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Connecticut Apartment Sale Shows The Growing Use of Real Estate Crowdfunding

200-Unit West Hartford Property Poised to Benefit From Added Capital
July 30, 2018
Cove West Apartments in West Hartford.

Image credit: ArborCrowd.



An apartment complex purchase this month in West Hartford, Connecticut, is the latest example of the growing use of commercial real estate crowdfunding, the raising of capital for properties through online investors.

The buyers of a 200-unit apartment complex for $20.85 million are turning around and planning to offer individual investors a chance to join in the investment online. The offering is for accredited investors and the minimum that will be accepted for investment in the deal is $25,000, with no maximum amount.

Crowdfunding is becoming a more widely acceptable tool that buyers are using to tap into demand to invest capital in commercial real estate.

ArborCrowd, an online platform that enables individuals to make equity investments in commercial real estate, is expected to begin offering investors an opportunity to acquire passive equity interests in the now named Cove West Hartford apartment community spread out in six buildings from 70 to 130 Kane St. in West Hartford.

CS Acquisition Group LLC, a real estate owner and operator with a large portfolio in the Hartford area, is the sponsor of the crowdfunding offering, along with members of the Arbor family of companies including ArborCrowd.

The Cove West Hartford equity offering marks the seventh multifamily deal that ArborCrowd has presented to its crowd investors since its founding in 2016.

Most recently, ArborCrowd’s Tower on Ryan Park deal in Mobile, Alabama, raised more than $2 million in less than two weeks. In total, ArborCrowd has raised more than $18 million of equity for assets valued at roughly $200 million.

Adam Kaufman, co-founder and managing director of ArborCrowd, has been watching the evolution of crowdfunding since the enactment in April 2012 of the Jumpstart Our Business Startups Act, known as the JOBS Act. It allowed for the solicitation of investment capital directly through internet-based platforms.

"Crowdfunding has become a legitimate source of capital and a very accepted way to invest," Kaufman said. "Crowdfunding will be the way the industry will trend in the future."

Crowdfunding industry numbers are difficult to come by because most top players keep their financial cards close to their vests, said Ian Ippolito, editor of TheRealEstateCrowdfundingReview.com. However, he notes, there has been an increase in larger deals on the top platforms in the past couple of years.

"Whether the quality is increasing is debatable, since quality usually decreases as the cycle ages and currently there is generally much more cash than great deals," Ippolito said. "I’ve definitely seen plenty examples of late cycle dynamics like returns getting squeezed, and risk increasing vs previous years. But this is the situation across the entire market and not just crowdfunding."

ArborCrowd's Kaufman agreed, adding, "It’s a tough market to find a good deal in and we're very selective about what we offer."

ArborCrowd tries to distinguish itself from other real estate crowdfunding companies in the market, Kaufman explained. For starters, ArborCrowd’s relationship with the Arbor group of companies provides it with access to a wide proprietary network of real estate dealmakers to source its crowdfunding investment opportunities. That is different from a number of sites out there that were started by tech companies on which real estate sponsors post their offerings.

In addition, ArborCrowd offers only one investment opportunity at a time.

"Each sponsor and project is thoroughly vetted to ensure the deal and projected business plan match up with market fundamentals and demand," Kaufman said.

ArborCrowd also acquires an equity interest in the transaction at closing before syndicating passive equity positions to the crowd. This back selling is different from many of the other crowdfunding offerings in the market in which investments are solicited for a fund that will then go out and purchase properties and share with investors property level data and financials after the fact.

"In those deals people are investing in a strategy and not a property," Kaufman said.

Either that or sponsors are raising money to complete a specific property purchase. Moreover, in such cases, there is always the case the deal could fall through, he added.

Like its other six offerings, Cove West Hartford falls into ArborCrowd's "bread and butter" investments: so-called workforce housing.

ArborCrowd is seeking to raise $3.55 million from investors for this opportunity. The total capitalization of the transaction is $26.3 million.

The company has budgeted $3.6 million to fully gut and renovate all units and overhaul the property’s common areas and multi-purpose clubhouse.

CS Acquisition Group has extensive experience operating properties in the Hartford multifamily market and anticipates this repositioning program could generate an average rental premium of over $330 per unit per month.

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