Raising Capital: The Start of Something New

The ecosystem for capital-raising for commercial real estate is slowly embracing something new: the ability to raise significant capital directly from retail investors and blending it with capital from family offices, and other smaller institutions. We’re in a new age of capital raising for the benefit of issuers and investors alike.

This change was brought about by regulations, most notably Regulation A+, known as “Reg A,” which allows individual investors who are not accredited to invest in private deals, and Regulation 506C Reg D, known as simply “Reg D,” for accredited investors to major institutions. They have in common “general solicitation” (read: advertising and marketing without a prior relationship) opening new distribution channels.

We are well on the way to having both distribution channels become mainstream, and I believe they should work together, plus I think advisors will appreciate the way they can work hand-in-hand.

Reg A, is capped at $75 million as the maximum raise, and there is a one-year limit on Reg A raises, with one-year extensions available. Reg A is less paperwork for investors, making it ideal for retail. Reg A requires audited financials, and the issuer must file and gain SEC qualification for its offering.

As a marketer, these two hurdles are selling points when aiming to have strangers on the internet and social media channels invest at scale with little personal contact. I believe it is a great balance between providing credibility and maintaining accessibility. Reg D, on the other hand, has no limit on the amount an issuer can raise but is limited to accredited investors and up. The paperwork is simply filed with the SEC without qualification (costing way less) and does not require an audit.

The two worlds generally have not intersected, with many commercial real-estate firms disregarding Reg A and trying to manage a large number of retail shareholders, preferring institutional investors—but all of that is changing.

Minimums and Target Audiences

At my firm, we have worked with Reg A issuers who have started at a $500 minimum and have raised it to $5,000. A recently completed raise of more than $60 million via Reg A+ had a median investment of more than $40,000, including reinvestments.

Once investors place their trust in an issuer, and the issuer delivers on its goals through monthly distributions, larger investments often follow. Doctors and dentists, lawyers, accountants, pharmacists, MBAs, recent retirees, and architects, to name a few solid target audiences, have been gobbling up offerings from quality issuers.

Reg D issuers have to define themselves more clearly. A $100,000 minimum locks out even most accredited investors and is more the purview of qualified investors. However, it is still too small a minimum to be taken seriously by institutions that may still view “general solicitation” as not for them. Balancing “goldilocks” minimum investment amounts is part of why I believe offering these side-by-side makes a lot of sense.

Combining both worlds

In reality, combining worlds is nothing new. Mutual funds have offered different share classes for decades. Reg A and Reg D offerings can fuel the same investment process with enough differentiation in their terms to attract both types of audiences. Doing so can enable much larger raises without shutting out small investors and all the HENRYs (High Earners Not Rich Yet) that want in now.

Attracting Advisors

We believe that this is the future and that quality issuers can focus their raises where they are working with individuals and advisors and grow by having much more transparency and communications with their investors.

Advisors can assist in getting issuers on their custodial platforms and then have the benefit of investing for every member of a client’s family, not just the boomers and other accredited clients, and all without all the hassle and expense of SPVs associated with many of these private deals.

Third-party marketers and investment banks are appropriate for many raises, but the majority of investors remain their clients, not the issuers. In this new world, relationships can be built directly with advisors and investors alike.

Issuers are not alone in the woods. There is an ecosystem of specialized lawyers, broker-dealers, accountants, and fintech firms that provide payment bridges, transfer agents, and marketing firms. Admittedly, not every kink has been worked out in this new industry, slowing advisor adoption. However, enough capital has been raised directly to have advisors wanting these opportunities on their custodial platforms and for quality issuers to invest the time, money, and effort to change the game in capital raising.



Andrew Corn is the founder and head of strategy of E5A Integrated Marketing. He is not a lawyer or investment banker. However, he has provided input in the structuring of numerous deals, and his firm has supported large successful capital raises using “general solicitation” for private REITs and PERE, as well as publicly traded ETFs and mutual funds.

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