Crowdfunding Backs Miami Infill Apartments
An emerging trend among real estate investors has made its way into Miami’s development community.
Ricky Trinidad, Coral Gables-based developer and president of Metronomic Inc., recently launched a private crowdfunding platform to raise capital for his residential projects, where investors can pitch in as little as $2,000 to back the firm’s latest ventures: GroveHaus, a boutique rental community in Miami’s Coconut Grove neighborhood, and Plaza Celia, a mixed-use residential and retail development in Miami’s Little Havana. If current market conditions persist, investors can score up to a 20 percent return.
“It’s a trendy, certainly nontraditional way of investing in real estate,” said Brian R. Kopelowitz, a partner at Kopelowitz Ostrow Ferguson Weiselberg Gilbert in Fort Lauderdale. “It’s analogous to being a small, very minority shareholder. It’s the equivalent of buying five shares of stock in IBM — you don’t have a lot of control or management, but you could get your potential share of the income.”
Trinidad successfully crowd-funded his first Miami project, a townhouse rental community under construction in the historic Little Havana neighborhood. It took 10 hours to raise $350,000 last year for Villas Beny More via iFunding, a third-party crowdfunding platform.
“It was funded almost immediately,” Trinidad said.
Metronomic matched that amount, borrowed the rest from Continental National Bank, closed on the land and broke ground two weeks later. Because of the project’s rapid success in attracting investors, Trinidad ditched the third-party websites and created his own.
Metronomic focuses on urban infill projects affordable enough for Miami’s workforce community, with rents ranging from $1.68 to $2.20 per square foot. A two-bedroom unit measures about 900 square feet.
Trinidad expects Metronomic‘s current funding goals — $600,000 for GroveHaus and $650,000 for Plaza Celia — to be reached within two to three weeks. He ambitiously aims to add one to four projects to his platform each month.
“These are small, fast and easy projects,” Trinidad said. “We’re not building high-rise towers. These are very simple projects that significantly reduce risk, and that’s important for crowdfunding investors to know.”
The Securities and Exchange Commission fueled the crowdfunding movement in 2013 with the JOBS act, which allowed businesses to publicly seek funds from accredited investors. The concept was quickly picked up by the commercial real estate industry, which was able to reach a larger pool of investors.
Heather Schwarz co-founded Miami-based EasyShares, a real estate crowdfunding site, before it was labeled an industry.
“I would throw out the word ‘crowdfunding,’ and people would give me a strange look,” she said. “Now everybody knows what you’re talking about. It’s very popular. It’s a buzzword.”
Real estate crowdfunding became a billion-dollar industry in 2014 and was expected to surpass $2.5 billion in 2015, according to research company Massolution.
Yet the investor pool is poised to grow even larger. Late last year, the SEC finalized proposed rules that would allow non-accredited investors into the crowdfunding arena. If the new guidelines take effect this year, millions of nontraditional investors — those making less than $100,000 per year — would get the chance to participate in private real estate deals.
Supporters applaud the SEC for opening up an industry traditionally dominated by deep pockets to investors of all shapes and sizes. Individuals otherwise shut out of the market now have an opportunity to own a small piece of real estate via developers like Trinidad, said Marc Shuster, a partner at Berger Singerman in Miami.
“It’s really exciting to see a developer give it a shot,” Shuster said.
On the flip side, he said opponents say new regulations are onerous and hard to comply with. The crowdfunding phenomenon may also deter professional investors who are accustomed to being the big fish in a small pond.
“There is that push-pull,” Shuster said.
Kopelowitz noted the rise of real estate crowdfunding has occurred while the South Florida market has been on an upswing.
“We haven’t seen what happens and what will happen when there is a downslide,” he said.