Disclosure NewswireTMiCrowdNewswire - Jan 25, 2017
The Title III rules of the Jumpstart Our Business Startups (JOBS) Act took effect on May 16, 2016. According to the latest Real estate crowdfunding report, approximately $1B and $2.5B were raised in 2014 and 2015 respectively via RECF platforms. Today, there are over 140 RECF platforms operating in the United States alone, which raised about $484M in 2015.
Real estate is one of the many industries with increased activities brought about by Title III rules. Still, some critical flaws were seen in these new rules. The good news is that a bill called “Fix Crowdfunding Act” (HR 4855) was already filed to address most of these issues.
David Drake, Chairman of LDJ Capital, says, “When Title III rules took effect, there were mixed reactions and expectations from both developers and investors. Inasmuch as most players in real estate crowdfunding welcomed these rules, the flaws noted will affect the full realization of their benefits if not addressed. Therefore all efforts being made towards addressing Title III flaws are worthwhile and it is important for everyone to know the ongoing developments.”
Some of the Title III flaws include maximum amount a company can raise via crowdfunding in a year; investor protection; gauging interest of investors; investor flexibility; administrative requirements; and registration exemptions.
The Fix Crowdfunding Act bill, sponsored by Representative McHenry T. Patrick, proposed changes to correct these flaws. He introduced it to Congress in March this year. On 5 July 2016, the House of Representatives passed the bill in a 394-4 vote. Currently, the bill is in the Senate. If it passes the Senate, it will be taken to the Office of the President for final approval.
The bill, highlighted in the TRN 2016/2017 Report, proposes the following:
- increase the maximum amount a company can raise in a year, from $1 million to $5 million
- sponsors should undergo comprehensive due diligence so as to reduce fraud
- sponsors to run tests so as to gauge the interest of investors before their offerings go live
- investors earning an annual income of $100,000 or less should invest more than 5% of their annual income each year
- allow investors earning over $100,000 a year to invest more than 10% of their annual income each year
- reduce administrative requirements by entrepreneurs particularly escrow requirement
- exempt small companies offering crowdfunding securities from similar reporting requirements as public companies
- form special purpose vehicles (SPVs), which should be exempted from registering as investment companies
However, the proposals to increase crowdfunded amount from $1M to $5M per year and allow sponsors to run tests with an aim of gauging investor interest did not pass to the next stage. But the proposals can still go back for discussion by the committee so that they can be improved further.
Title III was meant to create equal opportunities for everyone in the U.S. to become an investor or developer. Through Title III, ordinary persons now can invest in high quality and rewarding real estate projects that were previously limited to a few individuals.
An initiative of David Drake, the report is already the third edition. TRN started preparing this report in 2014. This report by Times Realty News provides an analysis of the changing realty crowdfunding landscape and offers insights into the top RECF platforms in the industry.
Pre-order your copy at http://timesrealtynews.com/2016-trn-recf-report/
About Times Realty News:
Times Realty News is the media stream for the emerging market of Alternative Realty Financing made possible through the JOBS Act, Crowdfunding, Regulation A+, Regulation D, Rule 506C and others. It chronicles the growth and development of real estate crowdfunding platforms, technology, and services. It also provides information, resources and a venue for real estate investors, entrepreneurs, developers and professionals in understanding and discussing the new laws and regulations for financial innovation in the real estate industry.
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