Brace Yourself: Crowdfunding's About to Explode
New federal and state regulations mean it'll soon be easier for non-accredited investors to take part in crowdfunding campaigns, including real estate deals. We spoke to two Chicago crowdfunders about what this means for their future offerings.
American Homeowners Preservation founder Jorge Newbery (pictured) already had a crowdfunding platform in place when the 2012 Jumpstart Our Business Startups Act loosened restraints on who could invest. AHP, which buys existing debt on mixed-use, multifamily and single-family home loans, started crowdfunding in 2013 and raised $4.7M that year. The group has since raised a total of $14M in crowdfunding capital. Jorge says buying the existing debt at a fraction of the cost allows AHP to offer current homeowners flexibility on payments, dropping principle on loans or accepting deeds-in-lieu payments. Jorge says AHP consistently pays 9% to 12% IRR to investors, who receive an ROI of 20% or higher.
Chicago's newest crowdfunder, Peer Realty, launched in February by Jordan Fishfeld (pictured, center), completed its first offering to accredited investors in March, a $1M stake in Riverside Plaza, a 63k SF shopping center in Belvidere. Peer has successfully raised nearly $7M for five portfolios, a mix of commercial and multifamily. Jordan tells us Peer makes it easier for investors who were previously reluctant to invest in real estate due to a lack of opportunity, and says Peer can take a $150k investment and spread it across several deals.
Currently, Peer is close to fully crowdfunding a $1.8M equity stake in Cherry Creek Plaza, a 70k SF retail plaza in Homewood (shown). Two more offerings are in the pipeline: five skilled nursing and senior housing facilities in Kansas, and an eight-building portfolio in River North, River West and the North Shore sponsored by Ameritus. Jordan says the Ameritus portfolio is very attractive as it’s already half-seeded with a mix of institutional capital and retail investors. Peer promises an average IRR of 15% on its crowdfunding campaigns, with an average cash-on-cash return of 8%. Jordan believes Peer Realty is close to offering an eight-figure equity check to sponsors, a practice that could become standard by the end of 2016.
When the Illinois Intrastate Crowdfunding bill signed into law by Gov. Bruce Rauner (pictured) takes effect Jan. 1, non-accredited Illinois investors with a net worth of less than $1M who make less than $200k annually, will be allowed to invest up to $5k in one Illinois company per year. The SEC's new crowdfunding guidelines on Regulation A+, approved in April, opens Illinois crowdfunders to an even wider pool of non-accredited investors from across the country. Jorge says the biggest objections he's found in crowdfunding are from investors who are either non-accredited or are accredited but need to go through the steps to prove it. AHP is in the process of applying for Regulation A+ offerings to take advantage of the deeper investor pool. Jordan says Peer Realty wants to leverage its national investor base, but it's possible it will only offer crowdfunding to intrastate investors when the law takes effect.
