Using Regulation A for your Real Estate Deal

Using Regulation A for your Real Estate Deal


(upbeat music) – Hi everyone. This is Jillian Sidoti with
Crowdfundinglawyers.net. And this is our segment
People You Should Know. And today’s special guest is Elizabeth Braman from Realty Mogul. Thank you, Elizabeth, so
much for being with us today. And I would like to just ask you, what’s Realty Mogul all about? – Well, thank you so much
for having me, Jillian. You know I’m a big fan of you and Gene. So it’s a pleasure to be here. A little plug for you too. Mogul.com is one of the oldest and biggest real estate crowd funding
platforms in the country. We have raised over $225 million to date doing equity, preferred equity
and mezzanine financing, as well as doing bridge loans. We target cash flowing
commercial real estate in, primarily the four core product types, office, retail, industrial, apartments and then we also do some self-storage. And we are a very large investor in a mobile home park fund as well. – So, you said some
interesting things there. Because you said the properties and then you also said
something about funds. So when a potential real estate
entrepreneur comes to you and says, “I want to raise money, “and I have this property,
or I have these properties,” what do you prefer as the investor? – Great question. We are, 99% of our business to date, 99% of our business has been
doing single asset investing. So we invest in an apartment complex or two apartments when they’re aggregated. We’ve done very little
by way of raising money for funds for other syndicators and a large part of
that has just had to do with structurally it’s
a little complicated. We can’t do capital calls
the way we’re set up, but for the most part,
the way we’re structured, is that a sponsor, who is qualified. And for us that means they have at a minimum $25 million in assets that they’ve acquired as a sponsor entity. And primarily are focused
in a particular asset class in a particular market. So if the sponsor comes to us and they’re looking to do
their first self-storage deal in Arizona, but they’re really
a multifamily guy in Tampa that’s probably not gonna be the deal that we would to get started with them on. We really like focused,
targeted experienced sponsor who has been doing that
particular asset class in that particular market. And if we agree to a project,
we like the business plan we’ll agree to come in
as a single investor. Basically we aggregate
all of our investors. And we have 25,000 plus accredited and we have 80,000 including non-accreds, and I’ll get to those in a minute. We aggregate them, our
accredited investors solely, into a single purpose entity and then we invest into
the title holding entity of the sponsor as one investor, so they get to pay out one distribution. They get one quarterly report. And they do one K-1. Basically, we’re the same as being a high net worth
individual that’s coming in for $1 to 3 million on
value add equity deals. That’s one side of the platform. The other side of the platform is really our most recently launched REIT. So Mogul REIT 1 came
out a couple weeks ago. We’re very excited about it. That’s going to allow us
to actually raise capital from not just our accredited
investors, but also non-accreds so you don’t need to make $200,000 a year to invest in commercial
real estate on our platform. It’s agnostic as to your
income and net worth, unlike the private placements, but we have a minimum investment
of $2,500 into the REIT and we recently just made
our first distribution. Which was 8% on an annualized basis. And we’ll be looking to do quarterly distributions going forward. – Wait a minute. You said something pretty amazing there. Because didn’t you guys
go live in like August? Or when did you go live? – Yeah, it was in August. And then in the first month we decided because we’re a
broker-dealer we have to be very compliant, and we
were a little limited in how we could talk about the REIT and wanted to get an
early distribution out. So normally investors can expect, or hope to expect, although not guaranteed on a quarterly basis, a distribution… I know, I’m using all
my securities languages. The regulatory attorney
in me can’t help it. But we’re looking to make
quarterly distributions, but we did a quick distribution and it was on an annualized basis of 8% and that was based on a couple of deals that we’ve already put into the REIT. And we have other deals that
we’re putting into the REIT. So we have put them in, basically. We had funded them on our balance sheet and then right after the REIT was launched we sold them into the REIT. – Okay, so for everybody
who’s viewing this right now I just want to explain a
couple quick things to you because this is two attorneys talking and sometimes that can get confusing. So I wanted to tell you
what we’re talking about. Elizabeth and Realty Mogul put out the Mogul REIT under Regulation A+. So it was like a mini IPO. And they were approved
by the SEC in August, which now we’re only in
October, so two months. And basically, they
already knew the properties they were gonna do. They flipped them into the fund as soon as they were approved by the SEC and they immediately started cash flowing. And so Realty Mogul was able to send out a distribution almost right away. That is genius. – Yeah.
