A New Option in the Crowdfunding Landscape

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ckmack-1Crowdfunding has grown substantially since the inception of Title II of the JOBS Act. One of the most active subsections has been equity sharing in real estate. With over a hundred active companies all offering their own special blend of crowd sourced real estate transactions, it is hard to see how another could innovate a new option for investors.

C.K. Mack just launched a company with a new take on crowd sourced real estate investing. Their COO, Mack Schicktanz, describes the platform as “an improvement on both the crowdfunding and peer to peer lending models. The system offers cash flow based, real estate backed investments with a minimum of just $25. Unlike the crowdfunding model, which calculates IRR, your return isn’t heavily based on speculative appreciation estimates. We calculate the return based on the actual performance of each individual property on our system.” C.K. Mack escrows for hard costs like taxes and insurance. They also take escrows to account for repair and vacancy. So, even if your investment needs property improvements, your return should not be affected.

While users don’t get the appreciation, there are some very interesting advantages to this system. When rent increases so does your ROI. Rent increases are passed on to investors in those properties. Users are only committed to holding their investment for 12 months while other companies sometimes require three to ten year commitments.  A very exciting aspect of the business model is their in-house buyback program. After 12 months, whenever you are ready to divest, C.K. Mack will buy back your securities at your initial principal investment. The monthly distributions allow you to reinvest at a more frequent rate. The compounding effect of the reinvestment opens the opportunity to boost investor’s returns even higher than some traditional equity crowdfunding opportunities.

One of the most exciting opportunities and a hot topic at CrowdTrader.net is diversification. The minimum investment per property is $25, however you can invest in as many properties as you choose. This allows any investor the option of spreading what might be a minimum investment on other platforms across a pool of properties. As the investment offerings on the site grow it will be exciting to explore the option of diversification through multiple regions.

To take a closer look at this new option visit https://ckmack.com.

A CEO’s Perspective Crowdfunding with Title III: Q&A w/WOLACO

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Since Title III of the Jobs Act just recently went into effect we decide to get a closer look at how CEOs actually view the new legislation in respect to their future financing needs. We had an opportunity for a Q&A with Terry White the Founder/CEO of athletic apparel company WOLACO. He was able to share with us the company’s history as well as their first crowdfunding experience with Kickstarter and his perspective on Title III.

 

CT: What does WOLACO mean?

TW: WOLACO is an acronym for Way of Life Athletic Co. I thought about the company name long and hard, I asked close friends for input, and conducted lots of surveys. However, it was during a commute home from my day job at the time that WOLACO popped into my head. I asked myself what I really wanted this company to stand for, and concluded that at the core, it was about an athletic and deliberate Way of Life.

Since the start, we’ve been uniquely focused on meeting the lifestyle needs of the modern male athlete—guys who need active apparel that’s bold, functional, comfortable, and built to last…not for brunch. Gear for guys who live life with deliberation, passion and daring.

 

CT: When and where did the idea come from?

TW: There are two pieces of the puzzle that came together soon after my college graduation. I was a collegiate athlete and despite much forewarning, I was caught off guard by the abrupt transition from that hyper-athletic lifestyle to a largely sedentary professional routine. As a young professional, I was spending 80 percent of my waking hours either sitting at a desk or commuting to-and-from work. When I wasn’t working or commuting, there were other hindrances that prevented me from living an active, healthy life. Living in New York City, you have the challenges of time, money and an outdated corporate culture that revolves around happy hours and client entertainment—indulgences. This challenging transition really moved me to want to find the right work-life balance.

 

Then, I had an idea for a product. At the end of 2013, I left my NYC apartment to go for a run. With my phone in my hand and my key tucked into my sock, I thought to myself, there must be a better way. So, I came up with the North Moore Short—a men’s athletic compression short with two sweat-proof pockets, one pocket for your phone or music device and the other for your keys, cash, credit cards, or any other valuables. This was the catalyst for WOLACO. The foundation of the brand was already being built, but it was this game-changing product that afforded me the window to enter the market.

