The Jumpstart our Business Startups or JOBS Act has been widely acknowledged as the catalyst to launching crowdfunding and the emergence of an entirely new market for online real estate fundraising and investing. In 2015 with the SEC approval of new Regulation A+ rules under Title IV of the JOBS Act that door was thrown even wider open with the ability to now include non-accredited investors.
The majority of online marketplaces, CrowdStreet included, launched their project or fund offerings in 2014 and 2015 using the Reg D 506(c) structure, which allows companies to market offerings to accredited investors. The introduction of Reg A+ has allowed companies to use this structure to market to both accredited and non-accredited investors. Effectively, companies are now able to raise up to $50 million from non-accredited investors in a mini-IPO style offering.
Max fundraising amounts: Tier I offerings can raise up to $20 million in a 12-month period. Tier II offerings can raise up to $50 million in a 12-month period.
A bigger pool of investors: Both Tier I and Tier II offerings are open to accredited and non-accredited investors.
Investment Limits: For Tier II, non-accredited investors can invest no more than 10 percent of the greater of their annual income (or revenues for legal entities) or net worth (or net assets for legal entities).There are no investment limits for Tier 1 offerings.
Honor system: Investors can self-certify their income or net worth for purposes of the investment limits. No documentation is required to prove income or net worth.
The Impact on Sponsors
Reg A+ gives In commercial real estate, the sponsor is an individual or company in charge of finding, acquiring and managing the real estate property on behalf of the partnership. The sponsor is usually expected to invest anywhere from 5-20% of the total required equity capital. They are then responsible for raising the remaining funds and acquiring and managing the investment property’s day-to-day... More (real estate developers, operators, and capital providers) access to a much larger audience of potential investors. While Reg A+ significantly expands the pool of investors available to sponsors by reducing individual net worth requirements, lower minimum investment amounts seen with Reg A+ offerings typically drive the number of investors in a deal into the hundreds or even thousands, making investor management a daunting prospect.
Fortunately, our real estate investor management solution CrowdStreet Sponsor Direct provides automated tools specifically designed to manage the large volumes of online investors seen with Reg A+ real estate offerings. Advanced publishing capabilities enable sponsors to publish investment offerings directly from their existing website, while sophisticated transaction management tools process electronic investment offers and custom CRM systems manage ongoing investor relationships.
CrowdStreet Sponsor Direct was recently featured in the Portland Business Journal for it’s role in powering the Reg A+ offering of Guerrilla Development’s new office property “The Fair-Haired Dumbbell” (see “The Fair-Haired Dumbbell gets a lift from Portland’s own CrowdStreet”).
The CrowdStreet Sponsor Direct solution has the built-in features and flexibility to accommodate both Reg D and Reg A+ offerings. Reg A+ offerings may soon emerge as the preferred vehicle given the advantage of being able to reach a bigger pool of potential investors.
The Impact on Investors
What the new Reg A+ rules mean for non-accredited investors is that they have the ability to move off the sidelines and get in the game as it relates to online private real estate investing. Non-accredited investors can access the same high-quality real estate investments as the large institutions and accredited investors. Currently, the CrowdStreet Marketplace hosts a variety of Reg D offerings that are available to qualified accredited investors only. In the future, CrowdStreet plans to add Reg A+ offerings that would also be open to non-accredited investors.
Real estate crowdfunding has experienced explosive growth in recent years with some industry sources estimating the volume of global capital raised in 2015 at $2.5 billion. With increased interest from sponsors in leveraging Reg A+, the potential exists to drive even more growth to the online real estate investing marketplace. One of the original visions of CrowdStreet was to democratize online fundraising for real estate sponsors and provide greater access to deals for individual investors. The use of Reg A+ for new offerings is another important step in advancing that goal.