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Crowdfunding real-estate: A tool to combat displacement or another nail in the coffin?

San Francisco Bay Guardian - April 2014

A key provision in theJOBS Act, a legislative package signed into law by President Obama in April of 2012, was hailed as a huge victory for the ever-growing real estate industry, removing many of the bothersome impediments that keep it exclusively in the realm of the upper echelon.

The vast majority of real-estate deals are controlled by private equity firms and "accredited" investors whose individual net worth is $1 million or more. But the JOBS Act opens up new territory by allowing for “crowdsourcing” investment funds, introducing the option of pooling financial resources with up to 500 other “non-accredited” investors, meaning anyone making $100,000 or less a year for an individual, or $300,000 for couples.

This potentially opens the floodgates to a much larger portion of the population -- but it could have positive or disastrous implications for San Francisco’s housing affordability crisis, depending on how it’s used.

Walk down nearly any street in San Francisco, and you can virtually watch the city change by the moment. With reports of mass displacement and staggering income inequality, the city is desperate for a way to stem the tide of evictions and curb the loss of affordable housing.

This idea of using crowdfunding has drawn some interest as a possible tool for restoring balance. At the same time, at least one company has seized on it to do just the opposite, making it easier for real-estate investors to flip properties and escalate displacement, the only difference being that one need not be a member of the exclusive upper crust to get in the game.

The recent campaign to save thehistoric black owned bookstore, Marcus Books,led by the San Francisco Community Land Trust, sought to take advantage of crowdfunding as a way to preserve an iconic cultural location and housing for long-term residents.

FundRise, a D.C. based real-estate startup, helped the Land Trust set up a fundraising campaign in an effort to raise $1 million. Although it failed to hit the target, the organization “was able to raise $750,000,” according to Tracy Parent, SFCLT’s Organizational Director. (Marcus Books is hostinga town hall meetingon Sat/12 at 1pm to discuss plans for the future.)

The campaign inspired hope that even the non-rich could band together with crowdfunding campaigns to preserve rent-controlled housing, by moving historic properties under Land Trust ownership with perpetual tenancies for long-term occupants. FundRise, meanwhile,held several meetings with representatives of San Francisco’s Office of Economic and Workforce Developmentto explore ways of working together to respond to the affordability crisis.

Yet a different picture emerged when we talked to Aaron McDaniel, CEO of San Francisco real estate startup Tycoon Real Estate.

McDaniel says the JOBS Act provision “can be used as a tool to get into the industry” for those who want to break into the business of flipping houses, a sentiment echoed in aBusiness Insider articleby Nicholas Carlson earlier this year that asked the question: “How can I get into San Francisco's house-flipping, rent-gouging market?” To wit:

“It used to be that if an investor wanted in the San Francisco real estate market, that investor would have to have at least a few hundred thousand dollars around for a down payment. Not anymore. Thanks to the JOBS Act and a new Kickstarter-like website calledTycoon Real Estate, people with a few thousand dollars in savings can now invest in flipping houses the way only millionaires used to be able to.”

In other words, anyone looking for a get-rich-quick scheme can cash in on the city’s red-hot real-estate market. As the Business Insider observed:

“If [Tycoon Real-Estate] gets big and starts funneling even more capital into the San Francisco real estate market, all those people throwing rocks at Google buses and whining about rents are certainly going to come after the startup, accusing it of fueling an already dangerous bubble.”

Therein lies the danger that could actually speed up displacement in the city. And with San Francisco housing prices at an all-time high, there’s strong incentive for any random person with a thousand dollars or so lying around to give it a go.

As Parent noted, to her knowledge, no other organizations looking to combat displacement have sought to create crowdfunding campaigns of their own for the purpose of preserving rent-controlled housing, rather than flipping it. But Parent is holding out some hope. Even though “we were not successful” in raising the $1 million needed to save Marcus Books, she said, “we will use FundRise again.” 

 

Marcus Books Town Hall - 4/12

Come hear the story and the plan for Marcus Books.

Marcus Books Town Hall: April 12th 1pm at Marcus Books - 1712 Fillmore Street.

To the Supporter of Marcus Books -

The community campaign to save Marcus Books appreciates your patience and your unwavering support. In the last month, the community campaign has been in continuing discussions, considering options and alternatives to our previous plan to reclaim the Marcus Books/Jimbo's Bop City Building and to retain it for a community resource.

The end date for the February deadline has come and gone. The rapidly evolving landscape of the legal aspects of the campaign demand that we come together to discuss next steps.

The community campaign is calling an urgent town hall meeting to plan the next steps. We invite you to come.

Get more info at MarcusBooks.com.

