Under contract for a six-story, 82,892-square-foot office/retail building in the heart of Downtown Orlando, New Jersey-based real estate manager Denholtz Associates is using real estate crowdfunding platform CrowdStreet.com to raise more than $2 million from individual accredited investors, who can contribute as little as $25,000 each.
Located at the southeast corner of E. Pine Street and S. Magnolia Avenue (100 E. Pine), the property boasts a Walk Score of 96, lies two blocks south of Lake Eola and two blocks east of the Dr. Phillips Center.
It's the first Orlando property for which CrowdStreet's web platform has been used to crowdfund, which allows individual investors to buy shares in a property ownership group at low-level stakes rarely seen in commercial real estate. It's the 29th property funded by the platform since it launched in early 2014.
"Investing in an East Pine location is untouchable for guys like you and me, but with this platform you can join in with a proven investment manager that has a fiduciary responsibility to its investors," Darren Powderly, co-founder of CrowdStreet, told GrowthSpotter on Tuesday. "Denholtz is working with us because it wants to expand its investor reach. This is a transformative business model, the democratization of investment."
Denholtz plans to pay $6.704 million for the property, or $81 per square foot, and is expected to close on the purchase in January. Built in 1977, the building is owned by Brooklyn-based investor Alexander Levin, who bought it in June 2012 for $5.15 million.
Denholtz projects capital improvements of more than $2.6 million, and will convert the building into boutique Class A office space that will cater to small and mid-size creative users.
The property is currently only 48 percent leased, despite an occupancy average of 86 percent in the immediate sub-market.
Denholtz estimates its all-in cost after repositioning to be $137/SF, but projects it can improve the property's Net Operating Income from a current $154,000 to $1 million annually, boost Cap Rate from 2.3 percent to 7.5 percent, and justify a future exit valuation of $13.3 million, or $161/SF. Denholtz is projecting a 17.6 percent total investor return over a five-year hold period.
CrowdStreet was co-founded by Powderly in April 2012, after the federal JOBS Act opened the door for issuers of Regulation D private offerings to generally solicit public investors.
That process was limited before to just immediate friends and family, due to regulation dating back to the Great Depression. But the JOBS Act brought the law up to date with the Internet age, allowing equity crowdfunding portals like CrowdStreet to be formed as public marketplaces for investment.
CrowdStreet is now a software and services company making commercial real estate investment opportunities more accessible to individual and institutional investors by connecting them directly with large real estate sponsors.
An entry point for individuals to jump into commercial real estate portfolio investment has typically been $250,000. CrowdStreet allows buyers to offer as little as $25,000, though personal net worth is still a barrier.
The JOBS Act only allows accredited investors to participate in real estate crowdfunding, i.e. those with $1 million or more of net worth. That's only about 9 million Americans today, Powderly said.
Crowdfunding for non-accredited investors under Title III of the JOBS Act is expected by May 2016 from the Securities and Exchange Commission. It should do away with the net worth minimum, opening up real estate crowdfunding to anyone.