The Dawn of a New Era of Real Estate Capital Formation

I was a part of the dawn of the modern era of Real Estate Investment Trust capital formation.  During the late 1980’s through the mid 1990’s I was an investment banker in the real estate group of Merrill Lynch - arguably the leading firm for REITs.  With some exceptions, the modern era of REITs benefited generally from a level of discipline focused on alignment of interests with shareholders.

I am now participating in a new revolution of real estate capital formation made possible by the internet – Crowdfunding. The typical Crowdfunding model has three types of participants: the project sponsor who organizes the project to be funded; individuals who support the project by pooling capital in varying amounts to fund the project; and a platform that brings the parties together.

Common wisdom is that most people will benefit by having some portion of their investment portfolio allocated to real estate. In reality, most people are not suited to own commercial properties based on their capacity to acquire, finance and operate.  Crowdfunding has emerged as an alternative to REITs for achieving exposure to the real estate sector.  Some investors still like the increased liquidity offered by publicly-traded REITs.  However, equity oriented Crowdfunding transactions offer a more akin to direct ownership of real estate without as many moving parts.

In the case of real estate Crowdfunding, project supporters fund the acquisition and other costs including development costs with the intent of benefitting from a property's cash flow and potential appreciation when the property is sold.  In the past, local groups of friends could pool capital to invest in real estate projects. Alternatively, brokerage firms could help real estate firms syndicate limited partnerships although this typically carried significant fees reducing the amount actually invested in property.  Crowdfunding is an alternative allowing investors to evaluate deals directly and make an investment without significant fees going to intermediaries.  This disintermediation should create a benefit for astute investors who are willing to do their homework.

Crowdfunding connects investors with real estate operators. Investors choose deals after they review offering materials.  A variety of approaches to providing real estate investments through Crowdfunding are available ranging from participating in loans, pooled investment in assets, blind pools and pooled equity ownership of specific properties.  The key for investors is to evaluate each potential transaction.

IntelliStay Hospitality is sponsoring investment opportunities allowing investors to participate in the direct ownership of individual hotel properties. IntelliStay Hospitality believes this approach is attractive since investors can evaluate the specific asset and transaction structure with a high level of transparency.  IntelliStay is offering investment opportunities that will generate above-market current distributions (>10%) and overall returns to investors (20%+ IRR).  Each hotel investment opportunity will participate in the potential for a strategic exit through the aggregated portfolio and/or potential for a public market exit that is intended to create superior investor returns.

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David Lesser is Co-Founder & CEO of IntelliStay Hospitality Management LLC