Butler Equities is a boutique real estate development firm based in New York City that's driven by superior investment results and risk controlled opportunities. Our "Value" driven investment strategy focuses on a limited number of special-situation events, market-driven mispricing, or complex scenarios where we use our development, construction and corporate finance experience to extract value others have failed to price. Since 2014, our investors and clients have trusted us with over $50 Million of assets under management. 

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Market Spotlight

November 22, 2014

Crowd Funding 101

This past month I participated in an online webinar held by Jeffrey Lerman (“Lerman”), an accomplished real estate lawyer in California (www.lermanlaw.com).  Over the past year, I’ve attended over ten Crowd funding events all over the country.  Most try to sell you on the “Crowdfunding” hype that we all see is prevalent online, others try and up sell you on starting your own platform.

The take away from the Lerman event is that:, for a fee, Real Estate Crowdfunding sites will allow syndicators to market their 506 (b) or 506 (c) offering to an online pool of investors – with less requirements than a traditional broker dealer. 

Here is what I learned:

Crowdfunding is misinterpreted: The term “Crowdfunding” has become more of a social buzzword.  It’s all over the media, and it is often thrown around in conversations, with very little regard for how the Securities Exchange Commission (“SEC”) defines the term.

During a typical social conversation, “Real Estate Crowdfunding” can be defined as “The act of raising capital online through designated platforms like Realty Shares and Realty Mogul”.

The SEC recognizes “Crowdfunding” as Title III.  Which is a means of raising capital, similar to a Regulation D – 506 (b) or 506 (c) capital raise.  However, Title III carries the following exemptions:

  1. Cannot raise more than $1 million over a twelve month period.
  2. Money can be raised from both Accredited and Non-Accredited Investors.It allows small investors to invest as little as $100 dollars into your capital raise, and can be marketed to anyone just as long as it does not exceed the dollar limits stated in point (1).
  3. Title III “Crowdfunding” – is “stuck” in SEC litigation:Title III as a capital raising vehicle is readily not available.  Over the past twelve months, Washington has been deliberating the viability of this capital raising vehicle.  As a result, there are no “Title III” capital raises being performed.  There is no set time line as to when Title III will be allowed to go forward, and what potential strings may be attached.

If Title III “Crowdfunding” – has not been approved by Washington, what is all of this hype I’m hearing: When we visit sites like Realty Mogul and Realty Shares, what we are actually seeing is a traditional Regulation D – 506 (B) or 506 (C) that is being marketed online via these platforms.  Many are calling it “Real Estate – Crowdfunding”, but in actuality it is just a means of marketing your traditional capital raise via an online platform.  In fact, it’s really not that different from taking your PPM to a Broker Dealer.

  1. Broker Dealer vs Online Platform (i.e. Realty Shares, Realty Mogul): A broker dealer will take your deal and for a fee they will market the deal to their private network of investors, and institutional clients.  An Online Platform will take your deal, and for a fee they will market the deal to their network of investors.
    1. Broker Dealer:Will typically look at larger deals above a $5M dollar threshold. They require a strong track record.
    2. Online Platform:Depending on the platform, many will look at deals as small as Single Family residences. A track record is also required, however, because it’s a new online frontier, some platforms are not as stringent with their track record requirements.

I hope this helps clarify some of the mystery behind Real Estate Crowdfunding.  If you have any questions please feel free to contact me at: angel@butlerequities.com

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