Embed Size (px)
Citation preview
Where's the Money? New Equity Sources for MultifamilyJANUARY 21, 2015 || 10:00 – 11:00 AM
Moderator: Steve Lawson || The Lawson Companies, Virginia Beach, VA
Presenter(s): Laura Foote Reiff || Greenberg Traurig LLP, Business
Immigration & Compliance Group , McLean, VA
William Skelley || iFunding, New York, NY
New Equity Sources – EB-5 & Crowdfunding
In today's climate, developers are looking beyond the usual sources of equity for other possibilities, and there are some decidedly non-traditional options out there. Developers are turning to crowdfunding services and EB-5, the immigrant investor visa program, to raise equity for their projects. During this session, you'll discover how these programs work and if this is an option for your future multifamily development.
Crowdfunding is dramatically expanding the participation of investors and the financial capacities of developers/operators in real estate. It’s suitable for debt or equity on residential new construction, fix-and-flips, conversions, rentals; single-and multi-family as well as CRE, and doubling year over year. Learn how to make the best use of this financing approach through preparation of your proposal and participation in the listing process, as well as sample deal terms.
Learning Outcomes• EB-5 Financing
Understand the size and type of deal that would qualify for these investment funds.
Examine projects that have successfully used crowdfunding to raise cash for a development project and explore the ins and outs of the process.
Learn more about the EB‐5 program, including its benefits for developers and immigrant investors, and its constraints for development.
• Crowdfunding Growth of crowdfunding as a financing source Benefits of approach Best practices for operators proposing investments Checklist of listing activities Example deals and terms
American Institute of Architects (AIA) Continuing Professional Education
Credit(s) earned on completion of this course will be reported to AIA CES for AIA members upon completion of the AIA/CES Session Participation Forms found in the back of this session room and online at www.BuildersShow.com. Certificates of Completion for both AIA members and non-AIA members are available upon request.
This course is registered with AIA CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product.
Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation.
EB-5 Basics
EB-5 category created in 1990 for foreign nationals who invest in a new commercial enterprise that will benefit the U.S. economy and create at least 10 full-time jobs.
Congress set aside 10,000 immigrant visas annually for investors and their immediate family members.
Immigrant Investor Pilot Program enacted in 1993, providing for regional centers – due to sunset on September 30, 2015.
Foreign nationals can get a green card if:
– Invest $500,000 or $1,000,000 (depending on geographical area); and
– Investment creates full‐time jobs for 10 U.S. workersGreen cards conditional for two years
– Conditions removed if investment sustained and jobs created
Regional Center v. Individual EB-5
Individual EB-5 Petition
– Investor buys business, starts new business or invests in an existing business (formed after 11/29/1990)
– Must create 10 direct full‐time, W‐2 employees who are USCs or LPRs
Regional Center EB-5 Petition
– Investment into a business associated with a USCIS Approved Regional Center
– 95% of all applications– Main advantage
Indirect employment counts through the use of an economist report to predict project job creation.
What is a Regional Center?
Entity that:
– Focuses on a geographic region– Promotes economic growth through increased exports, regional productivity, domestic investment, and job creation
Applies to USCIS for designation approval
Oversees capital investment projects for alien investment
Markets for investors
Due diligence on investors
Prepares I-526 package templates
Regional Centers cont.
Oversight of I-526 filings
Tracks infusion of capital into job-creating enterprise
Monitors compliance with business plan and foundation facts in economic report
Ongoing administration and compliance responsibilities
Allocates jobs between investors
Prepares I-829 package templates
Decides on new projects
What is an Indirect Job?
Jobs created in the regional economy as the result of the economic stimulus of the investment
To be demonstrated via “reasonable methodologies” (economic forecasting tools):multiplier tables
– Feasibility studies– Market analyses– Other economically or statistically valid forecasting devices
Input/Output Models
Forecasting tools to predict increased employment resulting from defined changes in the economy:
– Employment– Revenues– Expenditures
Types of Models – RIMS II, IMPLAN, REDYN
Procedure (Matter of Ho)
Matter of HO is a 1998 USCIS regulatory case that requires a business plan BUT one that significantly differs from a traditional Business Plan.
