Building Up the Next Richard Lefrak

from the Crowd

By David Drake
The Securities Act of 1933 included provisions on Regulation A that allowed an exemption from
registration for small offerings. However, investors and those seeking funds did not benefit much
from Reg. A for it has a cap of $5 million, to be raised from any individual or business over a 12
month period.
The Securities and Exchange Commission (SEC) proposed an increase in this small offering
exemption to $50 million that can be raised over the same period. Even this proviso remains
pending until now. Yet Fundrise, revolutionizing the way real estate is accessed, has been
successful in making their Reg. A offerings.
Fundrise launched its third in the series of Reg. A offerings when it opened up the market to 1539
7th Street NW. This is a two story building with 1200 square feet of space on both the first and
second floors and is located in one of the busiest neighborhoods in Washington DC.
Fundrise tested the waters last year to gain a sneak preview to the reception it would receive if it
went public with this offering. They needed proof of sufficient demand for an investment of at least

$300,000 so that it would offset the financial costs that this offering would undertake. This is the
first time that they have followed through with an investment from the stage of testing the
waters, to actually making the property available after receiving extraordinary response from the
market.
Due to the sensitive regulatory environment that currently exists, the offering must be registered
with both the federal and state regulators in each state that the offering is open to in order to
ensure compliance with the SEC. This offering is only being made available to the residents of
Washington DC, Virginia, and Maryland. Ben Miller, co-founder of Fundrise, had to visit individual
states in order to enlist participation by registration, with Maryland as the most recent state to
register for offerings.
Built in 1900 and renovated in 2006, 1539 7th Street is located in the heart of one of the busiest
commercial districts of Washington DC. While the building is vacant at present, Westmill Capital
Partners have intentions of leasing the space to someone from the local retail or restaurant
business. Upon signature, the tenant will be free to begin construction and oversee modifications
appropriate to the type of business that will be offered.
The offering size is $350,000. Investors, accredited and unaccredited alike, are able to participate
in this offering by investing as little as $100. The return on investment is projected to be 8 percent
and will be paid out in quarterly investments. This offering has a redemption period of five years,
after which the investment principal is projected to be returned to investors. If the sponsor elects
not to return the principal, the preferred return for year six will increase to 12 percent, with
incremental increases of 2 percent for every year subsequent to the redemption year.
Investors will be able to benefit from these returns as well as from the rental payments from the
leased tenants. This payment will be used, not only to service the debt on the property but, to pay
out dividends to investors and increase capital reserves. Prior to going live, the offering was open
for a 21 day viewing period to give investors ample time to review sales documents and materials
prior to making an investment. Even though the offering is registered with the states, neither the
SEC nor the securities commission has given approval for this offering, so the jurisdiction lies
entirely with Fundrise.
This offering can be used not only to generate interest in how feasible crowdfunding is for real
estate, but to demonstrate how it works. Title IV of the JOBS Act promulgated an increase in the
small offering exemption. While others wait, Fundrise is going ahead with its Reg. A offerings. By
allowing residents to participate in testing the waters they are able to track how the process

works and will feel more secure in making an investment. Ordinary citizens have become a real
part of the infrastructure in recent times, with the ability to make marked differences in their
communities and across state borders. Hows that for testing the waters?
Learn from Fundrise and other leading real estate crowdfunders at the April 24 Global Real Estate
Crowdfunding Conference in New York.
Photo credit to patdollard.com
Note: This article appeared on The SohoLoft with this link http://thesoholoft.com/building-up-thenext-richard-lefrak-from-the-crowd-by-david-drake/ on March 26, 2014.

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New
York City private equity advisory firm, andThe Soho Loft The Voice of Capital Formation a
global financial media company with divisions in Corporate Communications, Publishing and Expos
& Events. You can reach him directly at David@LDJCapital.com.