Marshall Saunders, who built one of the nation’s largest real estate franchises in Eden Prairie, is trying something new: attracting more people to real estate as an investment.
Minnesota legislators earlier this year approved a new form of investing called equity crowdfunding, and Saunders is the first out of the gate with an investment vehicle that will focus on Twin Cities real estate.
The concept differs from regular crowdfunding, where participants essentially donate money to a business or individual. Instead, participants make an investment and get a stake in a business. In this case, they will own commercial and residential properties that will be run by third-party management firms.
“Our goal is to open the world of real estate investing to a whole new group,” Saunders said after a launch party last week for his business, called SaundersDailey.com.
The firm will sell funds that might hold a single house or a portfolio of apartment buildings. The company also will lease its software to others wanting to establish similar funds.
Last year, Saunders sold his interest in his RE/MAX Results brokerage to partner John Collopy. He then assembled a team that included Jason Dailey of Brandography, Steve Pajor of the Black Dog Investment Group and Steve Havig of Lakes Area Realty to start SaundersDailey.com.
Massolution, a research firm that tracks the new industry of equity crowdfunding, said that real-estate-related funds grew 156 percent last year to more than $1 billion in assets.
Congress in 2012 passed a law that enabled equity crowdfunding, but federal regulators, concerned that investors might easily be victimized, have adopted final rules for it. State legislators took the issue up by passing their own laws. Minnesota’s law passed during the special legislative session last month and was signed by Gov. Mark Dayton.
“This is an industry that’s growing rapidly,” said Zachary Robins of the Winthrop & Weinstine law firm in Minneapolis. He and colleague Ryan Schildkraut helped craft the bill and have been vocal advocates of the concept for more than a year.
A local focus
Robins said the strength of the concept lies in its transparency. Investors will have online access to information about the asset and they’ll know precisely how their money is being used.
Unlike national real estate investment trusts that might pool assets from all over the world, SaundersDailey focuses on matching local investors to local real estate.
Saunders said that his familiarity with the Twin Cities real estate scene puts him in a unique position to understand market conditions and that investors are able to own assets in their own community.
Drew Levin, a local investor who was at the launch party and is co-star of HGTV’s “Renovate to Rent,” said it makes real estate investing available to everyone and may spur “smaller residential projects” that aren’t considered attractive by wealthy investors.
Ross Corson, director of communications for the Minnesota Department of Commerce, which will act as regulator for the state’s equity crowdfunding law, said final rules for it will be written after the mandatory 60-day comment period ends on Sept. 14. “We are moving forward as quickly as possible with the rule-making process as required by state law,” he said.
For the moment, SaundersDailey.com’s investment products are available only to accredited investors, those with more than $1 million in assets or annual earnings of at least $200,000.
Eventually, Saunders expects the average investment to be about $20,000, but the initial offering requires a minimum $10,000 individual investment. As the number of offerings increases, the minimum investment could fall to as low as $2,500, possibly even $1,000, Saunders said.
He said he wants to control the number of investors and will finance only half of the purchase price, so if the offering is a $400,000 building, he’ll raise a maximum of $200,000.
Saunders said that being completely online lets the company lower costs and reach a broader array of investors. He added that investors can sign into the website, view offerings, examine the property prospectus, set up a showing and make an investment.
For now, profits will be based primarily on rents and appreciation and are expected to average 5 to 7 percent. They will be paid out quarterly at owner parties, which may be held at local restaurants where investors can interact with one another. “I want to make it fun and I want it to be a very, very transparent and accessible organization,” Saunders said.
Kelsi Rahm, a financial planner with Morgan Stanley in Minneapolis, said that while the concept makes sense for those who want more control of their investments, it’s doubly important for them to do their proper research and due diligence on the properties, because the investments aren’t supported by independent analysts.