InvestmentCrowdsource Funding for Real Estate – What we Learned

Back in October we published a blog “Taking A Big Step in Investment in Charleston, SC. ”  Real estate development can be a cash hungry business and we were intent on raising additional capital to help us build-through our existing land bank before looking for additional projects. We have now closed our first Fund having successfully raised the necessary capital. 

Here is the story of what happened.

At this point, it’s worth posing the question as to why we are publishing this blog? It is rare in most ventures that everything goes as planned and we must be willing to adapt and change to altered circumstances. It was a very steep learning curve and has taught us to plan and act in a very different way. Just as we see our politicians toughing it out in a race to the nomination, we opened our business to scrutiny and were required to both reiterate our position and answer frequent very probing questions on behalf of potential investors. To say it was cathartic would be an understatement.  

 For those interested, this is how the offering played out:

We have 4 projects already entitled, that is to say, planned and permitted awaiting the teams to begin build-out. Todd St., Ashe St., Ashley Avenue and Hampstead Court, 17 residences in all when completed, intended for the long-term rental market or single-family ownership.  All located downtown.  Total construction cost approximately $4M additional to the land that we already own.

•  Our fund was launched in co-operation with a Broker Dealer, Turnstone Securities. We used recent changes in Securities and Exchange Commission regulations (SEC), in effect a 506(c) offering with direct solicitation of accredited investors.  
• Approximately 1500 contacts were made either directly or through a filtered social media campaign using mainly LinkedIn and Facebook.
• Filtering those replies resulted in 77 individuals or “Family Funds ” qualified as accredited investors.
• Of those approximately 50 expressed a willingness to invest at some point.
• Within this group, negotiations with a subset had ring-fenced approximately $3M in contributions should the fund remain open.

You get to the end of a race by firstly starting it. Our race was to raise funds for future development. We started the race seeking private funds and ended it in the conference room of The Bank of North Carolina (BNC) on Meeting St. in downtown Charleston. BNC is a local bank that knows our track record. They stepped in as an alternative, offing to fully fund the next 12 months of development work at very competitive rates given the equity we have already put forward within the deal.

There is a place in development for private equity and bank finance. For the developer, bank finance is the more effective choice if available in the timeline and sufficient for the project. It often ends up being a mixture of both. In this instance BNC has agreed to stand besides us as our bank funding partner and as such we will close the Fund in its present form.  Have a look at our previous blog to see how we intended to structure the initial offering. 

Given the success of our first Fund, we are planning a further launch for a new play around housing affordability. Be sure to continue to watch this space.