By Henry Thomas on 14th September 2015
GroundFloor has become the first platform to offer debt funding for real estate under the Regulation A+ legislation. The platform has successfully obtained approval from the SEC to sell securities to non-accredited investors and – following its successful pilot in Georgia – is rolling out the service to eight states: California, Illinois, Maryland, Massachusetts, Texas, Virginia, Washington, Georgia and the District of Columbia, with plans for further expansion to follow.
Brian Dally - Co-founder and CEO at GroundFloor – remarked on the landmark announcement:
“We are the first issuer in any sector to be qualified under the Title IV rules, and the first marketplace lender in the U.S. ever to be qualified to offer real estate debt to non-accredited investors.”
GroundFloor is operating under Title IV of the JOS Act, which – under Tier I – allows companies to raise up to $20 M over a 12 month period. In its pilot scheme, GroundFloor funded $2 million worth of real estate loans to commercial borrowers. There have beenno defaults and $800,000 of lender principal and interest has been repaid so far. Average loan size was $50,000-$100,000 at an annualized yield of 12%.
After the introduction of Title IV back in June, AltFi provided coverage of how this would affect the industry. On the 25th we discussed with several platforms how this legislation would change the industry and, in a more focused session, AltFi also caught up with real estate platforms FundRise, Patch of Land and SaundersDaily to hear how Reg A+ - whilst an improvement on the old rules – was still too slow for their needs. Clearly, GroundFloor feels differently. When we put this issue to Mr Dally, he replied:
“The way we have engineered our offering and our business allows us to amortize the qualification time and expense over hundreds of loans. Our approach to selling securities to non-accredited investors is very efficient for us.”
One of the differences is GroundFloor’s use of the Tier 1 segment of Title IV. Under this process, each state must qualify an offering within their borders. This is why GroundFloor is expanding slowly, whereas many of the platforms that AltFi has spoken to have looked nationally from conception.
Whilst the fanfare from Title IV has largely died down since the hubbub that surrounded its unveiling in June, GroundFloor’s announcement marks a new turn in the use of Title IV – another move to expand the reach of the already exciting US alternative finance space.