NAIOP NJ, the Commercial Real Estate Development Association hosted a seminar with two very different topics: The complex issues surrounding how New Jersey funds affordable housing, and the evolution and opportunity of Crowdfunding for commercial real estate developers and investors. In essence, it was a tale of two cities about well-intentioned public policy gone badly and a new Internet platform with unlimited potential.
The program was hosted by Advance Realty at its sprawling NJ Center of Excellence, providing an opportunity for participants to take in what was the former Sanofi campus, which Advance will transform into a new multi-family/retail/office mixed-use center.
Advance’s Peter J. Cocoziello moderated both discussions. Experts on the legal, regulatory and legislative challenges of the Council on Affordable Housing (COAH) included Kevin Moore of Sills Cummis & Gross, Thomas Carroll of Hill Wallack, and Michael Cerra of the NJ League of Municipalities who largely agreed that the potential for a COAH resolution in the foreseeable future is bleak. COAH’s stalemate in adopting new rules (despite a court mandate) and the lack of progress in enacting comprehensive reform legislation has created what Carroll described as “15 years of unremitting chaos” for developers, as well as the courts and the municipalities struggling to comply with affordable housing mandates. “It is a conundrum that continues to cast a shadow of uncertainty for towns and developers regarding affordable housing obligations,” he added. NAIOP NJ continues to work with other stakeholders to develop an equitable and sustainable methodology to address affordable housing.
Crowdfunding: Growing at a Phenomenal Rate
In stark contrast to the ongoing frustration with COAH, crowdfunding, participants learned, is an exciting new opportunity for developers and investors. “Crowdfunding is the Internet coming to the capital formation business, and it is having a huge impact,” explained Mark Roderick (Flaster/Greenberg PC), one of the leading crowdfunding lawyers in the United States. He likened Crowdfunding and real estate today to when Amazon, Expedia and Match.com became industry leaders in their respective fields. Accredited investors are finding “huge new investment opportunities in commercial real estate projects,” he said, adding “real estate is at the heart of crowdfunding.”
Specifically, Title II Crowdfunding (for accredited investors and the only current legal venue for crowdfunding) is often referred to as online private placements. With an annual growth rate of 74 percent, crowdfunding has become a multi-billion dollar industry “It’s a way to fund a project or venture by raising many small amounts of money from a large number of people via the Internet,” Roderick said. He added that Fundrise, the first real estate crowdfunding company, “started it all and gave birth to the industry.”
Participants learned how Fundrise launched and operates from speaker Dan Miller, who founded the company with his brother. The offspring of a successful real estate family (Western Development), Miller said the two brothers envisioned an inclusionary and better way to raise money and develop real estate through the Internet. Today, the company has raised and invested about $60 million in over 50 deals since 2012.
“By using the Internet, the investor gets more return and less fees,” he said. When developers put projects on Fundrise, they gain access to every accredited investor in the world, and those investors have access to deals once reserved for only the very wealthy.
Once the SEC issues final regulations, Crowdfunding will be available to non-accredited investors. Roderick predicted that “Everyone in this room will participate in crowdfunding within the next three years.”
The seminar also included time for active networking among participants, which is always a key component of NAIOP NJ programs, according to Michael McGuinness, CEO of the 670 member organization. “Our attendees appreciated the information and the chance to share their views with the speakers and their peers,” he said, adding that the Crowdfunding program elicited dozens of questions from the audience.