A compliant Matter of HO Business Plan will avoid unnecessary and costly Requests For Evidence from USCIS
Mandatory Requirements of Matter of Ho Business plan
Business description
Business Structure
Marketing Plan with targeted marketing analysis
Personnel Experience
Competitive Analysis
Required Licenses and Permits
Staffing timetable for hiring (must show how you intend to create 10 jobs per investor)
Job descriptions
Budget and Financial information
Securities Law Procedure
Raising capital = securities offering
Need sophisticated securities counsel familiar with EB-5 rules, Broker Dealer issues - preparation all offering documents (Private Placement Memorandum)
Engaging placement agents and local securities lawyers in various countries
Road show presentations and marketing materials in various countries
Securities Act of 1933Registered Public Offerings of securities
– SEC review, post‐sale reporting, etc.Private Offerings Exempt from Registration
– Mostly under Regulation D– Needed for other exemptions
Note: The JOBS Act is law, but the implementing rules are not yet in effect!
14
Investment Company Act of 1940Prohibits “investment companies” from engaging in interstate
commerce unless registered or exempt.
“Investment companies”—any issuer which:
– Holds itself out as engaged primarily in the business of investing in securities; or
– Is engaged in such business and 40%+ of its assets (exclusive of gov’t securities, cash and certain subsidiaries) are investment securities .
Investment Advisers Act of 1940Prohibits “investment advisers” from engaging in interstate
commerce in connection with his or her business as an investment adviser unless registered or exempt.
“Investment advisers”—anyone who, for compensation, engages in the business of advising others as to the value of securities or issues reports concerning securities.
Anti-fraud provisions.
Structure
Real Estate Development Transactions - normally run through a Regional Center (benefit of indirect jobs)
– Set up as loan from the new commercial enterprise to the development ‐ paid off in 5 years at loan interest rate.
– Loan usually secured but deeply subordinate to a senior lender or as mezzanine financing
Non-Real Estate growth-oriented companies normally direct investments
– EB‐5 investor becomes a preferred equity holder with a small coupon (basically no other rights)
– After 5 years, investor wishes to redeem – but can only be at the election/ discretion of the manager of the new commercial enterprise
– In both cases, the investor’s capital must always be at risk
Why Use EB-5?
Complicated process that could yield very successful results
Billions of dollars raised by companies -small to Fortune 500
Yield very effective - often the coupon paid on the money over 5-year term can range from 1% - 2%
Makes economic sense as part of capital stack of any project that creates NEW jobs, thus making the time and investment worthwhile
– EB‐5 is also a good way to replace short‐term construction loans easier. EB‐5 can come in and take out a 3 year construction loan with a 5‐6 year term, giving a developer more time for a project to stabilize and obtain long‐term financing to replace the EB‐5.
Deals make sense for investors - they get a green card and ultimately citizenship in US for themselves and their family in exchange for $500,000/$1,000,000
If deal is successful, investor receives their principal back in 5 years!
Crowdfunding Democratizes Real Estate Investing
Benefits to Developers & Operators Thousands of investors (and select family offices) to pitch your deals to and build relationships with
Used for new construction, refurbishment, rentals
Fair, flexible & simple terms
Crowdfund co. minimizes Q&A and reporting burden of interacting with so many investors
Receive marketing assistance and leverage crowdfunding for publicity
“I may be able to get comparable terms from my best investment & lending sources, but I can only scale my real estate business with new sources.”
– Crowdfund operator at iFunding Harvard panel
Real Estate Crowdfunding is Accelerating
This peer-to-peer game in real estate investment is an irreversible trend that is rocking the traditional banking and investment players.
