Simon Baron Development is tapping into crowdfunding to finance its planned 467-unit rental tower in Long Island City.
CityFunders, a crowdfunding startup just launched by brothers Albert and David Behin, is raising $1 million in equity for the project, with a minimum individual investment of $5,000.
The move is noteworthy because real estate crowdfunders across the U.S. have so far shied away from large-scale construction projects, generally focusing on small-scale fix-and-flip loans instead. Rodrigo Nino’s Prodigy Network, which is financing a handful of major projects in Manhattan including 17 John Street, is the major exception.
CityFunders’ website extolls an estimated internal rate of return (IRR) of 10 to 11 percent for investors over a holding period of four to five years. Simon Baron Development’s Matthew Baron declined to comment. The developer bought the site near Queens Boulevard for $54 million from Simon Dushinsky’s Rabsky Group in early 2014.
“We thought it was really a great deal,” said David Behin, explaining that the project’s land cost basis is favorable because Baron bought the site a year ago, when prices were far lower. “Investors want to be in this type of project.”
The Behin brothers officially launched CityFunders Thursday along with Ayush Kapahi and Jerry Swartz of capital markets brokerage HKS Capital Partners. The platform will only list projects in New York, and 29-26 Northern Boulevard is its inaugural offering.
The startup will pre-guarantee its investments to developers using a $40 million credit line, and then assume the risk of finding enough investors online. This is in line with current trends among crowdfunding startups. “For any funding entity, whether crowdfunding or traditional sources of capital, commitment to the deal is key,” said David Behin in a statement. “Without that, sponsors of good deals will never work with you, reducing the platform to mediocre deals that couldn’t get funded elsewhere.”