whitelabel property development crowdfunding estate baron
TRANSCRIPT
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Property Developers are facing afunding gap
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Bank LVRs and Presales requirementsare getting harder
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Which means there is an increasedrequirement for Equity and Mezzanine
funding
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Mezzanine or 2nd mortgage funding is scarce and
when available can cost 14-20% per annum and 2%
establishment costs
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Typically Project Developers issue anInformation Memorandum (IM) to raiseEquity and Mezzani funds for their
Projects
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However under current regulations youcan only issue 1 offer every 12 monthsand raise a maximum of 2 Million AUD
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This IM cannot be promoted openly (forinstance mass mailers, online
promotions)
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And you can only make 20 personaloffers in a private manner
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If wholesale investors are involved thenthe 2 Million and 20 investors rule does
not apply
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But the restrictions on open promotionsand only one offer a year still apply
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Beyond that you need an AFSL orapproach an intermediary who has anAFSL and can write up an offer for you
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Getting an AFSL is hard and timeconsuming
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And approaching an intermediary like aCrowdfunding platform with a RetailAFSL to issue a PDS increases costs
significantly
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Since the PDS is issued by the AFSLthey become liable for the offer thus
increasing the risk to them
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The AFSL insurance costs increase, anda project failure can mean loss of the
AFSL due to the litigation andcomplaints that may follow
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This means that most AFS Licensees prefer not to issue PDS
for 3rd party Property Development projects or charge
exorbitant fees making the costs unacceptable to
Developers
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In addition a PDS requires 3rd PartyCustodians/Trustees which also adds
to costs
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Most Developers have Distribution listsof potential buyers and every project
has a marketing budget
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Which means a pool of interestedinvestors exists beyond wholesale
investors
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However the current complianceregime makes it hard to access them
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There is however another cost effectivesolution that can make it easier to raise
equity/mezz funding from Retailinvestors
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The Developer can issue a documentcalled as Prospectus in order to raisefunds for his Development project
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A Prospectus has the same informationthat goes in an IM and has the samelevel of risk warnings that go in a PDS
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Just like a PDS, a Prospectus can bepromoted openly
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And under a Prospectus you can raisean unlimited amount of money
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From an unlimited amount of investors
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Making it a perfect solution for fundraising for Property Developers
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You can raise funds for your projects on your own website
and your terms without the need of an AFSL if you go the
Prospectus route
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If this is so easy, why has this not beendone before?
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Typically a Prospectus is used by aCompany that is about to list on the
stock market
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Listing for Businesses requiressignificant level of higher disclosures
and documentation
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Which means the typical legal fees forissuing a prospectus can range from
25K AUD to 250K AUD
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Issuing a Prospectus is henceconsidered a costly affair
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However a Property Developer is notseeking to list his project on the stock
market
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Estate Baron has created a Cookie cutter template that
Property Developers can use to issue a Prospectus for their
Development projects
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The same data such as feasibility,market studies that go in an IM needs to
be filled into a Prospectus
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The actual cost of filing a Prospectus with ASICand start using it is only $2350
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ASIC has 2 weeks to review after whichthe Prospectus can be used
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The second argument that is madeagainst a Prospectus is you need to a
Public company
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But the cost of incorporation of a PublicCompany is similar to that of a PTY
PTY
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You do need 3 Directors which can beyou and your associates
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But having a public unlisted company as your SPV means
you can have an unlimited number of shareholder investors
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The next argument made is the need foraudits and continous disclosure
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However the Project SPV is a brand new entity
without any history
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Main
SPV
Fundraising
SPV LTD
1st MortgageeProspectus
SeniorDebt Equity or
Mezz
It also is going to have only a few transactions in
which it gives money to the main SPV
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This means there is not much to audit or report in
terms of continous disclosures
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Audit costs can be as low as 2 to 5K AUD
and any financial reporting to investors can be done
online on the project website
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A public company is also required to do AGMs for
shareholders but even for listed companies shareholder
meetings are sparsely attended and manageable
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Shares for the public SPV can be issued as non voting
giving complete control of the process to the Developer
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Dealing with many investors can beproblematic, keeping records of funds,
KYC, AML, CTF obligations
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We solve that using Technology
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Seamless solution with beautiful user experience allows to
manage investors, projects, and do all AML CTF KYC checks
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Integrated signature tool to acceptapplications, CSV data exports ondemand. No piles of papers.
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We offer a combined Compliance and Technology
package as a Crowdfunding toolkit
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We will guide you through issuing the Prospectus
and assist with any ongoing compliance related
matters
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And provide a crowdfunding platform branded to your
requirements in a Software as a Service model
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So that you can start raising funds for your Development projectwithout worrying about compliance and its associated costs or
worrying ahbout how to handle technology
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CROWDFUNDING TOOLKIT
TAILOR MADE PROSPECTUS
WHITELABEL CROWDFUNDING as aSERVICE
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Lets compare the costs and benefitswith funding from institutional
mezzanine funds vs Crowdfunding
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For a 2 Million Dollar raise the mediancost of establishment assuming 1.5%
comes to 30,000 AUD plus other fees
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Assuming the funds were invested for 2 yearsat 15%, total interest is 600,00 AUD even with
out capitalization
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Total cost of capital = 630,000 AUD or above
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Under a Public Company SPV with prospectusmodel the fees are
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ASIC prospectus fees $2350ASIC Public Company incorporation $700
Audits for 2 years $10,000
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Retail investors are happy with 8 to 12%
annual returns given the lack of othercompetitive options
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Assuming 10% return for 2 years on 2 MillionAUD. Total return is 400,000 AUD
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Total cost of Capital under PublicCompany and Prospectus model:
$413,000
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Total savings : 187,000 AUD
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We charge a one time customization fee of $10,000
to customize the technology to your branding and
providing a template Prospectus
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And a monthly fee of $1000 to supportand maintain the platform eliminatingall Tech administration related hassles
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Even after this you end up saving $150,000 or more.
As project size increases the savings only increase!
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The same technology and prospectus template can
be used for a number of future projects making the
one time cost negligible