Focusing on the Good: The Merits of Crowdfunding Equitable Development

Equity crowdfunding has emerged in recent years as a viable alternative to more traditional means of raising capital while also allowing members of the community to have a stake in the development. But it can also be used as a tool to generate wealth primarily for people from excluded and marginalized communities and groups, said panelists speaking at the 2022 ULI Spring Meeting.

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Charu Singh, director of portfolio management at Emergent Capital Partners; Anna Mackay, director of development at Guerrilla; Joanna Bartholomew, founder and CEO at O’Hara Development Partners; Taidgh McClory,, speaking at the 2022 ULI Spring Meeting.

Equity crowdfunding has emerged in recent years as a viable alternative to more traditional means of raising capital while also allowing members of the community to have a stake in the development.

At the “Crowdfunding Equitable Development: Cutting Deals for Good” session at the ULI Spring Meeting in San Diego, Charu Singh, director of portfolio management at Emergent Capital Partners, explained at the outset how the aim of such crowdfunding, also known as “collective capital,” is often established to make a social impact such as encouraging community engagement and buy-in for a specific project. It can also be used as a tool to generate wealth primarily for people from excluded and marginalized communities and groups, according to Singh.

“Typically, we’re talking about equity tranches dedicated to small dollar investments by non-accredited investors such as community members, potentially project residents, and supporters of a project,” said Singh.

Democratizing Development

Panelist Anna Mackay, director of development at Guerrilla, said her firm’s development, Fair-Haired Dumbbell, was the first crowd-invested project nationwide that was ground-up construction. Non-accredited investors from five states contributed.

“In an effort to democratize development and to bring more equity to people who don’t just need to enjoy a space but potentially could enjoy the upside of a real estate development into the deal, we were very focused on bringing non-accredited investors into this project, so our minimum investment was just $3,000,” said Mackay.

One-quarter of the equity for the project came from crowd investing, according to Mackay. There were a total of 121 investors, and it took about a year to raise the funds.

Building on their success, crowdfunding was also used for Jolene’s First Cousin, an apartment community in Portland that was leased to a homelessness housing nonprofit. The offering was opened up specifically to people living in Oregon. To their “amazement and delight,” Mackay said the company was able to fill the traunche in less than three days.

“I think that really speaks to this idea that social impact and crowd investing really go handin hand,” said Mackay. “It is a tool that can catalyze for community benefit and start to open up the conversation: Who’s benefiting from real estate development?”

Making Good on Promises

Joanna Bartholomew, another panelist and founder and CEO at O’Hara Development Partners, said opting to go the crowdfunding route in Baltimore City “made people feel like they had an opportunity to be involved.” Realizing that many residents were fatigued from receiving “false promises” in the past, her company talked to local neighbors to meet them where they were and to find out exactly what they wanted to see in their own neighborhoods.

Bartholomew said adding in the extra step of educating potential investors is also often necessary. This is especially true given the fact that many of them are more concerned about paying for their groceries, for example, rather than the rate of return on an investment.

“We did spend time educating and just being very direct,” said Bartholomew. “Some people said, ‘I’ll try it, and I’ll put in a minimum of the $500,’ and some people were willing to go a little bit further.”

Taking the time to understand what each community needs is key as opposed to attempting to use a “copy and paste structure” for each neighborhood, according to panelist Taidgh McClory, Massachusetts-based founder of T.H. McClory, Social Impact Entrepreneur, and a member of the ULI Responsible Property Investment Council. It is also important to consider how the commercial real estate industry can be used to build wealth and help the greater good.

“I would think at the end of the day the reason why we’re trying to study neighborhood investment structures is because we believe it is one tool, one mechanism to address the racial wealth inequities that are in the world today,” said McClory. “Not the only tool because we know that before you can kind of close that gap, there are many forms of inequities that you need to solve for: health, jobs, access to technology.”

It boils down to looking at the bigger picture. While it is important to keep in mind the importance of using passive investments to create wealth, there are other avenues, including growing a business and investing in “different types of assets beyond real estate but infrastructure,” according to McClory.

“I think that’s where we see great opportunity particularly in the communities that we’re studying because I think there’s a natural multiplier effect,” said McClory. “When you think about not just preserving an opportunity for a community member or resident to own a piece of their neighborhood but also supporting the businesses that are in those neighborhoods, and I think that can really have the most opportunity to address the racial wealth inequities in these communities, long-term.”

Access sessions from the 2022 ULI Spring Meeting on demand.

Karen Jordan is a freelance journalist, filmmaker, and author based in Los Angeles. She has contributed to The Atlantic, Los Angeles magazine, and the Huffington Post.
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