Is the ‘real-estate version of Kickstarter’ coming to Germantown Avenue?

An ambitious start-up company is looking to bring their real estate crowdfunding platform to parts of Philadelphia. Crowdfunding firm Fundrise wants to pair up active community members with property projects seeking money to get off the ground.

The company could be the “real-estate version of Kickstarter,” the popular crowdfunding mechanism for projects related to the arts, according to Philadelphia-area developer, Max Glass, who is in talks with the firm.

Benjamin and Daniel Miller, the brothers who co-founded Fundrise, started the company in Washington D.C. where they worked on the long-underdeveloped H Street Corridor.

How they’ve done it

Working with local developers, the firm polled community members on what types of businesses they wanted to see in the neighborhood.

Eventually, they raised a third of the money needed to redevelop a property on small investments of $100 or so each.

The investment went towards a team made up by a neighborhood restaurant owner and a local clothing line operator, who have filled an open property in the neighborhood. Their business proposition creates a market that “brings a curated fashion and culinary boutique” to the neighborhood.

It’s not conventional, and an idea that traditional investors may not have signed onto.

Or as Glass put it, “the developer community is much less about making bets on growth.”

The Northwest Philly connection

Eighth District Councilwoman Cindy Bass introduced a city resolution in February encouraging the Securities and Exchange Commission (SEC) to pursue action on establishing regulations surrounding such crowdfunding projects as they relate to small business development (PDF). It passed unanimously on March 7.

“Not only does [Fundrise] allow community members to help shape the direction of their respective communities, it also allows those investors to profit on the long-term success of such properties,” explained Bass. 

“Our district is so rich with community involvement and we are always looking for new ways to make things better and move things along,” said Joseph Corrigan, Bass’ spokesman.

Currently, according to the resolution, “the process for launching a crowdfunded project can cost tens of thousands of dollars in legal fees per project,” resulting in a major deterrent.

The federal Jumpstart Our Business Startups (JOBS) Act mandated the SEC update crowdfunding regulations by December 31, 2012 to ease investment burden for individual investors. The agency missed that deadline.

Touring cities

In the meantime, Fundrise is touring Philadelphia and other major cities in the Northeast and on the West Coast to discuss the potential for the crowdfunding platform with city developers and legislators.

“[Fundrise is a] vehicle for local investment,” explained Daniel Miller. “We do not have the arrogance to go into a city and think we know it.

“One of the biggest aspects to this is drawing capital. The neighborhoods that need it the most have the least access to capital. We are looking at how to blend and match the two.”

He added that a lot of people from different parts of the city, or who lived in an area many years prior, are often also interested in investing; this can be a way to connect them to an opportunity.

“There are areas the public very likely wants developed but private developers don’t see the return,” said Glass. “This is a way to bridge that by allowing private developers to source less expensive equity from people who are going to look at it not just as a dollar return but as a quality of life investment.”

After an earlier plan to tour parts of Germantown was canceled due to poor weather, the Millers plan to return to Philadelphia to take a look at the Northwest’s potential for development with Bass. A date has not yet been set.