 

Crowdfund Insider, January 2014

Fundrise Real Estate Platform Aids Marcus Books in Crowdfunding Effort

Marcus Books, the nations oldest black owned bookstore located in San Francisco, is facing the possibility of displacement. Fundrise, a commercial real estate crowdfunding platform, is helping them raise $1 Million to buy back the property.

Fundrise is seeking accredited investors to save a property.  The campaign has been created with the goal of raising $1 million, the remaining amount necessary to save this small business and two apartments located overhead.

The campaign allows accredited investors the opportunity to invest as little as $10,000, with an expected return of around 4%. The rate of return is below the normal market value, but it comes with the added knowledge that the investments will have a lasting social impact on the area.

fundriseMarcus Books, the oldest African-American family-owned bookstore in the nation, is facing the possibility of displacement. This bookstore has been in business since 1960. It is also situated in its current location of 1712 Fillmore Street, also known as the historic Jimbo’s Bop City building, since 1981.

The building hosts the bookstore on the street level and a pair of Victorian-era apartments upstairs. A recent bankruptcy of a majority shareholder caused the building to change ownership. However, the new owners are offering an opportunity for the San Francisco Community Land Trust to purchase the property back. Currently, the offer stands at the current market property value of $2,600,000. The bookstore and residents of the apartments are required to vacate the premises by 28 February 2014, if this amount is not raised by then. Currently, the campaign has raised $1,650,000 from Westside Community Services, a local non-profit organization, thus the need for $1 million.

The San Francisco Community Land Trust is an organization that acquires properties that are at risk of displacement and stabilizing them. The apartments at risk in this deal are slated to be maintained at rates affordable to families who make 80% of the median income. For a family of four, this comes out to $80,000 per year.

Vacancy rates for apartments in San Francisco are at their all-time lowest level. Data suggests this amount is anywhere from 2.8-4%. This results in expensive options, and apartments are often difficult to find. As of June 2013, the rental cost of a 2-bedroom apartment is more than $3,000 per month. All these signs suggest that San Francisco suffers from a significant lack of affordable options in terms of the housing market.

Recent data suggests that the property values for San Francisco have been rising since 2012. In fact, similar buildings within only a mile of the Jimbo’s Bop City building have been sold for amounts between $1,400,000 and $2,840,000. Sales have increased, on average, by 23% on 3-unit buildings. These rates are expected to rise even further in the future. In fact, comparative market analysis has recently validated the selling price for this piece of property.

For investors, this means only a moderate risk associated with this investment. Investors can feel confident in the current market trends, and should expect and see solid returns on their investments. In addition to these returns, the knowledge that they will be saving a culturally significant building for the community is satisfying.

The apartments located in Jimbo’s Bop City building are in the most expensive housing area in the country. It would be quite difficult for families to find affordable options. An investment in this property would go a long way in helping create a trend of affordable apartments.

Eighty two percent (82%) of the 33,000 people living in the commercial area are renters. The median income for these households is $54,000. Approximately 34% of the households earn less than $35,000 per year. Higher income families (those who earn between $100,000 to $150,000 per year) have been increasing. The result is a higher likelihood of lower-income families being forgotten. The Fillmore District has become a significant priority for these reasons.

Recent reports suggest that retail leases cost more in Fillmore area than the other commercial districts. Of course, this is a reflection on advantages of residing and conducting businesses in this District. The Fillmore District boasts of cultural and historical significance, is also centrally located, and has a population of young people with disposable incomes.

Marcus Books seeks to become a 501(c)(3) non-profit cultural institution. The bookstore itself is not in financial trouble. In fact, the store is healthy and stable. This suggests that your investment in this property has high-potential for return.

Investors are enjoined to assist in raising the $1 million needed, to complete the $2.6 million, before the bookstore and the apartments’ occupants are forced to evacuate the building. Investors, do visit Fundrise to read more about the campaign and participate in saving a historic building, the Marcus Books and the residents as well.

Dan Miller FundriseTo the investors, Daniel Miller, Co-Founder of Fundrise, has this to say:

“The investment will stabilize a property whose main tenant is the historic Marcus Books, the oldest African-American owned bookstore in the nation. Additionally, it will provide two affordable housing units in the heated SF housing market. The investment return is below market, but the deal provides high social impact.”

http://www.crowdfundinsider.com/2014/01/30737-fundrise-real-estate-platform-aids-marcus-books-crowdfunding-effort/

 

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SF Community Land Trust
SFCLT is a membership-based organization whose mission is to create permanently affordable, resident-controlled housing for low- to moderate-income people in San Francisco through community ownership of the land.
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