 

CT: How is your compression gear different from others?

TW: We’re the first company to introduce sweat-proof compressive pockets to compression gear—and we’re the best at it. What makes us different is that we’re the only apparel company that’s uniquely focused on the needs of the modern male athlete.

 

  • To ensure built-to-last durability that can withstand our customer’s lifecycle (multiple washes, high intensity workouts) we use a heavier, performance-based compression fabric, held together by a flatlock construction with reinforced stress points. It’s intended to be Worn Hard, Washed Gently, as our care and content label advises.

 

  • To enhance and streamline your workout, our compression gear features two compressive, sweat-proof pockets, reminding you that sweating while working out isn’t just okay, it’s encouraged. The placement of these pockets is also strategic, making access to your valuables while working out seamless.

 

CT: Tell us how WOLACO got off the ground?

TW: It’s been a very organic process and largely grassroots the whole way through. It started with a small family loan that funded our initial product development. My brother Alex and I then liquidated a small investment fund to build our website. From there, we launched a series of pre-sales, selling 500 units of our North Moore 1.0 and then we graduated to Kickstarter to reach a more diverse customer base very quickly.

CT: What made you choose to fund via alternative investment options?

TW: It was a decision that I made early on. I had a concrete vision for WOLACO and I didn’t want to sacrifice that vision for large investments, especially during the foundational stages. Kickstarter, in particular, allowed me to remain vision-focused, while also engaging the community in a meaningful way, selling product to athletes around the world, and getting a lot of tremendous feedback and direction from our customers.

CT: Kickstarter is both a costly and time-consuming venture, what assured you of a lower risk to reward ratio? And what attributed to the success of your campaign, which exceeded goals by 400%.

TW: During campaign preparation, a mentor of mine, who had previously run a successful Kickstarter himself, told me that it was just like a game of dominoes. If you could line up all the pieces beforehand, once your campaign launches, all you’d need to do is nudge the first one and the rest falls into place. I took the concept to heart, and in many ways, his philosophy proved true. Preparation is everything; you cannot rely solely on organic traffic on the platform to fund the whole campaign. It requires a “kitchen sink” networking approach, which means exhausting every networking angle you can imagine, and preparing them for what is to come.

 

That said, in any business, the quality of the product is of pivotal importance. It’s also important to keep in mind that crowdfunding campaigns are unique in that the consumer takes an unusually large risk with you. Even if a campaign is well-funded, there are an incredible number of things that can still go wrong, whether that means a delayed delivery, or, worse case scenario, a complete failure of delivery altogether.

 

Lastly, creativity—the product or concept needs to turn heads and have a strong, consistent message. If you’re not doing something different, improving upon something or challenging norms, then you should think twice before launching a crowdfunding campaign. Some companies are well-suited for this type of funding method, but others, not so much. WOLACO was addressing popular demand for a product that met people’s needs. We had an overwhelming amount of organic support for this simple, well-engineered, yet unprecedented product.

CT: Tell us about the brand’s growth since its inception.

TW: We’ve grown from a community of 350 customers throughout the Northeast to over 6,500 customers from 50 countries around the world.

 

CT: How do you currently market your product line, and where are the products available?

TW: WOLACO’s gear is primarily available through our online e-commerce store, wola-co.com. We’re engaging in a number of additional means of distribution, though, including local retailers, on- and offline affiliates, and through a network of brand ambassadors.

 

To this point, the majority of our marketing to this point has been done through organic efforts, including social media and email marketing. We’ve leveraged influencers to raise awareness and gain exposure. And we’re looking to establish partnerships with those brands that align with our mission.

CT: What plans do you have for the future?

TW: Functional compression is how we started and will always be rooted in who we are. Over the next year, we’ll continue to listen to what our customers are saying. We’ll continue to elevate our compression offering, while strategically expanding our brand and thoughtfully introducing new products that fit the needs of our customer.

