Real-Estate Crowdfunding Company Debuts 'Choose Your Rate' Investing Option
CityFunders, a real-estate crowdfunding platform exclusive to New York City, recently announced the launch of investment property in Crown Heights, Brooklyn.
At the same time, the company launched its new InvestSelect program, which lets investors choose their rate of return based on the amount invested.
Benzinga spoke with CityFunders Co-founder and CEO, David Behin, about the new offering and about InvestSelect.
Benzinga: What can you tell us about the new Crown Heights investment opportunity?
David Behin: One of our clients bought a building in Crown Heights, Brooklyn, an up-and-coming neighborhood.
Goodwill signed a lease including a plan for the client to build out space for the organization. There’s also a plan to build two residential units above to significantly improve income.
This client was a partner in our Bushwick deal over at 99 Scott. We like to make sure the deal metrics are good and that we feel comfortable with the client’s ability to pay us back.
To the extent [that] the jockey is as important as the horse, we felt very comfortable with the sponsor, putting money into the deal and then offering a piece of the loan to the crowd as well.
BZ: What makes Crown Heights a desirable investment area?
Behin: I live in Brooklyn and have been doing real estate work here since early 2000. If Brooklyn was its own city, it would be the fourth largest city in the United States. In terms of where most people move to in New York City, it’s Brooklyn.
Depending on your demographic – family, young and single, a couple – there are many great options in Crown Heights. There are new restaurants, bars and art galleries opening up. There's a new office district where people are not only living in Brooklyn but now working in Brooklyn as well.
BZ: Aside from a desirable, thriving neighborhood, what else do you look for when considering an investment?
Behin: Two of the main things we look at are access and transportation. That’s why our website includes both a transit score and a walk score. New Yorkers like everything nearby.
Are there grocery stores nearby? Are there places to provide daycare for your children? What kind of transportation is nearby? Are you close to a bus stop or a bike share program?
About three years ago, the mayor started something called City Bike, which has become a great boon, because Brooklyners love biking. If there’s a City Bike station outside your apartment or your house, that means you now have another method of commuting.
BZ: How and when will investors in Crown Heights get their money?
Behin: Investors get their money in two forms: One is the interest payments; the other is the repayment of capital.
Interest payments are made quarterly. This deal also involves our new InvestSelect program where if you invest $25,000 or less, you get 9 percent. If you invest $30,000 or more, you get 10 percent.
When you make your investment, you get paid back quarterly at 9 or 10 percent annually. So, if you invest $100,000 you will be getting 10 percent annually paid quarterly or $10,000 a year, paid out in $2,500 increments.
After one year of payback – or if the partner decides to extend it – at the end of the contract – you get all of your capital back. Of course, you continue to get paid interest on a quarterly basis.
BZ: Could you share a little more about the InvestSelect program?
Behin: Sure. We’ve been doing large deals with institutional capital for many years. One of the things with institutional capital is that there are different rates depending on how much is invested.
We wanted to say to the crowd, “Invest a little bit more and you will be able to reap rewards.” It costs us less to deal with one investor putting in more than with several investors putting in less. We said, “Let’s pass on our cost savings.”
We are the only one in the crowdfunding industry doing this. It’s been received really well by our investors.
BZ: What offerings are going to be eligible for the InvestSelect program?
Behin: It’s only for new investments going forward, and at this point, we’re only trying to do it on our debt offerings.
There may come a day when we do it on our equity offerings as well, but right now we’re doing it on debt.
BZ: Shifting gears, what do you see as the impact on crowd funded real estate of the Fed raising interest rates?
Behin: I think it’s early to tell. They bumped it up a little bit to see what would happen with the economy, inflation and employment. That’s going to determine whether they’re going to raise it a little bit or keep it low for another year or two.
I don't think it affects us that much right now. It was such a small increase. The deals that we do are dependent on what’s going on out there in the market and interest rates but with such a small increase, I don’t think we’re going to see an effect for a while.
BZ: Finally, what do you see for the real estate market in general for 2016?
Behin: All real estate is local. I would never (try to) predict what’s going to happen nationwide. Even (all of) New York would be a stretch for me to try to prognosticate.
Everybody continues to feel confident in the metrics of the market. On the residential side, rentals are very strong. Population is increasing. A study I read said at the rate we’re going, we’ll reach our 2030 population estimates by 2020.
There’s not enough housing so rental rates will continue to rise as there’s more demand than supply. Much of the same can be said for other sectors.
As long as we have people and as long as they are gainfully employed, there’s a continuous need for office space.
New York City has continuously been under-retailed. You see a lot of demand for quality retail in great neighborhoods. Again, there's an outstripping of demand versus supply.
Across all of these sectors, we expect continuous improvement.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
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