Last Tuesday, New York City-based CityFunders announced a new program that will offer investors with variable rates of return up to 10 percent, based on the amount invested into a real estate project.
InvestSelect, the crowdfunding company's newest platform, issues loans instead of investing equity in real estate. Participants who invest $25,000 or less are promised a 9-percent return from interest rates. Those who shed out at least $30,000 are offered a higher return rate of 10 percent.
CityFunders co-founder and residential brokerage MNS partner David Behin told Crain's New York, "We felt the option of being able to earn a whole point more... is really going to speak to investors out there."
InvestSelect's launching coincided with CityFunder's involvement in a $2.6 million project in Crown Heights, Brooklyn. Andrew J. Epstein and Dawson Stellberger, the developers behind 259 Schenectady Avenue, will take out a $1.9 million loan from HKS Capital Partners. The remaining $350,000 that the developers need will be raised by CityFunders.
The development has already signed on several tenants. Goodwill Industries will occupy a part of the ground floor and the entire second floor. The developers also plan to construct a third floor that will have two residential units. With the addition of the proposed third floor, the mixed-use project will have a total of 8,000 square feet.
The 259 Schenectady Avenue development is the seventh project that CityFunders has raised debt or equity since the crowdfunding company started in June this year.
Typically, a developer who needs millions of dollars to pursue a project would never bother to collect an investment as small as $5,000. However, companies such as CityFunders pools small investments together to come up with a lump sum. This strategy enables ordinary individuals with minimum net worth to invest in real estate. It also provides developers with an alternative source of money if they cannot convince a bank or lender to finance their project.