A newer developer needs four things to be successful: land, capital, knowledge, and tenants. Of those, capital is often the hardest to come by. This is where RealtyShares can help.
A Capital Problem
The upfront cash required to raise additional financing is usually between $50K and $100K. But this “pursuit capital” is just the beginning. Today most lenders require a newer developer to invest enough cash equity to cover 25-40% of the total project cost. For a deal worth $10 million, that can mean as much as $4 million up front.
To give themselves time to get the money together, a newer developer often tries to negotiate long closing periods. Sellers, too, want some assurance that the developer will be able to close, and may be less willing to let developers tie up the property in the first place if financial obstacles appear to be significant.
Raising money for your deal is perhaps the biggest hurdle for a newer developer/sponsor. Unless you have family or business connections, you often don’t have sufficient access to capital. But even if you don’t have your equity lined up, you must have a good lead on financing sources before entering into a purchase contract.
A Market Solution
Over the last few years, online marketplaces like RealtyShares have expanded the capital pool available for commercial real estate projects. The SEC estimates
that, in 2010, over 7% of all U.S. households, or about 8.7 million households, qualified as accredited investors. If those numbers remain about the same today, they may represent a market that sponsors and developers could not otherwise access.
For sponsors, the potential appeal should be obvious. Data from Real Capital Analytics
suggest that banks and other institutional lenders tend to focus on real estate transactions worth more than $50 million, not the smaller deals that form the core of many developers’ businesses. Moreover, these institutions may not reach the majority of accredited investors. Private funds typically look for a minimum individual investment of at least $1 million—a high bar for the millions of investors whose net worth is less than $20 million.
Individual investors may want to participate in commercial real estate investing for a number of reasons, but historically they haven’t had many options. Curated online marketplaces give individual investors a seat at the table they wouldn’t otherwise have.
The Upshot for Newer Developers
Thousands of individual investors across the country may want to invest in your commercial real estate project. Let them.
With RealtyShares as your capital-raising partner, you can elevate your brand through access to a broad pool of investors who may want to participate in projects like yours. We would come to you as a single investor operating in full compliance with financial laws and best practices.
From there, we would manage investor communications for our investor pool, and our state-of-the-art online marketplace would ensure that your funding experience is as smooth and efficient as possible.
RealtyShares connects capital with opportunity, providing reliable and competitive capital for commercial development. Here’s a quick look at some of our recently completed commercial development deals.
To get a better understanding of the underwriting process, browse our current offerings, or if you have questions about becoming a sponsor, get in touch at firstname.lastname@example.org.