It’s been a frustrating few months for Karl Frizlen and Michael Masters, as they’ve tried to get their Barcalo apartment project off the ground.
The duo is converting the historic former furniture manufacturing plant on Louisiana Street – where Barcaloungers were made – into 118 apartments and a possible restaurant.
They already lined up bank financing, and plan to seek historic tax credits as well. But the $34.7 million project has been held up by the coronavirus pandemic, as their lenders put everything on hold – including their financing.
So in the meantime, they’re trying to fill a remaining gap – by raising $3 million through a new locally based online crowdsourcing platform that is being launched this week, specifically to link real estate developers with potential investors from Western New York and beyond.
The Barcalo project went “live” on the new Common Owner system a week ago, and several investors have registered on the system, though no investments have been secured yet.
“We think that this is a good way to raise the money to complete this project and get it financed,” Frizlen said. “We’ll see what the response is going to be. Hopefully, a good one.”
The project by Frizlen and Masters is the first to test out the online service offered by Common Owner. That’s a new company formed by several local real estate, development and legal professionals to support projects that need financing in smaller cities.
“Access to capital is probably the biggest barrier to doing business in Western New York,” said Maggie Hamilton Winship, one of the co-owners of Common Owner, who is also a development official for both the Town of Amherst and the Village of Williamsville. “Whether you’re a large developer or someone with a small project, there’s just not a lot of investors doing business here in Western New York.”
That’s what the founders of Common Owner hope to change, by making it easier to connect investors with investment opportunities in smaller urban areas and villages, and extending developers’ reach geographically.
“We wanted to make an easy, streamlined and compliant process to reach more folks and get more folks involved in that investment process who typically haven’t had access as well,” said Richard Rogers, a local attorney, urban planner and real estate consultant who was one of the original partners in Common Owner.
The goal is to help both the businesses and the projects at the same time, while also providing a new outlet for sophisticated investors in major cities who are looking for better returns or new areas in which to invest.
At the same time, the crowdsourcing medium provides an opportunity for average local investors to get into the game with low-dollar thresholds so they can profit from Buffalo’s resurgence, and even own a piece of the action in their own neighborhoods.
“Now everyone can profit from the real estate investments being made in their own community,” Winship said, comparing Common Owner to Kickstarter. “We’re certainly not going to stop gentrification, but maybe we can at least give people a seat at the table to financially benefit.”
And it’s a way to promote not only more reuse of buildings, but smaller projects and infill development that bigger developers might not do, which helps “to create or restore economic productivity and a desirable sense of place,” Winship said.
“When we look at development in Western New York, there’s always this desire to have smaller-scale development, not having the same five people buy up the whole block and do a mega-development,” Winship said. “The reason that keeps happening is because it’s very difficult to get financing, and the smaller projects are harder.”
Besides Winship and Rogers, the partners include Derek King and Michael Puma from Preservation Studios, and Julian Anjorin, who is also a part owner of web developer MAD.
Crowdsourcing is a new financing mechanism for real estate development, which typically relies on large-scale commercial loans, sophisticated institutional or high net worth individuals, and an array of tax incentives and credits. But the bigger dollars – whether loans or especially investors – typically follow the higher-profile projects and developers in the biggest cities, because that’s what they’re most familiar with.
By contrast, developers and business owners in secondary and especially tertiary markets like Buffalo fight for attention and struggle more for capital because their markets lack both a large investor base and a built-in culture of putting that money at risk. “The people here with wealth are far more comfortable investing in stocks,” Winship said.
Common Owner will offer two portals or systems, one aimed specifically at “accredited investors” – those who fit minimum criteria of wealth or income set by the U.S. Securities and Exchange Commission – and one for average investors that epitomizes traditional crowdfunding.
The accredited investor portal launched first, with the Barcalo project. The broader portal, which is still in a 60-day review period by the Financial Industry Regulatory Authority or FINRA, is expected to launch at the end of July.
Both portals provide investors with overviews of the projects and developers, while allowing them to review more in-depth documents for a deeper dive into the financials.
“Our focus is really on getting more local folks involved in the ownership, to be able to invest in projects in their own neighborhood,” said Rogers, an attorney at Borelli & Yots and owner of consulting firm Urban Vantage.
All investor funds are held in escrow by a third party until the developer’s minimum fundraising goal is met. The minimum investment for accredited investors is $100,000, while the minimum for traditional crowdfunding is the lesser of 5% of their net worth or income.
Common Owner vets the developers and projects before they can be accepted, making sure the projections are realistic, the investment is legitimate, and the sponsor “doesn’t have a history of fraud or other crimes,” Rogers said.
The company also conducts third-party background checks on the potential investors, who must register and pay a flat fee before they can sign on and participate. The actual investments can then be made directly through the portal, with Common Owner taking care of all the work behind the scenes.
In return, Common Owner then collects a small percentage of the total amount raised by the developer or project sponsor. Common Owner also has retained an experienced crowdfunding attorney in New Jersey to help with legal and regulatory matters, as well as a marketing firm to help promote the new portals to both developers and accredited investors.
But much of the marketing will be word of mouth. “It’s really important for people to hear about us through somebody they trust,” Winship said. “That’s the beauty of this model to be deployed in small markets. We know that investment is personal, so that’s why we think this model will be successful in Buffalo and other small markets where we’d like to expand.”
Rogers said the firm has at least 10 projects lined up to participate, though some may have been delayed by the Covid-19 pandemic. He said he expects to have another one online by the end of the month for accredited investors, with two to three more coming in July on the broader portal. “As word is getting out, more are expressing interest,” he said.
Posted by The Buffalo News