Real estate is proving particularly popular largely because it is a tangible asset that people can look at and visit.
The impact of crowdfunding on the commercial real estate market will be profound. The power of the crowd is undeniable, to self-regulate and to fund.
Crowdfunding has the potential to bring capital to developers and buyers who had lacked the scale to warrant the attention of traditional capital.
$100-200m+ will be transacted via RE crowdfunding in 2015
85% annual growth in equity crowdfunding; real estate growing fastest
Scores of platforms yet 3-4 prominent sites
High Potential: Accredited Individuals invest $25bn/year in real estate
Compare to Lending Club: $5bn financed, going IPO
About iFunding (www.ifunding.co) One of most prominent sites, featured on CNBC, in
Forbes, Real Deal, Real Estate Weekly
Nearly 5,000 registered accredited investors –expanding fast
100+ residential & commercial deals screened per month to select listings
30+ funded projects; investor contributions of over $30M; many home projects have funded same-day
Strategically focused on capital preservation
Technology supports efficient access, transparency and streamlined reporting – including mobile app
Examples - Residential-Focused
$1.1m equity to expand 31-condo community to 88 units near Denver
3 co-located infill homes built in Charlotte; equity or debt; $200-250K each
$500K for Connecticut home-building fund
$1.7m short-term preferred equity on three multi-family locations (399 units); pre-funded by family office partner
Mobile home park acquisition fund with 10th largest US owner
Recently-FinancedDebt: first-lien at 12-16% to
operator, depending on project duration & reliability, plus listing fee
Equity: 8-12% preferred to investors, then 50/50 split
Due diligence, deal listing, funding takes 1 week – 1 month depending on complexity/changes in project
Funding completed in 30 minutes hour to 3 weeks
Typical Industry-Wide Terms
Best Practices for Crowdfunded FinancingDrivers of Success with Investors: Expectations of the Developer:
Investors evaluate the operator as much as the deal
Prior experience with property type & city
No unexplainable past situations
Early investments increase traction Contribute your own equity
Invite investors you know to seed the deal
Most investors can’t visit property Provide rich status reports/images/video
Explain any delays and impact
They are actively learning about crowdfunding and types of deals
Use simple or standard pro forma
Be prepared with due diligence docs
Create an FAQ in advance with crowdfunder
Different crowdfunders have different types of investors
Ask about a crowdfunder’s property types, financing terms and regulations
Deal Sponsor Preparation Checklist
• Review different crowdfunders’ focus
• Allocate 1+ weeks for simple listing and 14-30 days for financing
• Developer & property background should be ‘clean’
• Have alternate funding options as backup
PREPARE PROPOSE
• Have specific deal in mind, under contract
• Submit form for quick feedback: ifunding.co/apply-to-list.php
• Share preferences for terms
• Platform will share checklist of property documents needed incl. pro forma
FUND
• Sign entity/loan docs• Thoroughly review the
listing content with crowdfunder
• Participate in webinar • Refer existing
investors to seed momentum
• Monitor investor q’s with crowdfunder; respond same day
FOLLOW UP
• Frequent, detailed updates make investors more comfortable wth you -good for next time
• Note any delays early and explain plan
• Indicate to crowdfunder if market conditions are changing
Steve LawsonThe Lawson Companies
757.499.6161373 Edwin DriveVirginia Beach, VA 23642
Speaker Contacts:
Laura Foote Reiff Greenberg Traurig LLP
703.749.13721750 Tysons BoulevardSuite 1200McLean, VA 22102
William SkelleyiFunding
262 W. 38th St., #305New York, NY 10018
Steve LawsonThe Lawson Companies
757.499.6161373 Edwin DriveVirginia Beach, VA 23462
Speaker Contacts:
Laura Foote Reiff Greenberg Traurig LLP
703.749.13721750 Tysons BoulevardSuite 1200McLean, VA 22102
William SkelleyiFunding
262 W. 38th St., #305New York, NY 10018
