The landscape for generating money for startups and expansions has dramatically changed – and potentially for the better.
BREWING UP BUSINESS
When the federal government eased the rules for businesses seeking investors on Sept. 23, it eliminated a ban on general solicitation online for companies and entrepreneurs trying to raise capital.
Since the Securities and Exchange Commission lifted the ban on general solicitation online in Sept. 23, one Allentown firm’s project could benefit from a wider pool of potential investors.
Businesses looking to solicit funds from any investor via the Internet now can do so, thanks to the second provision of the federal Jumpstart Our Jobs Act, which became legal Sept. 23.
ForeFund Capital, a marketing company headquartered in Venice Beach, Calif., is advertising the Allentown Ruckus Brewing project to investors on its website, putting a Lehigh Valley redevelopment site on the map. The site is at 451-401 N. Front St. and 16 W. Liberty St., overlooking the Lehigh River.
This expanded network of potential investors could be a blessing for businesses and startups. The law applies to most industries, but commercial real estate ventures, in particular, could benefit from the change.
New York City-based Ruckus Brewing plans to buy the 4.6-acre property – the former Neuweiler Brewing Co. site – from the Allentown Commercial and Industrial Development Authority for $1.7 million. The company entered into an agreement of sale to buy the entire property but has not closed on the deal, said Scott Unger, executive director of the authority.
Before Sept. 23, businesses had limitations on how they could seek investors.
Brewers Hill Development Group LP, a separate entity of Ruckus, will buy the property, Unger said. The authority is scheduled to close on the property on Dec. 15, Unger said.
“If you were making an offer or trying to raise capital, you could only let investors know through a broker/dealer or manager making the connection for you as a company to an investor,” said Carol Oscarson, agency director for Leverage PR, an Austin, Texas firm that represents Crowdfund Intermediary Regulatory Advocates, an organization formed by the crowdfunding industry’s leading platforms and experts.
“We are in the midst of a remediation project,” Unger said. The authority did a considerable amount of work to get the property in marketable condition in conjunction with the city of Allentown, he said.
However, with a lifting of the ban on general solicitation, a hedge fund company or investment bank can now go online, use LinkedIn, Twitter, Facebook, etc. and advertise the deal in that manner.
Ruckus Brewing Co. is investing $30 million in the project, called Brewers Hill, said Piero Lamagna, director of operations for Ruckus. The company plans to convert the building into a working brewery for its brand but also offer space for contract brewing for other brewers. The building would also include office space, a business incubator and a brew pub and restaurant, Lamagna said.
“It does change the game but so far, [primarily] only startups have taken advantage of the lifting of the ban on general solicitation,” Oscarson said.
“It’s slated to launch in late 2014; the building has been derelict for 60 years,” Lamagna said.
Experts say crowdfunding, the act of soliciting funds from the public – usually via the Internet – got a boost when the government eliminated the ban on general solicitation.
With a project of this scope, completion dates and plans are subject to change.
“They lifted the long-standing ban on advertising [online] for any potential investors,” said Wayne Barz, manager of entrepreneurial services for Ben Franklin Technology Partners of Northeast Pennsylvania, an agency that helps technology startups find funding. “They [businesses] never could really advertise at all before, to wealthy or otherwise. And they can now advertise to virtually anyone…wealthy or not. …
Allentown has 128 acres throughout the city that are designated as a Neighborhood Improvement Zone, including this property. Under the NIZ, certain state and local tax revenues generated by new businesses in the zone can be used to pay debt service on loans that fund qualified capital improvements within the district.
“It’s really more about the way in which you make people aware of your fundraising activity.”
Boyle Construction Management of South Whitehall Township is planning to perform renovations which will transform the existing early 1900s brewery into a new brewery and multiuse campus. Spillman Farmer Architects of Bethlehem designed the project.
The lifting of the ban on general solicitation has strong potential for real estate investing, even though this is untested territory.
— Brian Pedersen
As an example, ForeFund Capital, a company headquartered in Venice Beach, Calif., recently signed Allentown-based Brewers Hill Development Group as one of its initial clients that is seeking investors for a redevelopment project. The California company markets real estate investment projects for clients.
Todd Dipaola, CEO and co-founder of ForeFund Capital, said the project, which would redevelop the abandoned Neuweiler Brewery Co. property along Allentown’s Waterfront into a mixed use site, is a prime example of the type of projects that could benefit from widening the pool of potential investors.
“Your access to capital can grow by leaps and bounds,” Dipaola said. “Now your track record will speak for itself.”
In the commercial real estate world, Dipaola said, this is significant because instead of seeking investors from a familiar network of close connections or through word of mouth, developers now can find high-net worth individuals on the Internet and let them know about investment opportunities, opening the doors to a wide range of prospects.
“They can have the project evaluated on its own merits rather than who you know,” Dipaola said. “Smart real estate developers don’t necessarily have to be schmoozers.”
Kent Brustlin, director of Integra Realty Resources Lehigh Valley, described the potential of public solicitations for the real estate world as an interesting vehicle and prospect that would not replace traditional funding methods, such as approaching an existing network of investors.
“It gives the ability to open up commercial real estate to a whole lot more people,” Brustlin said. “It lets you immediately identify a project that you want to be involved with and back it immediately.”
He said it would be worth exploring for his South Whitehall Township firm, which is a local branch of the national Integra Realty firm.
“It’s still a little unproven from the market to see how it will be received,” Brustlin said. “It’s an interesting prospect to see what will happen.”
The new law offers another avenue for developers to find capital which allows them to move projects forward, said Cindy McDonnell Feinberg, co-founder and principal of Feinberg Real Estate Advisors LLC in South Whitehall.
It also offers another tool for developers from other parts of the nation that want to network and raise funds for real estate projects.
In the investment space, there are a lot of people looking for investment properties, she added. As with any real estate project, it can be risky, and investors need to become educated consumers who are comfortable with the ownership and structure of a project that’s been vetted financially.
“You’re introducing people from other parts of the country to the work and development that’s happening in the Lehigh Valley,” Feinberg said. “If it helps get Neuweiler moving forward more quickly, that could be good for the Lehigh Valley.”
With the Neuweiler site, ForeFund sees this as the perfect project that shows visionary entrepreneurship.
“Now, for these investors, they can see more diversity in the deals that come to them,” Dipaola said. “We’re going to see a lot more innovation. For the first time, you can tell the world, ‘I’m raising money.’ ”