Call it the Kickstarter version of speculative residential real estate.
Developers Richard Gherardi and Glenn Callahan have launched Realty Crowdfunding, which they think is the first investment vehicle of its kind in the country.
In this crowdfunding scenario, investors capitalize the construction of luxury homes on spec by paying into a pooled fund, then receive preferred interest and a share of the profits when the residence is sold. Realty Crowdfunding’s principals estimate returns in the ballpark of up to 20 percent—although there are certainly no guarantees.
Mr. Gherardi, of East Hampton-based Sand Dollar Development, said last week that he has built and sold more than 200 high-end homes between Montauk and Southampton since the 1990s. He and Mr. Callahan, of Jet Prefab LLC, also a developer and designer, have a millwork factory in Riverhead where they can make wall panels themselves, all of which add up to “certain things we bring to the table to offer the investor,” said Mr. Gherardi, whose son Richard is the third principal in the venture.
What with climbing home prices enticing investors to choose real estate in the Hamptons, banks reluctant to lend money for speculative building, and recent federal legislation that allows companies to raise money using general solicitation—including through social media—the developers figured the time is right to branch out in the investment side.
A publicity statement describes the Realty Crowdfunding as “an online marketplace that combines the security of real estate investment trusts with the financial gains of being a principal developer.”
Mr. Callahan said the Hamptons is probably one of the safest places for investors who want to diversify their portfolios by getting into real estate. “Investing in the luxury Hamptons real estate market is a hard one to get into,” he said. “We’ve made it possible to get into the game.”
Investors have to be accredited, meaning they must have an annual income of at least $200,000 for singles or $300,000 for couples, or a net worth of more than $1 million, excluding their primary residence. They have to pay at least $5,000 into the pool, “which is a single-purpose entity capped at $9 million and detailed in a private placement memorandum” that can be found at www.fundinghamptons.com.
The fund will capitalize one project at a time, according to a publicity statement, but will close for additional investments once there is enough capital to start a particular project. Currently, two multimillion-dollar homes are planned on two vacant lots in Amagansett’s Southwood Court.
“The remaining funds will be used to finance similar high-end, single-family projects ranging in size, construction cost, and the sales price, and will be available to investors on a first-come, first-served basis,” the statement says.
Projects are expected to take about 14 to 18 months from development to closing, during which time Realty Crowdfunding Fund and its members will hold title. The minimum duration of the investment is three years.
Realty Crowdfunding has a Facebook page as well as the website. As of last Thursday, Mr. Gherardi said, about 40,000 “looks” had been logged.
Virginia Garrison on Jun 9, 2014