In Washington, D.C., a company called Fundrise has helped pioneer this last, and most difficult, form of crowdfunding. Founders (and brothers) Benjamin Miller, 36, and Daniel Miller, 26, created a business model in which individual investors can contribute online to the development of local real estate projects. Last year, Fundrise drummed up $325,000 from 175 investors for the revitalization of a two-story commercial building at 1351 H Street NE, in a gentrifying neighborhood near D.C.’s Capitol Hill. Investors will make money the way a landlord would—from rent, real estate appreciation, and any sale or refinancing. “You get a cash flow like a bond, and you get appreciation like a stock,” Benjamin says.
The Miller brothers, native to D.C., hope that Fundrise will help close the chasm that exists between property development and residential need. People rarely get a legitimate say in the types of businesses or the style of architecture in their neighborhoods. “To have a voice, you have to go to some rec room at 7 p.m. and wait in line and hope somebody pays attention to you,” Benjamin says. “But in most cases, you have a review board composed of people who do not live in your neighborhood who drive the architecture. And at the end of this long, laborious process, you end up with architectural gruel. Nobody likes the process. Nobody. But we have it. It’s like legacy. It’s the old way of doing things.”
The big banks, meanwhile, often aren’t aware of local development trends. “We were buying this great property on H Street in a young, vibrant, bohemian neighborhood, with plans of redeveloping it into apartments and businesses,” Benjamin says. “I would tell friends and people in the community about it, and they would love the idea. And then I would go to private equity funds, the source of real estate funding, and they’d say: ‘What? I’ve never heard of this neighborhood.’ It was such a bizarre thing.”
By allowing individuals financial access to real estate development, and by inviting them to contribute ideas to the redesign, Fundrise hopes to not only raise money but also to demystify the development process in order to support the creation of strong, well-designed communities. For decades, architects have debated ways to increase the public’s awareness of, and interest in, good design, and crowdfunding—with its participatory process—may offer that opportunity.
Matt Campolongo, 30, a graphic designer living on H Street, invested $1,000 in the 1351 project—a decision that has made him more active in his community. “We’re seeing a lot of change in our neighborhood, and oftentimes you feel like you don’t have a say in those big changes,” Campolongo says. “For a small contribution, you can invest in an actual stake in a building and a business. And because I’m invested now with my money, that is another incentive to educate myself on what goes into making a property happen.”
Structuring a crowd-equity platform that allows individuals like Campolongo to invest was no easy task for the Miller brothers. The Securities Act of 1933 makes it nearly impossible for nonaccredited investors to contribute to a property in this way, let alone online. Fundrise hired a bevy of lawyers to help them figure it out. “I had no precedent,” Benjamin says.
Ultimately, Fundrise employed a little known SEC regulation for 1351 H Street: Regulation A, which offers an exemption on normal rules for public offerings not exceeding $5 million in any 12-month period. Benjamin believes the only other entity to use this was a Broadway play, “Godspell.” Fundrise has been working to make these types of offerings possible for other buildings and developers.
Today, the SEC is on the verge of making it easier for anyone to employ equity-based crowdfunding for real estate. The Jumpstart Our Business Startups Act, or JOBS Act, signed into law by President Obama a year ago, allows people making less than $200,000 a year and with a net worth of less than $1 million, to invest in buildings. Prior to the law’s passage, only accredited investors were permitted. Property investors can’t yet take advantage of the new law, however, because the SEC is still developing investor-safeguard rules. The AIA, as a part of its Crowdfund Initiative, has been encouraging the SEC to release those rules and open this stream of new funding.
Back in New York, James Ramsey is still hard at work on the Lowline. The exhibit funded by Kickstarter took place in an abandoned warehouse on Essex Street in September. Ramsey has now partnered with industrial designer Ed Jacobs and the global engineering firm Arup to continue refining the design for the underground park. He’s also exploring how to acquire the property, which is currently owned by New York City. After sitting down for an interview for this story, Ramsey had to run to another appointment: a meeting with city officials to discuss the possibility of making the Lowline a reality.