Guest Author: Ron Rossi, Vice President of Business Development, IMS
IMS recently hosted a webinar to share insights and best practices for leveraging technology to raise capital and manage investors. The webinar featured three leaders in CRE FinTech. Ron Rossi, VP of Business Development with IMS, moderated, and he was joined by panelists Adam Hooper, CEO with RealCrowd, and Troy Merkel, Partner with RSM US LLP. The turnout was very strong, and the attendees were very engaged and asked a lot of great questions throughout the discussion.
The webinar kicked off with a discussion about how raising capital has evolved over the years. The emergence of technology coupled with the JOBS Act has had a huge impact on the CRE sector and has provided benefits for both CRE owners and investors. Raising capital has shifted from a friends and family approach and opened up a global marketplace of prospective investors. Accessing investors and raising capital online through a crowdfunding platform creates tremendous efficiencies and enables access to investors you wouldn’t otherwise be able to market deals to. But those investors often have expectations that can only be met with technology.
Adam from RealCrowd, which has positioned itself as the go-to crowdfunding platform in the industry, spoke to us about what crowdfunding really means. Crowdfunding is similar to online banking or investing. CRE sponsors raise small amounts of capital from a large number of people to finance a new acquisition or to recapitalize an existing deal, typically via the Internet as the distribution channel. Further, sponsors can qualify for an exemption that allows them to market broadly to accredited investors, including those with whom there is no prior relationship. This is referred to as General Solicitation and offered through a 506(c). See the chart below for the differences between 506(b) and 506(c) offerings.
Sponsors should also be aware of the shift and transfer of wealth from the Baby Boomer generation to the Millennials. There is now a tremendous amount of capital that is being invested in real estate. With regards to just how big this shift is, Adam said, “nearly $30 trillion will be transferring from the Boomer generation down to the Millennials.” It’s also important to note that this younger generation exhibits behavior that is much different from the Boomers. They expect to conduct transactions online, and they demand transparency and access to data and information in real-time. These factors present a tremendous opportunity for those in real estate.
What has made this possible? Certainly, the JOBS Act has attributed to the growth of crowdfunding. Troy took the time to provide a detailed overview of the JOBS Act and Regulation D. The Jumpstart Our Business Startups Act expands, rather than limits or restricts, marketplace activities by relaxing securities regulations, creating new sources of funding. It essentially enables sponsors to market deals to people that they do not have a current relationship with through general solicitation. Please listen to the full webinar to hear further details of the specifics that make up the JOBS Act.
The panel then discussed how the positive impact that technology can make in commercial real estate is driving more firms to seek out tech solutions. There are some other macro forces that are also causing companies to take the initiative to automate their business. John described how companies and people are shaping demand for real-time, mobile access to information. These efficiencies enable companies to better compete and to position their people in roles that add value.
In short, the benefits of crowdfunding are:
- Creates a new source of funding for CRE sponsors
- Enables a new pool of individuals to invest in CRE assets
- Provides existing investors with new opportunities to diversify their CRE portfolios
The JOBS Act and crowdfunding wouldn’t be possible without technology. As companies grow and try to be more efficient they embrace technology as a tool to raise capital and manage and improve investor relations. Investor demands, and expectations, make technology a must have and will serve as a competitive advantage for CRE sponsors. Ron shared that “two-thirds of investor consider the level of transparency when deciding on whether to make an investment”. And after a deal closes, superior investor management will be expected. What does that entail? Investors expect frequent communication, access to data, and full transparency.