– Really. – And as well, I hate when people use the term that the REIT acquired. The REIT didn’t acquire the real estate. Let’s just be clear. We’re making preferred
equity and mezzanine, I said acquired. But the REIT acquires the
investment position basically. Realty Mogul, the company,
makes the investment, holds it on balance sheet, and
then can say it’s sell into, but basically transfers the
investment into the REIT. And that was just done because
the REIT hadn’t launched yet, but for the most part, or I should say, 100% of the time, we’re not a sponsor. We’re investing in other
sponsors’ real estate. And in the REIT, it’s all cash flowing, so it’s either preferred
equity or mezzanine. And they both look very, very similar, that is in between your senior loan, so your bank loan or maybe you have an insurance company loan, but your senior first position debt. And then the equity position
of your limited partners. So in between that it’s called sub-debt and it just a slice of capital that you can put in between that’s anywhere from 10-12%. You put that in between them and if the property is cash flowing well you’re actually increasing your returns to your limited partners by adding a little bit more leverage on it. And the real difference
between preferred equity and mezzanine is just whether or not you have an inner creditor
agreement with your senior. Mezzanine debt requires it,
preferred equity does not. So they look very similar in so much as basically you’re not
sharing any of the upside, you’re just basically
as a sponsor or borrower you’re making payments on it, just like you would on your senior debt. You know every month you pay a coupon on that piece of money that… It’s $1-5 million that
you’ve either borrowed or had invested by Realty
Mogul on a fixed coupon basis. – That’s excellent. So, there was so much
stuff just said there and I want to go back for
a little bit because… Does that work for every type of property? What kind of property does that work for? – It works for cash flowing deals. So if you’re getting a very
low interest rate loan, on let’s say you buy a deal,
a property at a six cap, and you have 4% debt on it, and it’s cash flowing quite well. You might be able to put some
additional leverage on it to get instead of a senior loan, get to 70-75%, with sub-debt
you can go to 80-85%. That’s basically when it cash flows enough to pay for the senior loan and some, that’s when sub-debt is a good idea. JB Equity is the product
we use for value add deals. – I was just gonna ask… You asked my next question for me. Okay, go ahead, go ahead
you do the questions. (both laughing) – Yeah, we use equity when
it’s a value add deal. Because it’s a little riskier product, in so much, as there
isn’t current cash flow to pay current investors,
so that’s how we view that. We want to be in a different
position in the capital stand. – Okay, so what’s next? So how big is the Mogul REIT? And how filled up are you now? And how can somebody get into it if they wanted to get into
this type of investment? – Love those questions,
thank you for that. It is a $50 million REIT. We’re getting invested
dollars as low as $2,500. We’re a couple million
dollars into the REIT so far and growing, so there’s
definitely room in the REIT. And you can invest, I think it takes about five minutes or less to go online. – Wow.
