CCIM Feature

Crowdfunding Conundrum

Sometimes new ideas aren’t so new after all. Take crowdfunding, for example, says Gene Trowbridge, CCIM, a senior partner of Trowbridge & Taylor LLP and a CCIM Institute senior instructor. When France gave the U.S. the Statue of Liberty in 1885, publisher Joseph Pulitzer used crowdfunding to raise the money for its pricey pedestal, with more than 120,000 people contributing nickels and dimes to the cause.

“If this happened now, the Securities and Exchange Commission would have no conflict because there was no profit motive on the part of the donors, so it would not be considered the sale of a security,” says Trowbridge, who covers the ins and outs of crowdfunding in his Ward Center course, Ultimate Group Sponsor Workshop.

That’s the inherent conundrum of crowdfunding and investment in commercial real estate transactions. How do commercial real estate professionals juggle the need for capital with SEC restrictions when selling a security?

The SEC’s answer in July 2013 was to adopt the new Regulation D, Rule 506(c), under the Jumpstart Our Business Start-ups or JOBS Act. “This new regulation allows commercial real estate brokers to advertise to accredited investors,” Trowbridge says. “The U.S. government thinks those people are rich enough and smart enough to make investment decisions without government oversight.”

An accredited investor is an individual with a net worth of more than $1 million, excluding primary residence, or a person who makes more than $200,000 per year of income if single or more than $300,000 per year if married, filing jointly, according to the SEC.

However, the SEC still has not issued any final rules for equity crowdfunding, which, under Title III of the JOBS Act, will allow offerings up to $1 million to be made to non-accredited investors. “There is confusion in the marketplace about the difference between accredited and non-accredited investors,” Trowbridge explains. “It is not legal to advertise crowdfunding deals that offer a return on investment to non-accredited investors.”

Late last year the SEC indicated thatit will finalize the equity crowdfunding rules by October2015, but plan on saving your nickels and dimes until January 2016, the earliest the rules could take effect.

Gene Trowbridge, CCIM, a senior partner of Trowbridge & Taylor LLP, teaches the Ultimate Group Sponsor Workshop, May 7–8 in Chicago, July 20–21 in New York, and September 24–25 in Chicago. Learn more.


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