A paradox in the growth of the real estate crowdfunding world is that at the same time as it is becoming easier for sponsors to reach accredited investors online, it is also becoming increasingly difficult for them to rely on anyone else to do the heavy lifting for them.
The major crowdfunding platforms are so successful that their entry qualifications are getting harder and harder and so enter my guest today Kam Zainabadi and his platform, Park Place Investment, where anyone can list a deal.
Learn today about this new entrant to the real estate marketplace space - and discover why having your own, unique online presence is so important.
What You're Going to Learn
Real Estate Syndications For Double-Digit Returns
Building A Marketplace Of Real Estate Investors
How Sponsors Can List Their Real Estate Deals
The Difference Between 506(b) and 506(c) Syndications
Blockchain Technology Is Coming To The Crowdfunding Market
Adam Gower: So you started with a direct investment with a syndicator, did you and then, how was that done? Was that done in-person or was that done through one of the platforms?
Kam Zainabadi: No. My first syndication deals were through in-person. There was no online. I didn't know anything about online platforms. So, I kind of learned about syndications. I was LP on a couple of deals and it was doing well. I mean, the deals are doing well. And, at the same time, what I learned was, you know, it's really not a good idea to get into this type of property investing without really knowing what you're doing. Each of these properties to manage them is almost running an IPO or a small business. I mean, you really have to know what you're doing and especially if you're going to go into this type of investing with a group of people. Right? . I mean, I never dreamt about, like, you know, purchasing something like this on my own or a few people. But then, syndications really kind of when I heard about it, I learned about the syndicators, learned about, kind of vetted their background, saw the deals they were doing. I said, wow, this is really amazing that I could get double-digit returns. Really good tax benefits and still be exposed to commercial real estate.
Building A Marketplace Of Real Estate Investors
Adam Gower: So, what are your criteria, actually, for allowing someone to list the deal on the marketplace?
Kam Zainabadi: We definitely have internal due diligence process with an investment committee. I mean, it's a long list, including background checks. But, as far as the type of vetting we do, is definitely not as stringent as some of the larger companies and that goes back to the mission of our company. Mission of Park Place is to create something like a LoopNet or an MLS for the syndicated marketplace. And that's really the ultimate goal. One of the advantages we have, which I think is an advantage is, we are not bound to VC money. We're here. I am self-funding this. I want to create a marketplace where it helps both the investors and the syndicators. There's a lot of syndicators that are locked-out of those crowdfunding platforms because of either their amount of experience or the amount of deals they've closed or just the fact the metrics of the deal. And this goes back to why I mentioned the larger sites have very stringent criteria which fits their business model.
How Sponsors Can List Their Real Estate Deals
Adam Gower: 99.9, maybe, percent of deals don't get seen. So, that's the gap that you're filling, isn't it? Just tell me, what are the criteria? For example, if I wanted to post my deal on your site, is there a process or can I self-post it?
Kam Zainabadi: Originally, our idea was to create a site where a sponsor could list a deal, and they still can. You could go through the process and actually list your deal on our site. But then we do have a one-on-one interview with the sponsor, making sure to learn about the sponsor themselves, what they're all about. Learning about their previous experiences with syndications. How much, for example, was there, how much assets they have under management, what's their exited asset under management? What specific type of asset class within that framework of commercial real estate they are really specialized at. And then we get their legal documents, including their PPM. It has to be a 506(C) deal for us to list. So we come across a lot of sponsors that are very interested to list or deal, however, as you know, still most of the deals that are syndicated in real estate, they're still 506(B). Last numbers I've checked was around 80 to 90 percent.
The Difference Between 506(b) and 506(c) Syndications
Adam Gower: Just for that one guy out there that doesn't know what that means. What is the distinction between those two?
Kam Zainabadi: Sure. So 506(B). These are all Regulation D exemptions and this is one way to syndicate real estate and this is the most popular one with most syndications. 506(B) is when, it's an offering - you could have about 35 "non-accredited investors" on board, as investors and the rest of them have to be "accredited" after that 35 limit. However, you can't advertise this and that's what's called quote/unquote general solicitation. The investors that you gather or you pitch the deal to, you already have to have a pre-existing relationship with and that's 506(B) and that was the most common one. And going back to what I mentioned about the JOBS Act. The JOBS Act in 2012, when it was passed, it introduced Title II, which was 506(C). Now 506(C), the advantage of 506(C), is you could advertise your deals. And that was really the starting of crowdfunding, really, in real estate. The disadvantage, to some level is that, you can't have any "non-accredited investors" and also, the "accredited investor" check, can't be self-reported, it has to be verified through a third party verification site or a CPA, or a tax return.
Adam Gower: Okay, got it. Perfect.
Blockchain Technology Is Coming To The Crowdfunding Market
Kam Zainabadi: What about creating a marketplace like the New York Stock Exchange for private offerings?
Adam Gower: I suppose the big difference is that you can't really, you can't trade. This is a one way direction.
Kam Zainabadi: That's coming. That's coming. That is definitely, with blockchain. I've talked to 5 or 6 companies. I don't want to name them. I'm sure you know about them - I think we're all, kind of, fans of blockchain and that's coming already. I mean, that is secondary offerings marketplace is definitely going to blossom, as the industry matures, as crowdfunding industry matures. There's no doubt because you know, it's almost like evolution, right. There's laws of evolution and there's laws of business.
Marketing Efforts To Find More Investors
Adam Gower: How are you finding investors? What marketing are you doing for them?
Kam Zainabadi: At the beginning, we just went to our friends and family and high net worth people that we knew that were an accredited investor. We got them online. We got them signed up for our site. That was about 50 or 60 to begin with. Since then, it's been organic. Sponsors list to be on our site. They share their deals. Investors come on board, they see the site. So we've grown up to 300 investors right now, which is not a small feat because you probably know the hardest part of the entire industry is how to get investors onboarded. We are creating a whole educational model. That's going to go online soon. We already have some on our blogs but we're going to really make that robust because as we're learning, what does it take for investors to actually check out the marketplace and sign up and part of that is just providing education for them because I know a lot of sponsors are doing this but I think one thing that's interesting is, investors love the education. They like to hear it multiple times from multiple different people. And sometimes, as you know, like when you went to college or school, one teacher, the way they say it is better than somebody else. You could hear the same thing, a physics problem 10 times, but if you find the right instructor and we're going to try to do that in our way - the way we think it should resonate with our investors and get more investors and those are the ways and also marketing, on Facebook, Instagram, marketing our contents, marketing our educational material.
