Frustrated with traditional real estate investment models, a pair of Grand Rapids-based investors formed a new platform that will help them and other investors tap into the crowd to fund deals.
The result is Loquidity LLC, a Grand Rapids-based online crowdfunding portal that was scheduled to go live today and host potential deals in Michigan and around the Midwest, said co-founder and CEO Jesse Clem, a real estate investor in West Michigan for the last seven years.
“The catalyst (for launching Loquidity) was looking at new ways of aggregating capital,” Clem said. “I’ve been frustrated with how deals get put together.”
Loquidity – short for “local liquidity” – aims to create a vehicle for people to invest in debt- and equity-based real estate deals around the Midwest. The portal’s first listing is for a multi-family complex in Grand Rapids.
As the portal launches today, Loquidity seeks accredited investors to participate in a $3.4 million deal, with $1.4 million coming directly from the backers of the portal.
Clem, Loquidity co-founder and COO Joseph Elias and a group of investors plan to acquire Leonard Oaks Apartments LLC on the city’s northeast side for $2.8 million. The additional funds will be used for improvements at the complex, which is located near the corner of Leonard Street and Plymouth Avenue and has many Section 8 low-income apartments.
The investors were drawn to the 72-unit complex because of its 95-percent occupancy rate, Clem said. The backers eventually aim to transition the complex to all market-rate apartments, but they have no immediate plans for the conversion, he said.
Loquidity plans to feature primarily deals involving multi-family housing, Clem said.
The founders want to tap into what’s expected to be an active sector for construction through 2015, as forecasted by the Federal Reserve Bank of Kansas City. The multi-family housing sector has been particularly active in the Grand Rapids area in recent years, particularly for projects that involve low-income housing because of the availability of key incentives, including the Low-Income Housing Tax Credit. Developers have poured hundreds of millions of dollars into projects in and around downtown Grand Rapids in the last three years, as MiBiz previously reported.
While the portal’s first deal happens to be in Grand Rapids, Loquidity will focus all over the Midwest, Clem said. As a former West Coast real estate investor, Clem said returns on real estate investments in Michigan and the Midwest tend be in the 8 percent to 9 percent range, far exceeding the 2 percent to 3 percent he generally saw in California.
“We’re really going to focus on communities around the Midwest,” Clem said. “We know the markets here.”
The new portal was made possible by the federal Jumpstart Our Business Startups (JOBS) Act of 2012, which lifted a provision in securities regulations that prohibited a business from raising capital by publicly promoting a general solicitation. The change enables businesses to use crowdfunding to raise capital, although the U.S. Securities and Exchange Commission has yet to finalize its rules for the practice.
In December, Gov. Rick Snyder signed the Michigan Invests Locally Exemption (MILE) Act, which allows Michigan-based companies to raise money from Michigan-based investors.
Overall, principals at Loquidity say they can do roughly 10 deals of their own each year, but they also anticipate investors bringing other deals to the portal. In particular, they think the crowdfunding model, which they say could benefit both communities and investors, is attractive for many of the so-called post-industrial cities around the Midwest.
Loquidity hopes to work in cities such as Detroit and Cleveland where developers often struggle to secure traditional bank financing for projects, Clem said.
“We’re excited about the opportunities in the Midwest,” Clem said. “The strong focus is local, and we’re excited to bring a new form of capital to the area.”
