Tuesday, December 11, 2012
Contrary to popular belief, Mom-and-Pop real estate, the bastion of small business, is way more important to the health of neighborhoods, communities and our country than all your fancy trophy properties in your fancy gateway cities put together. But, Mom and Pop have long felt unloved. They suffer from being too small, too distant, too difficult to invest in, and too difficult to finance. All too often, for want of capital investment, this sort of real estate - the backbone of a neighborhood - gets redeveloped by the blade of a bulldozer; and then we say goodbye to the small businesses. Investment capital has been hard to come by for these really small investments primarily because of governmental securities rules. In the name of protecting investors, they have made the task of raising capital for small projects nigh unto impossible. The "law of unintended consequences" strikes again. That may be changing. Bringing change through the regulatory community requires either a huge check book, or a really good idea backed by unflagging persistence (and a decent sized checkbook). This unfolding, and fairly long story, is told here. If investing in either real estate or in community building is your thing, it is well worth the reading time and effort. Excerpts here:
The Millers have invested the last two years and nearly a million dollars in trying to answer this question: Why can’t small-time investors put their money in their own communities? Then, finally, in August, they successfully took a single property on H Street public. Under a new company called Fundrise, the Millers invited anyone in the area – accredited or not – to invest online in this one building and its future business for shares as small as $100, in a public offering qualified by the Securities and Exchange Commission. By the time the deal closed last week, 175 people had together invested $325,000, for just under a third of the whole project. If the rest of this experiment works like the Millers hope it will, the idea embedded in this one unassuming storefront could have an impact on communities everywhere.
Part of the idea is that proximity can stand in for financial sophistication. Maybe these small-time investors aren't comfortable parsing all of the relevant legal documents. But they know the business owner who's moving in. And they can actually see the building. "It’s much different," Dan says, "than the idea of someone sending you an email from Nigeria."