I first read about the DC-based Miller brothers in The Atlantic Cities in an article titled “The Real Estate Deal That Could Change the Future of Everything.” Last summer, I used my shaky ARCADE press credentials to meet them.
Unlike me, brothers Ben and Dan Miller (aged thirty-seven and twenty-six) are sons of a successful urban-infill developer in Washington, DC. They hail not from the suburbs but from an upscale enclave in the northwest quarter of the District, near Georgetown University. Prodigies of the real estate business, they worked their way up through their father’s company, then started an investment fund of their own. Then a company. Then three companies. All of which are changing the future of everything.
Standing in the back lot of a small two-story building being actively gutted and rebuilt by carpenters and electricians, I stammer my way through an interview with the Millers. They have arrived by taxi, bringing with them a woman in heels who is evidently on a job interview. I am trying to sound smart and failing. They wear sport coats and leather shoes, speak with practiced articulation, exude prep school educations. The day is overcast and I’m not finding camera angles.
Part of the problem is the smallness of the yard, which might be something close to the size of a suburban Virginia living room and has a giant hole filling half of it. The address is 1351 H Street NE, the demonstration pilot project for the Millers’ everything-changing company. Fundrise, which uses a crowd-sourcing model to fund real-estate endeavors, could be considered the “Kickstarter of real estate,” but that would diminish the gravity of the historic occasion of its existence. Kickstarter is a platform for donating to other people’s labors of love in exchange for hugs and presents; Fundrise is like a kinder, gentler take on The Wolf of Wall Street. Two years ago, protestors occupied Wall Street. This year, Wall Street domination begins to crumble at the hand of publicly crowd-sourced capital, invested online and coordinated by companies like Fundrise.
Crowdfunded real estate is new only for this reason: When the US Security and Exchange Commission (SEC) established its current investment rules and regulations in 1933, it required that commercial real estate developers sell equity shares in prospective projects only to “accredited investors.” In the interest of protecting the general public from being snared into high-risk undiversified investments, only those making more than $200,000 per year, or those with a net worth of at least $1 million, can become accredited. As a result, the vast majority of the public is excluded from such deals and can only access them through faceless institutional vehicles like REITs (real estate investment trusts) that buy and sell shares of properties all over the country.
Fundrise’s first insight was to notice a loophole in the SEC rule, allowing shares to be offered to unaccredited investors through a complicated approval process at both the federal and state level. Ambitiously, the Millers dove into this process for over a year and were finally able to bring through the 1351 H Street NE property. In 2012, they sold shares in the project to 175 unaccredited investors living in DC and Virginia at a price of $100 per share and a rate of return of 8.4 percent, raising some $325,000—about 20 percent of the project cost.
For real estate, this could be considered a Kitty Hawk moment, but it is only a small part of the larger movement. Sometime this year, the SEC will finalize new rules and regulations in response to the JOBS Act signed into law by President Obama in 2012 with bipartisan support. Often paraphrased as the “crowdfunding bill,” the law lifts the restrictions on investment offerings across all industries, ushering in a new era of widespread access to capital for small entrepreneurs. Just as we can buy shares in companies registered on the Stock Exchange, we will now be able to buy shares in small startup businesses through online portals, regulated by the SEC.
Over the last year, Fundrise has grown quickly to position itself as one of these portals, with virtually no other competition for the kind of small, neighborhood-scale development projects they are doing in DC. Several players have entered the crowdfunded real estate market, but so far none plan to target the unaccredited investor—Fundrise is alone in its dedication to democratizing real estate investing for all, not just for the rich.
As it turns out, the woman in heels at the construction site, Seattle-based Katlin Jackson (age twenty-nine), got the job—she is now Fundrise’s vice president of real estate, Pacific Northwest, and works out of a co-working space in Pioneer Square. Much of her work consists of signing up local developers to establish profiles on the Fundrise website, so that they can build a network of interested investors when the time comes to crowdfund a project.