"We have posts about this" blah blah blah. I know. I want to talk about it again.
Why don't these sponsors just raise their capital through banks/LP equity/capital raisers? The cost of capital on these crowd funding platforms are too high. It just feels like one big marketing gimmick.
They're trying to piggy back on the social media phenomena. What was so inefficient about the traditional way of capital raising? Thoughts?
Link to article inside the post
I am also amazed by this everyday. I just got a notification about a senior loan for a Starbucks build to suit. The interest rate is 11% or something of that nature. Those things have cap rates less than 6%. It's astounding someone would do this, but I guess they are want to build a name for themselves and are using the platforms to do it.
Bad link in OP
http://www.crenews.com/general_news/general/realty-mogul-raises-another…
Corrected link above** WallStreetOasis.com can we not edit topic posts? Link keeps cutting off and going to text making it a bad link.
you can edit any post...you can't change the title of the OP after ~24hrs. thanks
Link kept posting bad -- infuriating. Its about Realty Mogul raising $35MM:
Realty Mogul Raises Another $35Mln:
Online crowdfunder Realty Mogul has lined up an additional $35 million investment from Sorenson Capital and Canaan Partners, the latter of which previously had invested in the Los Angeles company.
The new capital will allow Realty Mogul to add technology staff and expand its geographic presence.
The company was launched just two years ago in order to connect property owners and developers in need of equity with large numbers of accredited investors via its online platform. It since has expanded its scope substantially to include offering preferred equity, mezzanine debt and senior debt. Realty Mogul pitches its platform as a "frictionless" way of connecting investors, both accredited and institutional, with potential opportunities.
Since its founding, it has helped raise capital for 240 properties with a total value of more than $500 million.
Most recently, it raised $250 million of capital that it would use to provide bridge loans and permanent financing, and hired two former Colony Mortgage Capital executives to build out its lending efforts. It now employs 80.
"We're seeing online marketplaces massively transforming other industries, and RealtyMogul.com's growth path clearly shows they're poised to be the key disruptor in the huge asset class of real estate," said Rob Rueckert, head of Sorenson Capital's technology practice.
I'm really not familiar with crowdfunding for RE. Obviously I know its a thing that's relatively big but we have no need/experience in it and I haven't really surfed those websites at all.
But the market is relatively intelligent, capital and sponsors are well informed today so I'm going to assume these seemingly high capital costs are just on the face to bring in dumb money from these crowdsourcing sites and may actually be cheaper for the sponsor than they appear.
Which is my way of saying "developers aren't dumb, there has to be more to this." Then again I'm probably the least informed about crowdfunding on this board.
History begs to differ.
Speaking of crowdfunding:
http://nreionline.com/finance-investment/hyperlocal-crowdfunding-lowers…
Cost of capital isn't everything. For smaller borrowers, availability and convenience (ie not wasting months trying to push a loan through a bank's process) can trump cost. The borrowers that use crowdfunding platforms aren't exactly the GEs or Cokes of the world.
But that's the thing--it's not necessarily more convenient or available. Each deal is thoroughly underwritten prior to offering to the public, and the vast majority of deals are rejected during the underwriting process. In addition, the terms (LTV, I/O periods, etc.) are not necessarily better than traditional lenders.
So to me it's a head scratcher, too.
I've always thought it had to be the other way around. If this investment is getting offered to me, that must mean that a bank/LP/traditional partner doesn't want the deal I am getting and should be concerned. Generally I just assumed that meant the sponsor was offering a worse deal than the bank wanted, but if it looks like they're offering better terms than a traditional partner should expect, I'd be very concerned. My money certainly isn't any greener so there has to be more than meets the eye.
I think someone delved on this point, but yeah as a small company with high risk of failure many startups simply do not wish to spend months or even years trying to raise capital when they can have more convenient options. There's a trade-off of course but I assume these entrepreneurs really do not care too much about the cost of capital in the near term as opposed to finding a fast way of securing funding before they run out of cash.
I know C level folks at Realty Mogul. Their average deal is under $5mil. And their primary product is loans, not equity. They're raising money to do fractionalized private money notes on small value add deals. 70%LTC type stuff 9% and 2pts. Really basic stuff. What they're doing isn't new just the means to raise the money is in smaller pieces now. Tech makes that happen.
Yes they're raising equity but what they're really doing is becoming a lender. Realty Mogul even has a small balance Multifamily division that sells Fannie/Freddie stuff.
Also, I was talking to RM about a deal. It wasn't up their alley as it was ground up Dev. Anyway, the first thing they wanted was a model on the deal if it were a value add project.
Where these guys come in handy is this. You've got a great track record as a broker. Maybe you just divorced and are low on cash but high on experience. You've double ended a small $2mil value add deal and have a $100k commission coming. If you've got a deal or two you want to close on and need equity, a place like RM can do it all in one stop. Debt and equity with rehab funds. If you put your $100k in and maybe have another $100k from a friend, in this market you're not that far from closing.
How to you replace (refi) that 9-11% loan a year down the line when you're more stabilized and can get a traditional loan?
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