Our greater brand mission is to inspire an epic life through active living. As we look ahead, our ultimate goal is becoming the lifestyle brand for the modern athlete.

CT: The SEC’s JOBS Act, Title III went into effect on May 16th. Can you explain what that is, and how it’ll impact businesses looking to raise early capital?

The amendment to Title III of the Jobs Act is an easing of regulation. Which allows non-accredited investors to invest in companies raising raise less than $1mm on an annual basis.

 

Generally, the crowdfunding aspect of Title III of the JOBS Act makes capital potentially more accessible for young startups. It reduces invest risk by allowing for investors with less experience to invest less substantial dollar amounts in to early stage companies. For early-stage companies with a great story, vision and team, but limited traction and proof of concept in the market, Title III will help to raise capital in lieu of a lack of time in the marketplace. In turn, expediting investment and allowing them to focus on building their business.

 

Additionally, companies built around a community will benefit even further from Title III, as it is an opportunity to disperse ownership to some of the company’s most loyal customers. For early-stage companies, this community empowerment could be exactly what is needed to build much needed momentum.

 

Terry thanks for your time and we will keep our eye out for WOLACO and any new developments from your team.

terrywhite headshot  Terry White is the Founder/CEO of athletic apparel company WOLACO.

 

 

Title III Crowdfunding Now Everyone Can Invest

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Well last Friday it finally happened. The SEC passed Title III of the JOBS Act which effectively allows non-accredited investors to invest in private placement investment deals. In plain English this means when you visit any of the crowdfunding platforms they will allow you to view and invest in their offers without confirming that you are an accredited investor. Well at least in theory this will be the case.

On the surface this seems like the day we have all be waiting for in the crowdfunding industry but in reality it may have limited impact. While everyone has been jumping for joy about the new legislation and don’t get me wrong there is a lot to jump for here, there are still some issues. The problems are basically due to the capital limits placed on the deals which can be offered to non-accredited investors. In the current version of Title III the maximum that can be raised in these offerings will be $1 Million dollars. This may seem like a lot, but for most high quality real estate deals the capital limit basically prevents any of these deals from opening up to the small retail investor.

In my opinion the greatest potential crowdfunding offers retail investors is precisely in these type of investments which are relatively lower risk investments compared to start-up investing. The limit will have a small impact on the start-up investing platforms such as seedrs.com and seedinvest.com as most of these offerings are for less than $1 Million dollars. This is the exact issue that Nav Athwal, CEO of Realtyshares.com addresses here.

There are other issues regarding the additional regulatory hurdles which will be placed in front of the companies wishing to take advantage of this new legislation as Tanya Prive points out as well. You can read more about her concerns here.

In contrast to the issues raised by Athwal who runs a real estate crowdfunding platform, Chance Barnett CEO of crowdfunder.com a platform for startups, was singing the praises for the new legislation in his article here.

The contrast of these two views I think is really dependent on what Athwal pointed out. The implications of Title III are vastly different for real estate platforms as opposed to start-up platforms. The start-up platforms have a lot to gain as most of their offerings will fit under the $1 Million dollar cap and due to inherent riskiness of investments into start-ups investors will in any case want to commit less of their money to these investments. The opposite is true for the real estate platforms, which need more capital for each deal and are inherently much more stable investments which attract larger investments from each investor, the investment caps on these type of deals will seriously hinder the participation of retail investors.

One of my major concerns as well is that when the legislation actually goes into effect the start-up platforms will be the first to adopt offerings under title III. The hype and exuberance on the part of many retail investors to get in on these deals will lead to money flowing in without sufficient due diligence and without the proper hedges against risk. Since these are the most risky investments in the crowdfunding space it is really a horrible place for us to have to start with retail investors. A few deals that go bad and with start-ups the majority go bad will put a black cloud over the industry in terms of retail investors and this is all before the real estate platforms will be able to figure out the proper way to take advantage of the new legislation.

