by Ron Holmes and Austin Gilleland –
You might be surprised to learn that Crowdfunding offers yet another avenue to raise equity for commercial real estate transactions.
We think of Crowdfunding as something Millennials do to raise money for pet projects (think of GoFundMe). Not so. The Securities Act of 1933 permits an issuer to Crowdfund equity for commercial real estate projects under several scenarios, each one of which preempts State Blue Sky laws, except for one. The various scenarios are called Regulation A+ Tier 1 or Tier 2, Regulation Crowdfunding (“Regulation CF”) or Regulation D Rule 506(b) or (c). It might astonish you to know that the offering dollar limits are capped at $75,000,000 for a Tier 2 offering, $20,000,000 for a Tier 1 offering and $5,000,000 for Regulation CF offering.
Who can be an issuer of securities for purposes of raising Crowdfund equity?
That depends upon which mechanism is used, but generally includes any company (reporting or non-reporting) that is not an investment company, a blank check company, a business development company, an issuer of fractional or undivided interest in oil and gas rights or an issuer delinquent in filing required reports under Regulation A or whose registration has been revoked, and bad actors.
The bottom line is your company may well qualify as an issuer.
Who can invest?
Again, that depends upon the mechanism used. For both Tier 1 and Tier 2 offerings, anyone in the world may invest and the issuer may publicly advertise to determine whether there is an interest in an offering, but there are limits for non-accredited investors in some circumstances.
What are the reporting requirements?
There are certain reporting requirements, again depending upon the mechanism used. A Regulation D mechanism requires Form D to be filed. A Regulation A+ (Tier 1 or Tier 2) requires Form 1-A to be filed. A Regulation CF requires other specialized forms for that particular mechanism.
While there may be some head scratching to determine what limitations apply to you, the bottom line is Crowdfund equity is a viable potential source of equity for small to midrange commercial real estate transactions.
If you’re interested, you may contact Ron Holmes for additional information via email or call (469) 317-3424.
About the authors: Ron is the founder of Holmes Firm PC. Austin is a candidate for his Doctorate of Jurisprudence degree from SMU Dedman School of Law, May 2022.