Real estate crowdfunding lets the masses play land barons. Some are banking on it for their retirement.

401(K)ickstarter?

Written by Leah LeMoine Category: Valley News Issue: January 2017
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In the era of Kickstarter, GoFundMe and IndieGogo, it seems you can crowdfund anything: your oddball invention, your film project, your kid’s college fund and even your medical bills. It was only a matter of time – and the passage of the JOBS (Jumpstart Our Business Startups) Act in 2012 – before the power-to-the-people platform made its way to equity investments and the real estate market, a national trend local experts say is settling well into the real estate-crazed Valley of the Sun. Some have even built it into their retirement plans.

“Crowfunding is basically a way to describe putting small investments into different projects online. Instead of going to your online brokerage account... now you can go online and invest in local businesses or real estate projects” says attorney Jonathan Frutkin, CEO of Cricca Funding, a crowdfunding consultancy in the Valley and a national thought leader on the topic. He worked with the Securities and Exchange Commission on the JOBS Act and literally wrote the book on the topic, Equity Crowdfunding: Transforming Customers into Loyal Owners. “People like the idea of investing in real estate, but aren’t necessarily that interested in personally going out and buying a house and fixing it up and renting it out. But they’re happy to join with 100 other people and to buy that house and fix it up.”

That’s where “issuers” like Scottsdale’s Caliber: The Wealth Development Company come in. “We’re the company that’s out there actually finding assets, putting them into some sort of security structure that allows us to be able to raise capital, even online. Kind of like having your owner for hire,” says CEO Chris Loeffler. Caliber structures the deal, finances it, renovates the property, flips it and nets part of the profit. “That’s our role in the ecosystem, is to go out there and do great projects and, as far as they relate to crowdfunding, that’s just us putting them online onto a platform.” Loeffler doesn’t use the term “crowdfunding” – he says it’s just another avenue for online investment. To that end, Caliber will debut its own platform in the first quarter of 2017: VentureLocalists.com, which takes the “local first” ethos and applies it to real estate investments.

Frutkin and Loeffler say they’ve seen this investment trend growing steadily in the past few years, with investments split fairly evenly between retail and residential projects. Caliber’s projects have included hotels by Topgolf in Scottsdale and Phoenix Sky Harbor International Airport and single-family homes and apartments near Grand Canyon University. Investments in these types of projects can start as low as $1,000, but $2,500 and $5,000 are more common. The relatively low entry point has empowered investors in previously underserved economic demographics, they say.

“There’s more and more access to projects that used to be reserved for the super wealthy developers,” Frutkin says. “In the old days, the law prevented you from advertising these things on the Internet. The JOBS Act changed that and allowed for something that lawyers call general solicitation and that people in the real world call advertising.”

Frutkin and Loeffler frequently work with Vantage Self-Directed Retirement Plans, a Phoenix firm that specializes in “alternative investment transactions for self-directed investors.” Translation: Plans for people who want to take an active role in their retirement investments, including some “folks that just absolutely do not like the stock market,” Vantage CEO JP Dahdah says. “Alternative” investments like crowdfunded real estate projects speak to them, he says.

“We’re kind of taught, as we begin our investing life, that you want to put money away for retirement... most of us end up with a large part of our investable assets in these accounts that are restricted to not be used until... a later age in life,” Dahdah says. “What do you actually want to invest in? I think most Americans invest by default, they don’t invest by design. Our clients are very purposeful. They know what they want – or what they don’t want.”