Wednesday, May 27, 2015

Crowdfunding Underwrites Philadelphia Area Residential Fund

by Steve Lubetkin,

When InvestCo LLC wanted to raise capital for a group of multifamily properties in the Philadelphia market, it turned to Miami-based crowdfunding platform EarlyShares to help seal the deal.

The crowdfunding site helped InvestCo add $513,000 to its capital for the Philadelphia Residential Fund, which is focusing on 1-6 unit properties in Drexel Hill/Upper Darby that it believes have good prospects for future rent growth and property appreciation. The estimated IRR on the fund is 15.2 percent, and the cash-on-cash return is posted at 12 percent, with an estimated hold time of five years for the properties.

EarlyShares co-founder Joanna Schwartz says the firm is “right in the center” of the crowdfunding real estate market place.

“We started the company with a very broad vision, to leverage the JOBS Act to enable companies to raise money through those new regulations,” she tells exclusively. “We have a platform that really properly services those who are raising money and those who are investing money.”

Investors want collateral, security, and cash flow, Schwartz says. The company’s platform services project sponsors with multiple levels of security and privacy, and is “compliance-driven” to ensure that its network of accredited investors receives the right information. Currently, EarlyShares is only open to accredited investors, those who have specified levels of net worth and investable capital as provided in the JOBS Act.

EarlyShares employs a “two-stage” due diligence process, Schwartz says, with both internal and external review of deals before they come into the funding platform.

“It’s almost like an online investment bank where we are really helping the issuers promote their offerings,” she says. The firm is in the process of becoming a broker-dealer, she adds.

Crowdfunding has become an attractive tactic mainly because it adds “a new distribution channel,” to a process that has long depended on multiple sources of capital, usually raised through private placements or other sources.

“For the investors, this really actually is revolutionary,” she says, “because unless you knew people who were doing these transactions, usually you weren’t given access to them, or the price of entry was just much higher. Because of the flexibility or the streamlined nature of the online process, we’re able to reduce the minimum size of each investment, opening the door for many more [accredited investors] to participate at lower dollar volume across more deals.”

Multifamily properties and retail strip shopping centers have been funded on the site, and even some funds investing in single family properties, which have generated interest among some niche lenders, she says.

“Everything we do in our world is moving online,” Schwartz says. “We’re just a very big funnel for transactions that people want to fund.”

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