An Oregon real estate company and CEC client, Guerrilla Development, is focused on “creating inventive and experimental projects that use both hemispheres of the brain.” Coincidentally, earlier this month they have been busy engaging both “hemispheres” of investors: accredited investors (a.k.a. wealthy individuals) and non-accredited investors (a.k.a. the rest of us). They are using one of the newest legal strategies for ventures to “crowdfund” investment capital, Regulation A, through which they are offering $1.5 million of preferred equity in the Fair-Haired Dumbbell, an office building with ground floor retail in Portland, Oregon. The offering is open to residents of California, Oregon, Washington, Massachusetts, Virginia, and the District of Columbia. If you’re curious about Regulation A offerings, check out their campaign video for a great overview:
While the idea of raising capital from the “crowd” is catching on around the country with private enterprises seeking growth capital, the Guerrilla Development offering is different from other offerings in that it is part of a broader trend to use today’s investment crowdfunding tools for economic and community development purposes—specifically, downtown revitalization.
This approach marks a change from the way communities have typically sought funds for their improvement: through applying for state and federal redevelopment grants. This significant departure from the familiar approach presents a number of advantages for community-based ventures. For one, it allows for greater flexibility in the use of funds, which are often tightly regulated by grantmakers to specific types of community development projects. In the grant-driven approach, if the project or program doesn’t jive with the rigorous criteria of the grantmaker, there’s a good chance it will never see the light of day. Secondly, crowdfunding opens up a range of new possibilities for communities self-funding their own development. Now, rather than waiting for the state (or, perish the thought, the federal government!) coming to the rescue of America’s urban cores and downtowns, communities can be empowered to raise their own capital to get projects done using these new tools.
We are working with other groups that are using Direct Public Offerings, or DPOs, to raise capital for downtown revitalization projects. As an example, one of the groups we are working with intends to raise $4.5 million for a real estate investment fund for the purpose of a major overhaul of downtown Fresno, through the purchase and rehabilitation of a number of properties for retail and other uses. Fresno, California, if you don’t already know, sits in one of the most productive agriculture regions on earth, and yet has some of the highest levels of poverty in California. Decades of disinvestment have led to a ghost town-like status in downtown Fresno, in sharp contrast to the abundant agriculture lands outside of the city. Through the use of a DPO, the group will give Fresno residents a chance to invest in the underlying real estate at the center of the revitalization plan, and be a part of the city’s success. The arrangement will also ensure that the fund will never take on debt (which goes to the safety of the investments), it will be marketed specifically to local investors, and the structure has a 2/3 majority element to allow removal of the manager of the fund if investors are not satisfied with its direction. Coincidentally, not having just one or two wealthy investors will allow the manager to make decisions based on the need for the revitalization of the area, without the typical shareholder primacy pressures. The offering also omits the wiggle room that real estate developers typically add into their offerings that allows them to change the direction of the plan once it is funded.
Another group we’re working with, Our Kathadin, takes a broader approach to downtown revitalization, targeting the Kathadin region of Maine, which includes both small town and rural geographies. Seeing an opportunity to allow Maine residents to invest in the region’s development, this non-profit loan fund will cycle in capital from Maine residents through a DPO, before either loaning it out at a slightly higher interest rate to qualified ventures for their growth and development, or actually purchasing land for the non-profit to develop. In the process, everyone will benefit: Maine entrepreneurs will benefit from the access to capital; Maine investors (of the lending variety) will benefit from a modest return on investment; the region and its communities will benefit from enhanced economic activity; and the non-profit loan fund will benefit from the revenues for making it all happen.
We’re also excited to share that we’re in conversation with another real estate group, a non-profit Community Development Corporation in Rhode Island, which soon plans to pursue an innovative approach to real estate development in the state. Their approach centers on a public-private partnership with local municipalities to co-fund both the DPO and, if all goes according to plan, real estate development projects in Rhode Island’s distressed urban cores. They propose a fundamental rethink of housing development, bringing together spaces for living, co-working, and education, while also focusing on job creation, community revitalization, and “smart” growth in low to middle income neighborhoods. They, too, plan to use a DPO to engage a wide range of community stakeholders—and shareholders—in the success of the project.
We find a lot to like about this new trend toward greater democratization of investment in revitalization. Not only does it serve as a practical way to access capital for impactful projects that can breathe life into towns and urban cores, but it also serves to empower communities to take charge of their futures. When communities invest in themselves through local ventures, everybody wins.
This post was originally published on CuttingEdgeCapital.com
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