The EarlyFive: Spotlights & insights

It’s been eventful at EarlyShares of late as we recently closed an international investment fund, received great spotlight coverage from our local NPR station, and saw ourselves on TIME and Inc.com. (More on those below.)

Also, our CEO was just named a finalist for the 2015 ‘Influential Female Leader in Technology’ award from the Greater Miami Chamber of Commerce. Thanks to the Chamber for the honor! EarlyShareholders – let us know if we’ll see you at the awards ceremony on April 28.

mini-logoApril 10, 2015
EarlyShares brings Brazilian investors into US commercial real estate market with close of $930,000 fund
Madelyn Young, EarlyShares Blog
International investors will play a huge role in the future of real estate crowdfunding, and EarlyShares is at the forefront of the trend. Find out more on how we pooled $930,000 from Brazilian investors into the Central Plaza offering.

wlrnApril 9, 2015
South Florida Tech CEO Talks Raising Capital & Raising Kids
Karen Rundlet, WLRN
We were thrilled at how well this story, which showcased our CEO Joanna Schwartz’s experiences as a woman executive in technology, was received by our local community. (For a full radio story on Women in Business in South Florida, featuring Joanna and several other local leaders, click here.)

incthumb250April 6, 2015
12 Ways to Shift Your Mindset and Embrace Change
Young Entrepreneur Council (YEC), Inc.com
With our own shift into real estate, we understand the power of the pivot as well as anyone. In this YEC Q&A feature, our CSO & Co-Founder Heather Schwarz-Lopes advises entrepreneurs to not let fear guide their decisions about business direction.

TIMEApril 10, 2015
12 Simple Ways to Improve Your Website
Young Entrepreneur Council (YEC), TIME
More great Q&A insight from YEC and the Startup Collective. Our tip: Redesign your home page with an eye for user experience.

inmanApril 10, 2015
Real Estate Investing in the Year 2025
Omri Barzilay, Inman
Not only are we in agreement with this author’s predictions, we’re part of the forces that will help make them happen. Stay tuned in coming weeks for updated on how a new EarlyShares venture will change the face of commercial real estate!

 

EarlyShares brings Brazilian investors into US commercial real estate market with close of $930,000 fund

EarlyFund-BR-Central-PlazaAs part of its commitment to help more individuals capitalize on high-potential opportunities in the U.S. commercial real estate market, EarlyShares recently welcomed a group of international investors into a retail investment offering from Saglo Development Corporation.

Nine Brazilian investors pooled $930,000 into EarlyFund-BR Central Plaza, LLC – an EarlyShares-managed investment vehicle – which was then injected into the Central Plaza Shopping Center equity offering.

The transaction is a signifier of growing interest among international investors (specifically Latin American investors) in U.S. commercial real estate.

“When we launched the EarlyFund-BR, we aimed to raise $500,000,” said EarlyShares Co-Founder & CSO Heather Schwarz-Lopes. “We had to increase the cap just to meet demand. We received $930,000 in commitments in just two weeks.”

“We see it as indicative of the potential for international investors to play a major role in the future of U.S. real estate crowdfunding,” Schwarz-Lopes continued.

The trend of international investor activity fueling the recovering U.S. real estate market is nothing new, especially in EarlyShares’ Miami headquarters. Real estate development is booming in South Florida, and a 2014 study found that 90 percent of the demand for new condos in Miami’s Brickell, Downtown, and Edgewater neighborhoods was from foreign buyers. More than six in 10 pre-sale buyers come from Latin America.

Fueling the trend is the desire of wealthy Latin Americans to allocate money into sound investments.

“For many South American buyers, the main motivation for purchasing real estate in the USA is their intent to make a secure investment,” said Oliver Ruiz, managing parter of the Engel & Völkers agency, on Inman.com. “The stable political and economic climate in the country makes it an appealing location for investments.”

