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Will Crowdfunding Attract Private Investors to 3 WTC?

A $2 million share of the tax-free Liberty bonds being used to finance Silverstein Properties’ 3 World Trade Center in Lower Manhattan is being offered by crowdfunding platform Fundrise.

Fundrise projects investors will receive a 5 percent tax-free annual return over five years, according to Bloomberg. In a statement, Dan Miller, 28, co-founder of Fundrise, explained that investors would be buying into an entity that holds an interest in a portion of bonds backing the construction that were sold late last year by New York Liberty Development Corp., Bloomberg reports.

Any member of the general public can own a piece of 3 World Trade Center, an 80-story, 2.5 million-sq.-ft. office tower designed by Pritzker Prize-winning architect Richard Rogers, for as little as $5,000 per increment, according to the New York Daily News. “Call it Kickstarter for commercial real estate,” writes Daily News reporter Katherine Clarke. She adds that Dan Miller noted in his statement, “We are proud to be able to give more people a chance to invest in this important, iconic asset.”

Crain’s reports that $1.6 billion in tax-exempt bonds was issued by Silverstein Properties last October in an offering overseen by investment bank Goldman Sachs, and were sold off mostly in blocks of $100,000 and upwards. Although smaller units generally incur steep transaction fees, Fundrise would allow investors to purchase more accessible stakes without onerous charges. Fundrise states that it takes a management fee of 0.15 percent, according to Crain’s.

The sale of the bonds by Silverstein Properties came after the site’s owner, the Port Authority of New York and New Jersey, rejected the firm’s bid to have the agency guarantee bond payments, reports Bloomberg. The Port Authority allowed Silverstein to use $159 million of proceeds from a $4.6 billion insurance award the firm received following the 2001 terrorist attacks on the original World Trade Center.

Fundrise’s Ben Miller, 38, who co-founded the firm with his younger brother Dan, told Crain’s New York: “We’re democratizing real estate investments that used to be accessible only to institutional investors or the very wealthy. Our business is focused on doing a large volume of deals at very low fees.”

Ben Miller admits the offering is the most complex as well as prominent one arranged by Fundrise since its founding in 2012, notes Crain’s. “The World Trade Center is the most significant real estate project in the country, maybe the world,” Miller added. “It was important for us to be a part of it.”

So far, reports the Daily News, 3 World Trade Center only has one committed tenant, international media investment company GroupM, which agreed to lease 516,000 sq. ft. in 2013, but the lack of tenants will not stop the tower from rising.

The Fundrise website lists several top Silverstein executives as some of its key investors, reveals The Real Deal. According to the Daily News, Silverstein Properties Founder Larry Silverstein has invested $50 million of his own funds into the development; the city and state will invest $210 million in the project. Bloomberg reports that Fundrise also has financial backing from Silverstein Properties CEO Martin Burger and Guggenheim Partners.

Huffington Post blogger Jorge Newbery noted on Jan. 23 that deals like Fundrise’s 3 WTC offering are proof that real estate crowdfunding is steadily being accepted by the commercial real estate community. Although real estate crowdfunding only accounts for a tiny fraction of the capital raised in the United States for debt and equity, writes Newbery, “From 10 [crowdfunding firms] 18 months ago to 50 six months ago to 75 today, real estate crowdfunding platforms are launching at a torrid pace. This frenzy is destined to accelerate, with at least 15 additional platforms in pre-launch and many more likely planned … Thus, there appears to be ample room for existing platforms to amplify their production…”

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