The Kickstarter of Commercial Development Takes Flight
D.C.-area developers Dan and Ben Miller are on a mission to transform the way business is done in commercial real estate. Troubled by what they see as a profound disconnect between communities and the investors that shape them, the two brothers founded a startup last year to harvest public feedback on new development projects. Now, they're taking it a step further, giving laypeople a chance to put their money where their mouths are and buy a stake in them.
Writes Badger, "Historically, hotels and restaurants and shops were built by local people investing in their own neighborhoods. 'And now, people are invested in nothing local!' Ben exclaims. 'Everything’s remote, everything’s on Wall Street, everything's in mutual funds.'"
So after acquiring a property on H Street, the duo took it public in August to pilot their new financle model. "Under a new company called Fundrise, the Millers invited anyone in the area – accredited or not – to invest online in this one building and its future business for shares as small as $100, in a public offering qualified by the Securities and Exchange Commission. By the time the deal closed last week, 175 people had together invested $325,000, for just under a third of the whole project."
The legal complications surrounding the endeavor are not to be understated: it took two years and almost $1 million in legal counsel to get the project off the ground and approved by the Securities Exchange Commission, through the magic of a little-used funding mechanism called "Regulation A."
"The Millers figure they will have some control over who mimics their idea," Badger notes, "because no one else would willingly go through the expensive legal headache they voluntarily took on to figure this out. If you’re a developer, why would you relearn their lessons when you can simply list your investment on the already existing platform that is Fundrise? The Millers say they won’t partner, however, with anyone they feel doesn’t share their values."