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A team of seasoned commercial real estate professionals led by Jean-Michel "Mitch" Wasterlain and Edward C. Yu has launched a crowdfunding platform through which individual investors will be able to invest in funds that historically have been available only to institutional investors.
The platform, CapitalFund Realty Inc., or more simply CAPFUNDR, is unlike other crowdfunding operations in that it will offer interests in funds it sponsors as well as those sponsored by other investment managers.
Investors have been able to invest in certain funds through other crowdfunding sites, but in those cases, it typically has been the investment managers that have used the sites as marketing and distribution vehicles. Among the exceptions, however, has been Fundrise, but it's raising capital for a non-traded REIT, Income eREIT, that buys properties.
CAPFUNDR, an investment manager itself, will offer shares in institutional funds to its accredited investors and raise capital for vehicles it sponsors.
Further differentiating it from other crowdfunding sites is its founders' backgrounds.
Wasterlain is a 30-year real estate industry professional who most recently was chief executive of Orix Capital Markets and before that was chief investment officer of NorthStar Realty Finance. Meanwhile, Yu has 25 years of experience in the investment management business, including time at Starwood Capital Group, AEW Capital Management and Prudential Real Estate Investors. The two founded CAPFUNDR with attorney Joseph C. Cane Jr., who serves as general counsel, and Mirza Joldic, a Prudential Real Estate Investors alumnus, who is the company's chief technology officer.
CAPFUNDR's first offering is a closed-end fund that would buy shares in non-traded REITs on the secondary market. It will raise only $5 million for the fund, CAPFUNDR REIT Value Fund I, which is limited to 100 investors. That's simply because the supply of non-traded REIT shares on the secondary market is relatively limited.
Non-traded REIT shares are sold to investors for $10 or $25 apiece and their sponsors typically receive hefty commissions and fees, so only perhaps 80 percent of the amount those sponsors raise goes to actual investments. In addition, because shares don't trade on any exchange, they're illiquid. Investors typically have very few options if they'd like to sell.
CAPFUNDR REIT will buy shares from investors, through auction sites or brokers. They often can be purchased at hefty discounts, of 50 percent of more of their net asset value. Those shares would continue to receive dividends or distributions that they're entitled to and would be kept until the non-traded REIT that issued them has some sort of liquidity event, a sale or listing.
Because CAPFUNDR REIT would be buying shares at discounts to NAV, it could generate relatively healthy returns for its investors. The sponsor won't get any offering fees. Instead, it will earn a 1.5 percent annual management fee.
Meanwhile, CAPFUNDR is planning additional funds that would pursue value-add investments in apartment properties, retail properties and net-leased properties.
It also aims to offer interests in other funds. It would conduct thorough due diligence on any prospective funds to determine whether their investment strategies would be suitable for its investors.
"Individual investors haven't had access to institutionally managed funds with reasonable fees," Wasterlain explained. "The amount of capital that non-traded REITs had raised in recent years demonstrates that there's a strong demand for real estate among retail investors." He noted that in 2013, non-traded REITs raised $20 billion of equity capital. While that number has declined in recent years, that was due in large part to issues related to AR Capital, at one time, the industry's most-active sponsor.
"We've developed a platform whereby individuals can invest in institutional funds," Wasterlain added.
Comments? E-mail Orest Mandzy, or call him at (267) 247-0112, Ext. 211.
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