– It’s quick. It’s very, very quick. I think mine’s particularly quick because my computer’s cache, so all my contact information
just populates in. But it’s still pretty quick. Realtymogul.com and you
just click on the link for invest now and go through
the investment process. One of the big value adds of our REIT, as opposed to traditional REITs, is that because we are a
technology enabled platform our REIT is basically
significantly different in the amount of fees that we charge compared to a standard,
traditional offline REIT. We’re not using the traditional
broker-dealer channel. And traditionally,
broker-dealers have charged 7-8 points fee loads on
their REIT offerings. So, if you look at our REIT, which has a three point fee load compared to a traditional REIT which has an average 15 point fee load it’s a pretty big difference
between the amount of fees that most offline REITs have included. So you’re basically looking
at 85 cents to 88 cents of every dollar actually
goes towards your investment. Whereas with the Mogul REIT 1, we’re looking at, once fully allocated, I should make it clear that
our fee load is based on… There’s certain fixed costs, so it’s kind of allocated
over the $50 million REIT, but once fully allocated, you’re
looking at around 97 cents. – Oh, that’s fantastic. So if you want to get into
commercial real estate investing and you don’t know how to do it or you don’t want to take classes, you know this is what I often explain. That people don’t want
to spend their weekends learning how to invest in
commercial real estate. They want their weekends for themselves. So instead of going to
real estate seminars this is a great way to get into that apartment building
you’ve always wanted to. And I’m not selling this
security, by the way. I want to make that
very clear, just saying. – No, we’re not selling. – But $2,500 in five minutes
is a very low entry point for getting into commercial real estate. – Exactly. It’s a passive real estate
investment and that’s nice. It also, if you are going
the resi fix and flip route or you are buying into
commercial real estate, there’s more risk if you’re
the borrower or the sponsor because you’re taking on
the liability of the debt. Meanwhile, if you’re investing
in something like a REIT you’re not taking on that debt liability. So there’s a lot of benefits to doing passive real estate investing, least of which is you just
don’t have to do much. It’s kind of you go in, you invest and you’re not on the hook for
toilets, trash and tenants. I think is the three– (Jillian laughs) – Well it’s so funny, because I deal in real estate investing
all the time, every day. I see a ton of deals and the reality is my best investments are
always with somebody else who takes the reins where
I don’t have to worry about the toilets, trash,
tenants, et cetera. The ones that have, and I’m
completely open about this, the ones that have not done
traditionally very well are those that I’m in control of. So, I’ve learned, very much the hard way, that the best way for me to invest is to give my money to somebody else. – I mean, that’s the good news as I shared it’s $25 million as a minimum for sponsors on our platform. That’s good news for our investors because they really are
investing in sponsors that have tremendous track
record and experience. We’re also pre-vetting our
investment opportunities so our head of credit was 19 years running underwriting at JP
Morgan, their CMBS Group. So we’ve got a lot of
real estate professionals in our company that are actually
doing all the hard work, the heavy lifting, of
doing the due diligence. And as a broker-dealer, and
it’s kind of important to share, as our company is affiliated
with a broker-dealer, we’re actually on the hook, or pre-vetting these opportunities and making sure that what we’re presenting is really something that’s been analyzed, and underwritten, and we’re not, unlike a deal where
you’re investing straight into a sponsor’s transaction, you’re getting their numbers, and it’s on you, as an investor, to confirm whether or
not you agree with them and their assumptions. – Okay, so I have so many
more questions for you. – Yeah? – And I’m not sure I have all the time, so I’m gonna end with this question. And we’re gonna have to
reschedule another interview because this was great and I loved it and I want to get into the
technology portion with you and the technology that Realty Mogul uses, so we’re just gonna have to come back. – Got it. – But my last question for you is what books have you been reading that you could share with our audience that you think that they would enjoy? – First half of that,
I’m sorry, what was it? – What books have you been reading? – What books have I been reading. Oh goodness, now I’m
gonna forget the name. There’s a new book that
just came out about REITs that was through the REIT
Institute, I’ve been reading that. Which is particularly good. I read a lot of business books. I tend to read- – Well that’s what our
people want to know. They want to know what
business books are you reading? – What business books. I just downloaded a few. Oh now you’re gonna
make me look at my phone and see what books I’m downloading. (Jillian laughs) Now I’m waiting, sorry. – No. – “The World is Flat”, that’s
one that I just downloaded. – Okay, “The World is Flat.” Do you know who it’s by? – Yeah, it’s Thomas Friedman. And it’s about the brief
history of the 21st Century. That is a good one. And then I’m reading
another book on REITS. – Oh fantastic. Well, Elizabeth thank you so
much for being with us today. But how can people get in touch with you? – I am pretty easy to find. [email protected] and also on Twitter, Elizabeth Braman. But if you go to Realtymogul.com, I’m all over the website,
so not too hard to find. – No, that’s fantastic. Thank you so much for being with us today. I’m Jillian Sidoti with
Crowdfundinglawyers.net and this is our segment,
People You Should Know. We’ll see you next time. Bye everyone. (upbeat music)

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