This morning Fundrise announced a Regulation A+ deal that has not yet been seen in the real estate crowdfunding industry. What’s unique about the new offering is that by using Regulation A+ it is also open to retail investors, something that only one other real estate crowdfunding company has focused on. This deal however will operate much differently in that investors purchase shares in the investment vehicle similar to that of a REIT.
There are, however, some differences. The Fundrise eREIT is currently open for 48 hours exclusively to investors who joined their waitlist, which according to an email totaled 15,000. I expect that this will fill up rather quickly, but the total amount they can raise is limited to $50 million. It isn’t clear how much they plan to raise at this time as they intend to take a ‘just in time’ approach to investing in these real estate deals to cut down on idle cash. The Fundrise Real Estate Investment Trust will invest in a diverse portfolio of commercial real estate properties including apartments, shopping centers and office buildings. They also will use leverage in the real estate investments. Investors will be paid back from the cash flow of the investments via dividends.
Shares can be purchased for $10 each, but the minimum investment is $1,000 with a maximum investment of $1 million. With the low minimum and putting a cap on the investment, this eREIT is certainly tailored to the retail investor. Unlike a traditional REIT, the new eREIT will only offer liquidity on a quarterly basis. It is noted in the offering circular that you may have difficulty selling your shares or have to liquidate them at a discount so investors should view this as a long term investment.
One of the most interesting aspects of this new eREIT is that Fundrise does not earn an asset management fee during the first two years unless investors earn 15% annualized return. However, there are other fees involved which are outlined in the offering circular. Some of the costs are fixed which means the closer they get to $50 million the less these costs total to as a percent of amount raised. On their eREIT website, they compare costs of their eREIT to that of both public REITs and non-traded REITs.
Among the benefits that Fundrise notes is that they are able to focus on smaller real estate transactions through technology. These smaller real estate transactions are a market that large institutional investors do not focus on. Ben Miller, co-founder and CEO stated:
The Fundrise eREIT is a revolution in how investments are made — available to the public without the costs, middlemen, and inefficiencies of conventional channels. We believe this is a superior alternative to the high fees and volatility of the stock market.
This is certainly a big moment for the real estate crowdfunding industry. There is much more information about this deal in their SEC filing, which I highly recommend all potential investors read. Both Peter and I have decided to invest $1,000 each and will report on the performance over time. The creation of an eREIT is an interesting model and it remains to be seen whether this type of investment vehicle will catch on across the real estate crowdfunding industry. Regardless, it is nice to see Fundrise blaze the trail and create something truly innovative.