Category Archives: Real Estate

Syndications, Cryptocurrencies and Crowdfunding, Oh My!

Real Estate Nerds Podcast: Syndications, Cryptocurrencies and Crowdfunding, Oh My!

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Mark Roderick fills us in on how the rich can take care of themselves and the non-rich need the government which is why he thinks crowdfunding is so important to the regular Joe. Since the JOBS Act of 2012, Mark has spent much of his time in the crowdfunding space.

If you have ever thought to yourself the internet is a ruthless landscape slowly squeezing the middleman and driving human being up the value chain? Then you’ll want to tune into this week’s episode where Mark will explain everything from syndications to cryptocurrencies to crowdfunding, oh my!

Questions? Let me know.

The Real Estate Way to Wealth and Freedom Podcast

WEALTH AND FREEDOM PODCAST

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In this episode of The Real Estate Way to Wealth and Freedom, you will learn:

  • Crowdfunding – what it is and how it relates to real estate
  • Comparing and contrasting crowdfunding and syndication
  • How much money you can raise and who you can raise money from
  • Title 2, Title 3, & Title 4 crowdfunding – what to know
  • Predictions of how technology will impact real estate investing in the future

Questions? Let me know.

A Millennial’s Guide to Real Estate Investing Podcast

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On this episode of A Millennial’s Guide to Real Estate Investing, host Antoine Martel sits down with Mark Roderick, a leading crowdfunding, investing and fintech lawyer. They talk about blockchain, crowdfunding, the JOBS act, and how all of these things are going to be changing the real estate industry. Also discussed are the different types of crowdfunding flavors and how each of them work.

Questions? Let me know.

Real Estate Crowdfunding: How Far We’ve Come

 

The JOBS Act was signed by President Obama on May 5, 2012. Last month, a client of mine, Tapestry Senior Housing, raised about $13.6 million of common equity for a project in Moon Township outside Pittsburgh. Tapestry is an affiliate of Tapestry Companies, LLC, a national firm that operates as an owner, manager and developer of senior and multifamily properties. The Moon Township project involved the adaptive re-use of an existing Embassy Suites hotel.

This was the largest raise in the history of the CrowdStreet platform and, in my opinion, an important milestone for the Crowdfunding industry.

Not long ago, real estate Crowdfunding was limited to single-family fix-and-flips. At the annual meeting of NAIOP in Denver, in October 2014, I moderated a panel on Crowdfunding with Adam Hooper of RealCrowd and Darren Powderly of CrowdStreet, as it so happens. The audience for our panel was the smallest of the conference — but at the same time probably the youngest and most enthusiastic.

The size of the deals grew and high-quality sponsors like Tapestry began to notice. Now, when word gets out that someone has raised $13.6 million of equity, I believe we’re going to see a spike in interest from a broad spectrum of sponsors in every industry sector.

You can’t raise $13.6 million for just any sponsor and any deal, of course. Tom LaSalle, Jack Brandt, and their team at Tapestry have a remarkable track record in the senior housing space, and this was their third deal on CrowdStreet. CrowdStreet itself has a terrific and well-deserved reputation as a premier site. Put a great deal, a great sponsor, and a great site together and you get a terrific result.

But let’s not forget the most important factor of all (besides the lawyer, I mean). In the Moon Township deal, Tapestry and CrowdStreet gave about 280 accredited investors from all over the United States the opportunity to participate in the kind of investment once reserved for the wealthy. That is now, and will continue to be, the most important ingredient for success. When we talk about Crowdfunding as the democratization of capital, that’s what we mean.

Tapestry raised $13.6 million from 280 investors. There are close to 10 million accredited investors in the United States alone. To my mind, that means that the opportunity for growth, even within Rule 506(c), is practically unlimited.

So hats off to Tapestry and CrowdStreet, and on to the next deal.

Questions? Let me know.

