Today, RealtyMogul.com announced its first REIT officially known as MogulREIT I. This deal is similar to deals we’ve seen in the past that are leveraging Regulation A+ in Title IV of the JOBS Act. They will be able to raise a total of $50 million for the new fund. What is especially interesting about these types of deals is that they allow access to non-accredited investors. We spoke to Jilliene Helman, CEO of RealtyMogul to learn more about the new REIT.
The benefit of a fund versus investing in individual deals is that investors are automatically diversified in a number of different projects. This significantly lowers the barrier to entry for smaller investors. The minimum investment in the fund is $2,500 with no maximum. They aren’t focusing on opening up the fund to retirement accounts yet due to compliance reasons.
Jilliene shared with us that they have a large base of non-accredited investors that they hope to tap into with the new offering. They currently have over 80,000 investors on the platform, but only 30,000 are accredited investors. The remaining 50,000 investors have been prohibited from investing with RealtyMogul until now.
The fund is focused on income producing commercial real estate which means it will be invested in multifamily units, retail, self-storage and office buildings. With a deal like this one of the concerns is the ability to deploy capital quickly. If they were to raise the maximum amount of $50 million there is the potential of cash drag as they source new deals. To alleviate this, RealtyMogul.com has taken a unique approach, enlisting a sub advisor on the fund who can invest in publicly traded real estate related securities. This also provides some liquidity although Jilliene mentioned that investors should have a long-term investment horizon, ideally of at least 3 years.
Deals that go directly on the existing RealtyMogul.com platform for accredited investors will typically be anything under $1 million in debt and $1.5 million in equity. For larger deals, the new REIT will have the first cut. However this also depends on deal fit and considerations for diversification. The fund allocation will be overweight debt, accounting for between 60%-70% of the total with the remainder being equity. The equity deals will be invested in preferred equity so it behaves like debt providing coupon payments over time.
The target returns for the fund are 7%. There will be a 1% asset management fee along with 50 basis points for servicing and 1% for specialty servicing. Expenses are capped at 3%. According to the press release this compares to many non-traded REITS that charge upfront sales commissions of 7% on average, with total expenses of up to 15%.
According to CEO Jilliene Helman:
Beyond the zero commissions and lower fees, the fund’s strategy is exciting because it allows us to leverage RealtyMogul.com’s hundreds of inbound inquiries for financing on commercial real estate and curate them to find suitable opportunities.
At Lend Academy we are always excited to hear about companies that have decided to focus on the retail investor. Doing a deal such as this one involves a significant amount of investment and these companies have to work closely with the SEC. This is the third Regulation A+ deal that has been announced within the marketplace lending industry and we look forward to more in the future.