Largely, recent international investment activity in U.S. real estate has been limited to the residential market. But not all non-U.S. investors want (or are able) to put up the cash to purchase a condo or single-family home outright. On platforms like EarlyShares, real estate crowdfunding provides a new avenue for such investors.

“Before the JOBS Act Title II exemption took effect, international investors couldn’t easily access commercial deals in the $1-$50 million range,” says Schwarz-Lopes. “EarlyShares is using Title II to provide them with a unique new wealth generation opportunity.”

The success of the $930,000 EarlyFund stemmed from a multitude of factors. For one, it offered Brazilian investors the opportunity to become direct owners in an existing, cash-flow generating Florida shopping center with national corporate tenants. The Central Plaza sponsor, Saglo Development Corporation, boasts a strong record investor returns and offered them quarterly distributions to Central Plaza investors.

EarlyShares’ process also played a huge role. Not only had EarlyShares and its partners carefully vetted the Central Plaza offering – giving investors confidence in the deal’s viability and potential – but Schwarz-Lopes and colleagues coordinated with the individual investors’ attorneys, CPAs, and other advisors to ensure the transaction closed smoothly. EarlyShares will serve as the professional investment manager of the EarlyFund.

“Ultimately, we made it easy for the Brazilian investors to take advantage of the deal,” says Schwarz-Lopes, who foresees continued interest from investors in Latin American countries as the commercial real estate market in the U.S. grows.

“International investments in commercial deals will become a huge part of the real estate crowdfunding industry in coming months, and EarlyShares is one of few platforms at the forefront of the trend,” continued Schwarz-Lopes. “We’re excited to help make these investments happen.”

The EarlyFive: Q2 Takes Off

Welcome to April! At EarlyShares, Q2 is already off to a very busy start. Here’s just a few of our latest updates:

  • We announced the Carpathian Capital Fund II offering on the wire this week. Read the release for details on the deal.
  • EarlyShareholders in Miami: Register for the South Florida Business Journal’s ‘Critical Conversations: Funding Your Business‘ event on Friday, April 10. Our Co-Founder & CSO Heather Schwarz-Lopes will be speaking.
  • EarlyShares CEO Joanna Schwartz was interviewed about being a leading woman in tech for WLRN’s latest espisode of The Sunshine Economy. Listen here.

USNApril 2, 2015
Real Estate Investing: The Best and Worst Markets for Property Taxes
Joel Cone, US News
Property taxes are usually the second biggest fixed cost to consider when calculating cash flow on an investment property, so it’s smart to know the rates in a county before investing. Check out the best and worst markets based on 2014 data.

thevergeApril 1, 2015
The 11 best April Fools’ gags of 2015
Emil Protalinski, The Verge
As always, there were a lot of great April Fools’ Day pranks online this year – especially from tech companies. Great out this list of the best tomfoolery on the web, including our favorite: YouTube’s hilarious “Did You Mean” gag.

wsjApril 2, 2015
Miami Beach Penthouse With Pool Lists for $33 Million
Candace Taylor, Wall Street Journal
This week in unreal luxury real estate projects: a two-story, 8,000 square foot residence featuring a private 40-foot-long infinity pool, floating glass staircase, and 78-foot-long lap pool with an oceanfront bar.

Forbes_Icon_400x400March 31, 2015
Open Offices Back In Vogue – Thanks To Millennials
Neil Howe, Forbes
Love it or loathe it, the wide-open workspace is here to stay, due largely to the preference of younger workers to collaborate outside cubicle walls. How do you think the design trend will impact real estate developments in years to come?

ent-twitterMarch 29, 2015
Why Boomers Might Be the Breakout Stars of Entrepreneurship (Infographic)
Catherine Clifford, Entrepreneur
Will older Americans redefine entrepreneurship? According to the Kauffman Foundation’s 2015 State of Entrepreneurship Study, boomers are twice as likely to be gearing up to launch a business in the next year than millennials.

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

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