Podcast: Mark Roderick Talks Real Estate Syndications

MSR Podcast Real Estate

Lifetime CashFlow through Real Estate Investing Podcast with Rod Khleif

Special Guest: Mark Roderick

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In this episode of Lifetime CashFlow through Real Estate Investing, you will learn:

  • Real Estate Syndications OPM (Other People’s Money) and Securities Laws;
  • Understanding Securities Exemptions;
  • Most common exemptions for syndications;
  • The 506(b) exemption;
  • Accredited Investors Sophisticated Investors;
  • The JOBS ACT; and
  • The 506(c) exemption Understanding Reg A Documents for Syndication.

Questions? Let me know.

Podcast: A Primer on Real Estate Crowdfunding

Real Estate Investing for Cash Flow

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In this episode of The Real Estate Investing for Cash Flow Podcast, Kevin shares the mic with Mark Roderick — Corporate Securities Lawyer with a special focus in Fintech and Crowdfunding. Since the JOBS act of 2012, Mark has spent the majority of his time advising and representing the interests of upstart firms and companies on their fundraising activities. In addition, the contributions to his personal blog give detailed insight into the best fundraising strategies of the digital era.

HIGHLIGHTS [10:52] What was the ultimate catalyst for the JOBS act of 2012? [16:28] What is Mark’s “3 Flavors” of Crowdfunding? [25:44] What are the costs associated with setting up a Regulation A Public Offering? [33:42] What role has investor portals played in the last few years? [41:23] Mark’s closing thoughts.

Questions? Let me know.

REALCROWD Podcast – An Attorney’s Take On Real Estate Crowdfunding

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Listen as Adam Hooper and Mark Roderick discuss crowdfunding for real estate and the legal documents investors sign when investing in a real estate deal.

Postcast: An Australian’s Guide to Investing in U.S. Real Estate

AussieEarlier this month I had the pleasure of being interviewed by Reed Goossens, who speaks with a strange accent but knows a heck of a lot about real estate. During the program, the third installment in Reed’s series on U.S. real estate syndication, I talked about raising capital from non- U.S. investors and other more general issues that face syndicators and investors.

If you’re interested, you can listen to the podcast here.

Crowdfunding A Reit

REIT Blog Post Image

People sometimes ask “Will Crowdfunding replace REITs?” That’s not exactly the right question.

A REIT – an acronym for Real Estate Investment Trust – is not a function of real estate law or corporate law. A REIT is solely a function of tax law. Section 856 of the Internal Revenue Code defines a REIT as a corporation, trust, or association that satisfies certain criteria, including these:

  • At least 75% of the entity’s assets must consist of real estate assets or cash.
  • The entity must have at least 100 owners.
  • Interests in the entity must be transferable.
  • No more than 50% percent of the interests in the entity may be held by five or fewer individuals.

There is only one benefit of qualifying as a REIT: as long as he distributes at least 90% of its income to its owners, the entity itself is not subject to tax. Only the owners are subject to tax, when they receive dividend and capital gain distributions. The whole REIT industry is built around this tax benefit.

Because the REIT label is solely a function of tax law, not corporate or securities law, a REIT can be:

  • A publicly-registered company with publicly-traded securities; or
  • A publicly-registered company with privately-traded securities; or
  • A private company with privately-traded securities.

The second category of REIT is probably most common and, frankly, it is the category that has given REITs a bad name. Sold through the traditional broker-dealer channels, it is not unusual for the shares of publicly-registered, privately-traded REITs to carry a load of more than 10%, great for the broker, terrible for the customer. That’s why people say “Private REITS are sold, not bought.”

Compare a publicly-registered, privately-traded REIT to a garden-variety limited liability company owning real estate assets. In both cases, the entity itself pays no tax. And now, through Crowdfunding, the garden-variety LLC can solicit investors using the Internet, leading to transactions cost (load) much lower than the private REIT. Economically it’s a no-brainer: the Crowdfunded real estate LLC is better than the private REIT.

As I said, however, that’s really comparing apples with oranges. The REIT designation is about taxes; Crowdfunding is about how you find investors.

