Startup Lets You Get In On Hot Commercial Real Estate Deals For As Little As $1,000

Commercial real estate and its high rate of return can be an alluring investment. But it has traditionally been one that is only available to high-net worth individuals and institutional investors.

That is about to change. Fundrise, a Washington, D.C.-based crowdfunding company, is making it possible for anyone in the country, regardless of their net worth, to get in on the action for as little as $1,000. The company’s system is newly legal under the 2012 JOBS (Jumpstart our Business Startups) Act.

“What Amazon.com did with books, we’re going to do with real estate,” said Ben Miller, CEO of Fundrise, which did its first offering for investors three years ago.

Now the company is expanding in Seattle, where it has hired real estate veteran Nate Dreon to scout out deals. Dreon is the former president of Ilahie Holdings, the real estate division of Saltchuk, one of the largest private companies in Washington state. Dreon is also doing development and consulting through his company, Bloc Builders.

By signing up investors online, Fundrise charges a fee of 0.7 percent versus the traditional fees that can range from 2 percent to 20 percent for traditional private funds. This money goes to brokers, or middle men. Fundrise’s broker is the internet.

In Seattle, Fundrise has invested in a handful of projects, including an upscale single-family home in Laurelhurst by a company called Build Urban and a 111-unit apartment project, the Soren, in Ballard that Pryde + Johnson developed. Both of these had minimum investments of $5,000.

Now people can invest as little as $1,000 through Fundrise’s eREIT, a $50 million offering that will be invested in a diverse portfolio of real estate projects – from shopping centers to office buildings – that generate cash flow paid out to investors in regular dividends. Fundrise launched eREIT earlier this month.

A REIT, or real estate investment trust, is a company that owns or finances income-producing real estate. Anyone can invest through the purchase of stock. While most REITs are traded on stock exchanges, there are also public non-traded and private REITs. Fundrise’s eREIT falls into the non-traded category.

eREIT’s first investment in Washington state is a $2 million investment in the Woodlands Townhome Apartments, a 1-year-old, 100-unit project in Snoqualmie. The property is stabilized, meaning it’s mostly leased up, and the developer, Evergreen Housing Development Group of Seattle, has refinanced the project.

It was during this process that Fundrise made a preferred equity investment. Fundrise COO Brandon Jenkins said his company projects a return of 12 to 13 percent over the life of the investment.

In business and life there’s an adage that says the higher the risk, the higher the reward. This is why commercial real estate can offer returns of 13 percent or more: it’s risky.

In its eREIT offering, Fundrise makes no bones about this. In the online checkout, the company notes how real estate investment is speculative and requires investors to check boxes to confirm they’ve read over the materials.

To assuage concerns about risks, Fundrise puts its skin in the game by pre-funding investments.

“We pre-fund the deals and we don’t fund deals we don’t have conviction in,” Miller said. “We fund maybe one a week, at most.”

His company has invested in around 80 developments.

Source: Puget Sound Business Journal
Photo: Fundrise, a crowdfunding company based in Washington, D.C., allows U.S. citizens to invest as little as $1,000 in commercial real estate. The company has invested in several Seattle-area projects, including the Woodlands Townhome Apartments in Snoqualmie, pictured here. (Fundrise)