I hope for the industry and for investors both platforms and investors will proceed with caution using the proper due diligence and diversification to invest.

What Is Wrong With Title III Crowdfunding

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Not everyone is so convinced about the prospects of Title III of the Jobs Act which was recently passed by the SEC.We thought we would post some thoughts from around the web on the issues with the current legislation.

Nav Athwal, CEO of Realtyshares.com voiced his concerns about the legislation because the capital limits effectively exclude real estate deals.

Athwal writes:

In theory, it seems like a win-win for both sides but putting the Title III changes into practice may not be a realistic goal at this stage of the game. At my two year old crowdfunding for real estate startup RealtyShares where the goal has always been to cater to the general public and not only Accredited Investors, we’re struggling to determine if this rule is actually as impactful as it appears to be in theory. That is because while Title III does expand crowdfunding opportunities for non-accredited investors, there are still certain requirements that have to be met and restrictions that apply.

For instance, under Title III individual investments would be limited to either 5 or 10% of the investor’s gross annual income, based on their net worth. And any investment opportunity would be capped at $1 million in total fundraising within a 12-month period. For commercial real estate, a capital intensive asset, these upper limits could be very limiting.

In recent weeks, legislators have been making a push to have the cap raised to $5 million and reduce some of the cost to crowdfunding platforms with regard to Title III offerings. It’s not clear yet which way the SEC will rule on these issues. In terms of the logistics of vetting non-accredited investors and making sure investment deals fall within the guidelines Title III imposes, the challenge may be too much of an obstacle for more nascent startup platforms to take on.

Other verticals, particularly those catering to startups or small businesses, will reap some positive benefits from Title III and those benefits extend to the public as a whole. Unlike real estate, oftentimes startups and small businesses do not need as much cash to hit that next milestone and thus the upper limit of $1 Million could prove workable. On the whole, however, the rules in their current form may not carry as much weight as previously thought.

You can read the full article here.

Other concerns were voiced by Tanya Prive, which concern the higher regulatory demands that will be put both on platforms and start-ups themselves to be allowed to open their offerings to non-accredited investors.

Prive writes:

Plus, a detailed due diligence screening conducted by the intermediaries or their outsourced partners will need to take place before the deal can be admitted, which can take anywhere between 15- 90 days. It will examine every little aspect of the company, its officers and major stakeholders, which depending on whether the intermediary does this in-house or outsources it, will result in additional fees, typically ranging between $2K-$5K. To build on top of that, there is no good way of making this process truly scalable as each due diligence conducted is unique in a way to the company undergoing it.

Read Prive’s full article on Forbes.

It remains to be seen how effective the new legislation will be as well as how many of the platforms will actually start adding offers under Title III. Keep reading more on this issue.

Understanding Commercial Real Estate Investment Risks

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building-Everyone is excited about investing in commercial real estate with equity based crowdfunding, after all what could be easier? You just put some money into a great commercial property and site back as you watch the 8-12% returns hit your bank account. You own part of a great commercial asset with no downside and a huge upside as real estate prices rise all while you investment is being protected from the erosion of inflation. Sounds great right? Well yes it is but every investor knows that with reward comes risk and the greater the reward the great the risks. Although commercial real estate investing, especially if you are able to get access to blue chip properties in strong locations may have less risks than other areas of real estate investing nevertheless there are risks.

In order to get a better understanding of the risks involved in commercial real estate investing in general and through crowdfunding platforms in particular we decided to share with you this great analysis from Austin @ Realcrowd.com

Rent, Risk and NOI of commercial real-estate

The rental market is the lifeblood of commercial properties. It’s the top line that affects Net Operating Income (NOI) and the main source of annual cashflow to investors. Understanding how rents are priced, why they trend up or down, and how to reasonably predict those trends, is therefore an important factor when analyzing real estate investments.

