In the short time since the SEC issued its ruling on general solicitation of private securities, over 115 real estate crowdfunding platforms have been launched. Each platform has its own rules, criteria, and fee structure.
There are generally three business models for real estate crowdfunders:
- The “underwriter” or “full service” model, in which the crowdfunder will first carefully review your deal, as well as your background and track record, then if approved, will take on the responsibility of raising the capital for your project. These crowdfunders then charge asset management or other fees to manage the offering throughout its lifetime.
- The “SAAS” (Software As A Service) model, in which the crowdfunder provides you with the online tools to manage your offering. Generally, SAAS providers do not get involved in the capital raising process. You are expected to onboard your own investors
- The “Pay-to-Play” model, in which the crowdfunder charges an upfront fee (and possibly additional fees) to list your deal on their portal, which has an established base of investors.
To complicate matters, each platform may incorporate one or more of these models, such as charging a listing fee and then proceeding to market the offering to their own network of investors.
RE Capital Partners maintains strong relationships with the top crowdfunding companies, and we know what kinds of deals the like, what’s in their pipeline, and how to best present opportunities to them. They like us because we’ve pre-vetted any deals we present to them. We speak their language. We can get their attention, and usually get indications of interest (or not) in a matter of days.
Real Estate Crowdfunding will continue to grow exponentially as a legitimate, efficient, and transparent means of providing capital to worthy projects. RE Capital Partners is pleased to be involved in this new mileu.
RE Capital Partners actively serves real estate operators who require private equity capital for their investment strategies. We use our in-depth market knowledge to achieve the best capital investment based on strategic fit, shared philosophies, and asset alignment. If your business plan calls for investor equity capital, RE Capital Partners can guide you through the complexities of securing these funds and meeting the stringent demands of investors from start to finish. We begin by providing you with an initial, broad set of criteria which must be met for any deal. Then we learn more about your management team, as well as your identified property or investment criteria. Once we have an adequate picture of your proposed deal we’ll provide feedback on the market’s likely interest in your plan. You’ll know at this stage what your capital investors will most likely expect in terms of preferred returns and ROI. From there, we substantiate your investment track record and conduct our own due diligence to prepare you for the equity placement. We then document your plan according to the needs of the specific placement agent which best suits your deal. Once the placement agent accepts your deal, we work with you to create the final budget and operating proforma which will be used in the offering. If the target IRR is not met, we’ll help you identify any overlooked cash flows or deal modifications which may improve it. Additionally we’ll highlight your competitive advantages and track record, along with the property and demographic data to be considered by sophisticated investors.
We’ll also assist you in completing any remaining requirements of the placement agent, and will review with you their terms and documents. Additionally we’ll prepare you in adhering to ongoing governance and reporting requirements.
Minimum Qualifications for Crowdfunding
For full-service crowdfunding (where the crowdfunder raises capital for you), the two qualifications below are among the most important and non-negotiable. There will be many other factors a crowdfunder will take into consideration, but you should meet these two before contacting us for our services:
- Track Record. For the full-service underwriting model, you (or your company in which you are a principal) must have a substantial track record in the same property type as your current deal. “Substantial” is generally considered to be $25 to $50 million in transactions.
- Skin In The Game (otherwise referred to as co-investment). You are expected to fund a percent of the equity yourself. This requirement brings assurance to the outside investors that you will lose your own money if the deal doesn’t work out. Conversely, if you make money, so will your investors. For deals under about $5 million in equity capital, your investment should be 5% to 10% of the equity.
- Minimum Equity Raise of $1.5 million
Note that we get pitches all the time from operators who insist that their investment is in their sweat equity… the time spent sourcing a deal, putting it together, negotiating, doing market research, getting zoning approval etc. While everyone understands that your time is valuable, it will not count towards skin in the game (although, any out-of-pocket expenses related to these activities will count).
If you have your own investors, and wish to manage your offering online using the SAAS model, then you don’t need to meet these first two qualifications.
Submitting Your Deal
We will be happy to look at your deal. You can submit your documents using our contact form.