Fundrise specializes in real estate projects, investing its own money into them. It then funds this investment through sales of “project payment dependent notes,” which are directly tied to Fundrise’s preferred equity stake in the real estate project. Investors buy them through the Fundrise website and gain or lose according to the performance of the notes.
In effect, investors are buying interest-bearing securities issued by Fundrise, not the entity behind the real estate project being funded. As the issuer, Fundrise, not the real estate developer, is responsible for managing investor disclosure and reporting requirements.
Though it is registered with the state as a MILE website operator, it has not used MILE rules, or any other state’s intrastate crowdfunding mechanism, for any deals and does not plan to do so. Intrastate rules put fundraising companies at too much risk of running afoul of federal securities laws, said Fundrise President Dan Miller. “We’re now focused on (using) federal rules” for the legal framework of its deals, he said.
Fundrise has done about 35 deals since its launch in 2010. None of them has been in Michigan, but it’s in talks with local developers about using its crowdfunding platform for projects in the state. Because of federal rules on soliciting securities, and because the agreements are still being hashed out, Fundrise can’t say precisely which properties are under discussion. But Miller said talks are ongoing over 10 deals and four of those “are a little further along than talking.” He expects to close on those four this year.
Among those four properties are a Corktown warehouse that would be converted to restaurant and retail use; an empty downtown Detroit building of more than 30 stories that would be put to retail, restaurant and possibly hotel use; and a property near Great Lakes Coffee in Midtown that would have restaurant or retail on the ground floor and apartments in the upper levels.
The fourth project is the redevelopment of the former Tiger Stadium property. Fundrise and Bloomfield Hills-based developer Larson Realty Group last month announced a possible crowdfunding angle to the project. The crowdfunding portion of the capital raise would take place in fall and have a cap of $500,000, or 10 percent of the project’s preferred equity. The agreement between Fundrise and Larson has not been finalized, though, so the details could change.
For all four deals, Miller said the goal is to arrange the offerings so investors can participate for as little as $100.
Jan. 11, 2015 | Crain’s Detroit Business