It's not an easy thing to share publicly,” says Crystal Barrett, 33 [...]

MarketWatchWhy a crowdfunding site is giving out $10000 scholarshipsMarketWatchCrowdfunding site GoFundMe announced Thursday that it will award $10,000 to 10 students with pages on their site that fundraise for education. The award is part of a contest the site held throughout Septemb [...]

Huffington PostReal Estate Crowdfunding's Pathway of ChangeHuffington Post“Crowdfunding is just the Internet,” stated Attorney Mark Roderick as he opened last month's RealCap Chicago. RealCap is an annual conference that joins crowdfunding leaders and innovators to propel th [...]

BBC NewsNHS trust 'relies' on crowdfunding to equip wardBBC NewsAn NHS trust has launched a crowdfunding appeal to buy equipment for a new hospital unit because "it cannot get started without donations". The Royal National Orthopaedic Hospital (RNOH) in Stanmore, n [...]

MottoIVF: More Couples Crowdfunding to Pay for Procedure - MottoMottoMore and more couples are turning to crowdfunding to fund costly in vitro fertilization (IVF) treatments, Bloomberg reports.More Couples Who Can't Afford IVF Are Turning To Crowdfunding For HelpRomperCouples des [...]

EntrepreneurIs Crowdfunding Right for You? Answer These 7 Questions to Find Out.EntrepreneurCrowdfunding is a popular and increasingly accessible way to put your prospective product or business in front of millions of people. And, thanks to the visibility of massive success stories, t [...]

Boing BoingCrowdfunding a bike-lock that squirts vomit-inducing antipersonnel gas when cutBoing BoingThe Skunklock is a $109 crowdfunded gadget that contains pressurized vomit-inducing gas the creators call "Formula D_1," and which is intended to induce immediate vomiting wh [...]

WestwordProgressive-Rock Band Marillion Pioneered CrowdfundingWestwordThat was the beginning of crowdfunding for us — and for every band, really.” When it came time for the recording and release of the followup to the 1999 record, Kelly and the band realized that one of [...]

CFB Finance

Press Release

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |