The EarlyFive: ‘Mini-IPO’ Crowdfunding is Coming Soon

Last week marked a turning point for the private investing industry as the SEC released final rules for Regulation A+ (aka Title IV of the JOBS Act). The game-changing rules will provide a new path for companies to crowdfund up to $50 million from unaccredited investors through a ‘mini-IPO.’

We’re thrilled to see the Commission take this major step toward making the private market more efficient, accessible, and transparent. Read more on the new rules – and check out our contributions to Entrepreneur.com and a new industry report – in the EarlyFive below.

ent-twitterMarch 25, 2015
What Entrepreneurs Can Learn From Real Estate Developers
Joanna Schwartz, Entrepreneur.com

I’m especially excited about my latest guest post for Entrepreneur because it merges my two favorite industries: tech and commercial real estate. Find out the four key lessons today’s tech innovators should take away from the CRE market.

penscoMarch 25, 2015
2015 PENSCO Crowdfunding Report
PENSCO Insights

In this 40-page whitepaper, the PENSCO Trust Company reports on key trends driving the popularity of private investment crowdfunding. An insightful original article by our Co-Founder & CSO Heather Schwarz-Lopes, entitled “The Future of Private Investing is Now,” is featured in the report (beginning on page 17).

venturebeatMarch 25, 2015
With the new Reg A+, what type of crowd fundraising is right for you?
Sherwood Neiss, VentureBeat

Crowdfunding advocate and EarlyShares Advisor Neiss details the impact of the new Reg A+ rules, explaining how they fix problems that have long plagued existing regulations and open a door to “bring the private capital markets online.”

the-real-dealMarch 24, 2015
Interest rates rising? Better refinance now, developers say

Francisco Alvarado, The Real Deal

The first three months of 2015 have seen a flurry of refinancing deals in our region. According to real estate experts, the refis are a sign that developers and property owners are locking in favorable rates while the Fed is still holding the line low.

inmanMarch 26, 2015
March Madness: The Sweet 16 of real estate brackets
Daren Blomquist, Inman

College towns are some of the best real estate markets to buy or invest in, given the steady stream of jobs and renters. Starting with the existing NCAA Sweet 16, the author used real estate data to complete the March Madness bracket and crown the “Best College Town Investment.” The champ: Gonzaga.

Crowdfunding & Real Estate: The Next Generation of Syndication

next-gen-synOnline private investment “crowdfunding” is a major advancement for the technology-averse commercial real estate industry and is proving to be a popular investment vehicle for real estate investors.

  • Over $1 billion of capital was in fused into the real estate space through various crowdfunding platforms in 2014.(1)
  • During the period of 2013-2014, real estate crowdfunding grew 156%.(1)
  • In the first 15 months of the 506(c) General Solicitation exemption, real estate outpaced almost all other sectors in capital commitments. Real estate development has recorded capital commitments 284% greater than the tenth place industry – venture capital.(2)
  • Crowdfunding is estimated to finance $2.57 billion of real estate in 2015 – a 2.5x increase from 2014.(1)

Like any innovation, however, real estate crowdfunding early resistance from some long-term stakeholders in the market. What some of the more resistant operators, developers, and/or investors and in the real estate industry fail to realize, however, is that crowdfunding isn’t a complete “revolution” of the capital raising landscape – it’s an evolution of existing processes. That’s in part why crowdfunding is such a natural fit for the regulatory opportunity presented by 506(c).

Syndication: Smart CRE Financing

In the sub-$20 million property market, sponsors have long divvied up equity in their projects to groups of high-net worth investors through private placement (“Reg D”) offerings. This private syndication process pre-dates “crowdfunding” by decades, and was growing in popularity even in advance of the passage of the JOBS Act in 2012:(3)

  • From 2009-2012, aggregate capital raised for real estate private placements accounted for $63 billion, excluding capital raised under private equity and hedge fund indicators.
  • 5,617 separate Reg D offerings for real estate were conducted over the four-year period from 2009-2012. In 1,900 Reg D offerings for real estate took place in 2012.
  • In 2012 alone, over 47,000 investors participated in syndicated real estate deals.
  • The average offering size for a Reg D real estate offering over the period form 2009-2012 was $15 million.

Private syndication has proven itself to be a smart way for sponsors to fill the capital stack while reducing their exposure to risk and lessening their reliance on institutional funding. Yet the traditional limitations of private placements under Regulation D allowed sponsors to only raise capital from members of their existing network. 506(c) crowdfunding enables operators to utilize technology to access a broader pool of captive investors, ultimately shortening the transaction timeline.

  • As of December 31, 2014, there had been 140 506(c) capital raises for real estate development or investment.
    • 66 successful raises for about a 47% success(2)
  • Total 506(c) capital commitments of $54,570,698 to real estate development or investment in 2014.(2)

Crowd Investors Like Real Estate

Alternative investments are on the rise as more investors gravitate to assets that are not correlated to the stock market. McKinsey & Company estimates that alternatives will account for over 26% of institutional portfolios by the end of 2016.(1) Due to the resurgent market and return opportunities, investors are showing greater interest in real estate than other alternatives.

  • The level of commercial real estate investment in the fourth quarter of 2014 was the highest ever recorded by CBRE.(4)
  • Total returns for institutional-quality direct real estate investments, as measured by the NCREIF Property Index, stood at 0% in 2013 and was estimated for 11.0% in 2014.(5)
  • Investment in real estate in the Americas rose 12% to $410 billion in 2014. 26.5% of property trending is in the multifamily residential market.(6)
  • Real estate is expected to approach 10% of larger investment portfolios by the end of 2016.(1)

Crowdfunding (or “crowdfinance”) provides investors with a new means to access real estate opportunities. As Crowdnetic puts it (3):

Real Estate Development [is] an Industry to which investors continue to flock in crowdfinance, and their enthusiasm for deals in this industry is evidenced by the speed at which some of these deals reach their target, with some raises concluding in a matter of days.

Unlike other industries, such as e-commerce in which there are ample investment opportunities yet not as much capital on an absolute or average-per-successful basis, a physical asset backs real estate securities. Furthermore, the average investor generally understands property, buildings and the other assets that fall under real estate; therefore, investors committing capital to this space can understand what they are purchasing through these securities, as well as what some of the basic risks are. When investing in something less tangible, such as a technology company, the returns may be greater were one to discover the next Facebook, but generally so are the risks, which is one reason why real estate may enjoy such success, relative to other industries.

(1) Massolution Crowdfunding for Real Estate report March 2015
(2) Crowdnetic’s Quarterly Private Companies Publicly Raising Data Analysis for the Period Ending December 31, 2014
(3) Bauguess, Scott and Ivanov, Vladimir; “Capital Raising in the U.S.: An Analysis of Unregistered Offerings Using the Regulation D Exemption, 2009- 2012”; July 2013.
(4) CBRE Sponsored Report featured on Newsweek.com March 2015
(5) ULI/EY Real Estate Consensus Forecast from October 2014
(6) Cushman & Wakefield International Investment Atlas 2015

The EarlyFive: Springing Forward

Welcome to Spring! The change in seasons has us thinking about the quarter ahead. What’s your main goal for Q2?

At EarlyShares, our top objective is always to bring you quality investment opportunities from respected, top-notch developers and sponsors. We can’t wait to launch the next round of deals in our pipeline. Stay tuned!

A few quick updates:

  • The Med Inn investment offering has reached its funding goal! Congratulations to the sponsor Omega Grid Development Corp.
  • An investor webinar for the Carpathian Capital Fund II will take place Tuesday, March 24 at 2:00 pm ET. Register now.
  • A new post on our blog provides an introductory look at how ‘Real Estate Investing is Being Reinvented’ on EarlyShares. If you’re new to real estate investing, check it out!

the-real-dealMarch 18, 2015
Proposed Hotel Near Jackson Memorial Hospital Uses Crowdfunding
Francisco Alvarado, The Real Deal
Our Med Inn deal received some great coverage this week that highlights the unique advantages of online capital raising for real estate. Find out why the developers felt crowdfunding was the perfect fit for their project.

Law360March 17, 2015
Securities Attorneys Wary Of Crowdfunding Risk Losing Clients
Carolina Balado, Law360
The regulatory exemption for online ‘General Solicitation’ capital raising is relatively new, so many securities attorneys are still uncomfortable with the rules. But as our Co-Founder & CSO Heather Schwarz-Lopes helps explain, counsel who resist the fundraising vehicle may see clients jump ship for more forward-thinking firms.

singularityhubMarch 17, 2015
Disrupting Real Estate
Peter Diamandis, SingularityHub
We know – another week, another story on how tech is poised to change real estate forever! But this one is particularly poignant because it comes from no less than Peter Diamandis – an internationally known innovator and author of the new book Bold. Take a peek into his vision of the future of residential real estate.

crowdfundinsiderMarch 19, 2015
Florida Takes Another Go at Legalizing Crowdfunding
JD Alois, Crowdfund Insider
Our home state failed at legalizing intrastate investment crowdfunding (a tool that would enable non-accredited individuals to invest) last year, but a new legislative push is underway. We’ll be watching how the proposal fares!

cincinnatiMarch 19, 2015
March Madness Investing Lessons
Nathan Bachrach & Ed Finkem, Cincinnati.com
Sporting events have always been terrific analogies for investing challenges, and perhaps none are more apt than college basketball in March. Enjoy these pearls of ‘championship’ wisdom.

How Real Estate Investing is Being Reinvented

CREAccording to a recent Gallup poll, Americans today consider real estate their best long-term investment option – with 30 percent selecting it over stocks and mutual funds, gold, savings accounts and CDs, or bonds. The wealthy think even more highly of real estate, with 38 percent of high-income respondents picking as the best investment.

Investor interest in real estate has been growing steadily since 2011, and for good reason: the U.S. real estate market is improving. We’ve seen it for a while in our Miami hometown – where home prices are rising, new development activity is booming, and only three percent of condos are unoccupied. The rest of the country is heating up too, especially for commercial and multi-family real estate.

So if you’re interested in passive real estate investing, how do you make it a reality? How do you find deals that appeal to you? How do you conduct the necessary research and due diligence on each opportunity? How do you fund a deal and stay informed on the property or project?

Traditionally, your options for answering all of those questions have been limited. Real estate investing has typically come in one of two forms – the “Country Club” model and the Real Estate Investment Trust (REIT) approach – that are inherently restrictive.

  • The “Country Club” Model: Rely on your network for referrals.
    It means… if you’re looking to learn about new investment opportunities, you better be well connected. You’re also likely to only find out about investment offerings for projects in your region
  • The REIT Approach: Buy shares of a pool of properties.
    It means… you’re not in the driver’s seat. Since an REIT’s board members or trustees decide what properties the trust buys, sells, or finances, individual investors have no control over which projects they invest in.

Like other types of investing, these models will work well for some investors and less well for others. Accredited investors with experience and knowledge about real estate are limited by both of these approaches, since they lack the access to seek out new opportunities and compare them against each other.

Yet now, thanks to Title II of the JOBS Act, the two traditional routes aren’t investors’ only options.

Accredited “equity” crowdfunding is disintermediating the real estate investment landscape by giving investors direct access to opportunities. Under new regulations, accredited investors can find and fund real estate deals that match their preferences and interests by browsing and comparing open offerings on platforms like EarlyShares.

In fact, EarlyShares is an all-in-one source for quality real estate opportunities. The EarlyShares executive team has a strong track record of success in the real estate industry and only works with experienced project sponsors and partners. We employ a rigorous selection methodology and are highly selective of the opportunities posted to our platform – helping ensure investors have access to cash-flow generating properties and projects.

Once an offering makes it to our site, we provide investors with all of the tools and resources they need to evaluate the investment opportunity, conduct their due diligence, ask questions of the sponsor or developer, and complete their investment transactions. We make it simple, with a seamless four-step investing process built in to our state-of-the-art platform.

It’s real estate investing, reinvented… and it’s your way to capitalize on the rebounding U.S. real estate market.

Want to learn more? Sign up as an investor, check out our live offerings, or email [email protected].

Developers, Syndicates & Sponsors: Have an exciting property or project and a record of real estate industry success? Email [email protected] to apply to host an equity or debt investment offering for your deal.

The EarlyFive: Share your investor preferences

Before you dive into our EarlyFive roundup of great stories around the web, visit your EarlyShares dashboard to check out our latest feature. In the new Investor Profile, registered investors can share their preferences to help us customize their experience on our platform. Click here to start or to complete your registration.

A few quick EarlyShares updates:

ent-twitterMarch 3, 2015
Real Estate Crowdfunding Set to Top $2.5 Billion This Year
Catherine Clifford, Entrepreneur
Our industry isn’t just taking off – it’s skyrocketing! Real estate crowdfunding was a $1 billion industry in 2014 and is expected to grow to more than $2.5 billion in 2015, according to a new report from Massolution.

bloomberg-bizMarch 5, 2015
Warren Buffett: ‘I Consider Myself a Journalist’
Noah Buhayar, Bloomberg Business
Buffett approaches investing like a reporter chasing a story: creating a “working hypothesis” that an investment is worthwhile then seeking out facts to support the argument. His strategy is a reminder of the importance of due diligence.

cnbc-twitterMarch 5, 2015
A ‘Goldilocks economy’ for commercial real estate
Andrew J. Nelson, CNBC
Why is the current moment “just right” in the CRE market? The recovery is robust enough to fuel tenant and investor demand for property but not so strong as to overheat markets and induce unneeded speculative development.

moneyMarch 6, 2015
5 Astounding Things About America’s Biggest Mall Planned in Miami
Brad Tuttle, Time (Money.com)
The company that owns and runs the largest mall in the U.S. wants to outdo itself with a new proposed development in northwest Miami-Dade County. If reports are to be believed, the over-the-top ‘American Dream’ megamall will feature an indoor ski slope, sea lion shows, and submarine rides.

heraldMarch 1, 2015
CEO Roundtable: Suggestions on how to unsnarl Miami’s jammed roadways
Miami Herald
In the first Q&A roundup for the 2015 CEO Roundtable, I shared my input on how to improve Miami’s traffic situation. (Spoiler: I’m all about using technology to minimize the problem.)

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