The real question is “Can I find investors for a private REIT using Crowdfunding, rather than through the traditional broker-dealer channels?” And the answer to that question is a resounding “Yes!” When you check the deals available at your favorite real estate Crowdfunding site tomorrow morning, you could well see a REIT.

And why would a sponsor offer a REIT rather than a garden-variety LLC? One reason – maybe the only reason – is tax reporting. An investor in an LLC receives a full-blown K-1 each year, and faces at least the theoretical risk of paying tax on “phantom” income. An investor in a REIT, on the other hand, receives only a simple 1099 and pays tax only on actual distributions.

Be that as it may, nobody should be paying a 10% commission. By connecting sponsors directly with investors, Crowdfunding promises to squeeze this kind of inefficiency out of the capital formation industry. Especially when Regulation A+ comes into effect, opening the market to non-accredited investors, there is every reason to believe that Crowdfunding will replace the traditional broker-dealer as the preferred method for distributing REIT shares.

Questions? Contact Mark Roderick.

CHOOSING AND PROTECTING A NAME FOR YOUR CROWDFUNDING BUSINESS

Names matter, even for a local business, but they matter a great deal for a Crowdfunding business, where your customers know you only from a distance.

Generally speaking you can choose three kinds of names:

  • A name that describes what you do, e.g., Real Estate Crowdfunding Portal, LLC.
  • A name with no inherent meaning, e.g., Xeta, LLC.
  • A name somewhere in between, e.g., Lifelong Investments, LLC.

Each category has advantages and disadvantages:

  • A name that describes what you do…well, it describes what you do. When a consumer sees the name she knows what you’re selling. On the other hand, a name that describes what you do is often not very memorable.
  • The strongest names are those that start out with no inherent meaning. Amazon, Starbucks, E-Bay. When consumers think of Amazon they think about the gigantic online retailer, nothing else. The name is worth a billion dollars! On the other hand, Amazon had to spend more than a billion marketing dollars to give meaning to a name that otherwise belonged to a river.
  • A name somewhere in between is somewhere in between. It might be sexier than a name that is merely descriptive and require a lot less marketing fuel than a name with no meaning, but with the associated disadvantages as well.

In the Crowdfunding industry to date, most portals have chosen the more descriptive over the more powerful. Poliwogg is an exception. Fundrise might be another.

With two well-known Crowdfunding companies – Crowdentials and VerifyInvestors – we see two different approaches to choosing a name. And we can’t say for certain whether one is better than the other. That will depend on what each company does with its name.

Having chosen a name, how do you protect it?

To start with, a business acquires “common law” rights to a name merely by using it, without filing anything with the government and without involving lawyers. If another real estate Crowdfunding portal tried to use the Fundrise name today they couldn’t do it, even if the Miller brothers had never done anything to protect their name (they have).

Contrary to common belief, merely registering a company name with the state by forming a corporation or other entity provides no real protection. State filings are simply a matter of bureaucracy – the state wants to make sure that no two names are confusingly similar on its own records.

For the best protection, however, the business owner should obtain a Federal trademark from the U.S. Patent and Trademark Office. A Federal registration provides important benefits, including:

  • The registration constitutes “constructive notice” to all later users in all locations.
  • The registration permits the owner to get an injunction against a trademark infringer and sue for damages, including profits, costs, treble damages and attorneys fees.
  • The registration can strengthen the value of the name as a corporate asset.
  • The registration demonstrates your right to use the name to the owners of other websites, such as Google, Facebook, and Twitter, which are often called on to “officiate” disputes over names.

The trademark application process normally takes about a year, assuming no significant problems. Once granted, a trademark registration can last forever if continuously used and renewed.

NOTE: Not every name can be trademarked. A name like “Real Estate Crowdfunding Portal,” which merely describes the product or service, probably cannot be registered by itself. But it might be registered with a distinctive logo.

Finally, don’t forget to acquire the domain name.

Questions? Contact Mark Roderick at Flaster/Greenberg PC.

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