Recall, the rental market consists of property owners on the supply side, and tenants on the demand side. The dynamics between them contribute in large part to rent and occupancy levels.

Rent is the price granting the right to occupy or use a space for a predetermined period of time, often quoted on an annual basis in terms of square footage. Knowledge of the rental price for a particular property can give an idea of the supply and demand to which that property is subject.
Rent isn’t fixed. It fluctuates based on market conditions. In general, higher rental prices translate to lower supplies and higher demands. Likewise, lower prices indicate higher supplies and lower demands.
In other words, we can specifically say that vacancy rates are a key determinant in the pricing of rents, and also a measurement of the health of a property. Lower vacancy correlates to higher demand and higher pressure on rents, and vice versa.

When gauging vacancy levels, these rules of thumb are generally true:

• A market vacancy of less than 5% or 10% is generally considered a tight market,

• Between 10% and 15% is a moderate market, and

• Vacancy above 15% signifies a weaker market.

Although each product type’s typical vacancy levels can vary.

Net absorption is another key measurement of market strength. Net absorption is the rate at which available space is rented (or vacated) over time. In other words, it signifies market momentum. When net absorption is positive, more tenants are leasing space than vacating it, and vice versa.
The net absorption rate and vacancy rates also indicate how long it will take to re-release a building if a tenant vacates. If the net absorption is positive and vacancy rates are low, available space leases back up in shorter periods of time.

Lease Structures and Rent Fluctuations
Tenants of commercial properties contractually lease properties for pre-determined periods of time. The typical lease structures for various asset classes are as follows:

• Multi-family – 6 months to 1 year.

• Office – 3 to 5 years for smaller suites and 7 to 10+ years for larger suites.

• Retail – 3 to 5 years for inline space and 10+ years for anchors and pad locations.

• Industrial Distribution – 5 to 10+ years.

The fact that tenants are under contractual obligation to pay rent for fixed periods of time helps to mitigate the impact of market fluctuations on NOI and cashflow.

Contractual obligations notwithstanding, tenant credit is still important in determining the risk of inherent in the income stream of an asset. If a tenant goes out of business and leaves prematurely, this will cut into NOI. Therefore, knowing the quality of tenants’ credit aids in analysing an asset’s risk. For example, leasing to Apple, Inc. carries significantly less risk than leasing to a local “Mom & Pop” venture.
When an asset is acquired, there is the possibility for the rent to either increase or decrease, and for tenants to move in or leave. Investors analyze these probabilities based on vacancy rates, net absorption, and determining the quality of tenant credit, as discussed above.
An additional tool that aids in analyzing opportunities or risk is lease comparables (or lease comps), which compares the current rent being paid to market rent. For example, if the current rent being paid is $50 per square foot annually, but market rent for comparable properties is $65 per square foot, that could indicate the potential for rental price increases and therefore increased NOI and cash flow to investors (the reverse is also true as well).

Market Segmentation

Lastly, when analyzing the real estate market, a key fact to keep in mind is that the market is not homogenous. Rents and property value are not the same from one city to the next, or even from one block to the next.
Instead, Real estate is segmented, along property usage type, on the one hand, and location, on the other. Accordingly, supply and demand always correspond to particular types of property in specific locations.
Examples of property types include office, industrial, retail, and multifamily residential. Locations refer not only to metropolitan statistical areas (MSAs), but submarkets attached to MSAs, for instance downtown areas or central business districts (CBDs) and suburban areas.
In effect, rental prices vary according to type and location. 5,000SF (square feet) of Office space in the central business district (CBD) of the metropolitan statistical area (MSA) of San Francisco will not be equivalent to 5,000SF of office space in the suburbs of Chicago. Different market and microeconomic forces ensure that demand varies from one segment to another, leading to differing levels of supply, demand, and rental prices.

To find out more about realcrowd.com check out our realcrowd.com reviews.