Hotel Crowdfunding Through Title IV Regulation A+

5 min read

Title IV Regulation A+

For as long as we can remember, equity investing was something exclusively reserved for wealthy individuals. Investing in high growth companies and startups used to be only possible for accredited investors, or individuals with a substantial amount of wealth. To qualify as an accredited investor, individuals must earn $200,000+ for two consecutive years or establish a personal net worth of $1 million or more (excluding their primary residence). Unfortunately, anyone who pays off their home or possesses the majority of their equity paid into their home don’t benefit from these qualifications. However, the JOBS Act can change all that.

In 2012, the Jumpstart Our Business Startups Act (JOBS Act) was passed to democratize the investment marketplace. The JOBS Act contains multiple components, but we consider Title IV (and its subset Regulation A+) the most dynamic because it lifts the restriction of allowing only accredited investors to invest in deals. In other words, anyone can invest in a company which is planning to conduct a “mini-IPO”, regardless of their income or assets. Investors no longer need be accredited to invest.

What is Regulation A+?

Regulation A+ (Reg A for short) works similarly to a mini-IPO allowing companies and startups to utilize crowdfunding platforms to raise up to $50 million USD through accredited and/or non-accredited investors.  Individuals no longer need to be particularly wealthy to invest.  Brand loyal hotel guests can become investors of their preferred brands, and hotel guests everywhere can take financial roles as investors to develop hotel projects.

Reg A also enables localized and community-based investments because nearly everyone can participate in the deal. Localized investments drive positive community economic development.

How Does Reg A Work?

Title IV Regulation A+ is made up of two tiers; tier 1 and tier 2. Companies interested in raising capital in this manner need to apply for a Regulation A+ exemption.

Title IV Regulation A+: Tier 1

  • Under Tier 1, companies can raise up to $20 million. 
  • In this tier, anyone from anywhere across the globe can invest in a startup or business. Both accredited or non-accredited investors are permitted to invest in companies that gain Regulation A+ Tier 1 Exemption.
  • However, if a company wants to raise capital under the Tier 1 Exemption, it must create a disclosure document and receive the SEC’s approval. The company finances are reviewed, and must pass the Blue Sky laws in every state before earning the exemption.
  • These companies can also advertise their investable presence publicly.

Title IV Regulation A+: Tier 2

  • Under Tier 2, companies can raise as much as $50 million.
  • Similar to tier 1, everybody is allowed to invest from anywhere in the world as long as the startup or growth company gains the Title IV Regulation A+ Tier 2 Exemption.
  • Companies can acquire Tier 2 after receiving SEC’s approval. To do so, these companies must undergo financial audits, and must provide disclosure documentation in the form of current, annual, and semi-annual reports. Unlike Tier 1, Tier 2 structures allow issuers to bypass each State’s Blue Sky laws.
  • Companies under Tier 2 also have the freedom to advertise publicly.
  • There is a significant difference. Unlike Tier 1, Tier 2 sets non-accredited investors limits. Non-accredited investors can only invest an amount equal to 10% of their annual income or net worth, whichever is greater, per offer.
  • In addition, non-accredited investors are capped at $100,000 per investment, regardless of their annual income or net worth.
  • For example, if a non-accredited investor is making $100,000 annually, they can invest a sum of $10,000. If a person has a net worth of $400,000, they are able to invest $40,000.

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Benefits

There are 3 major benefits with Title IV Regulation A+.

  • Anyone Can Invest: Title IV enables anyone to invest in a startup as long as it has been qualified by the SEC. Accredited or not.
  • Testing the Waters: Growth companies and startups can determine the interest of potential investors by providing them an initial offering. Then, they can decide whether or not to proceed with a Title IV offer.
  • Eliminating Blue Sky Law Filings: In Tier 2, Regulation A+ enables issuers to bypass state laws on selling securities to potential investors. Although issuers under tier 1 have to still comply with the Blue Sky Laws, the filing time has been decreased and the filing costs are now reduced.

Crowdfunding Hotel Investments with Regulation A+

  • EquityRoots.com is a hotel crowdfunding company considering the launch of a Regulation A+ hotel fund.
  • The hotel investment firm plans to create a $50 million fund to be leveraged with debt and deployed into new development assets licensed with IHG, Hilton, and Marriott.
  • Periodically, funds may also be used to opportunistically acquire existing assets.
  • Equityroots.com is a website owned and operated by Equityroots, Inc. a Delaware Corporation. For more information, please visit www.EquityRoots.com

Sources

“What is Title IV Regulation A+.” Crowdfunder.

“Summarize Title IV Regulation A+ For Me.” Manhattan Street Capital.

“Fact Sheet on Jobs Act Title IV – Regulation A+.” CrowdFundBeat News Wire.

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Hotel Crowdfunding vs REIT Investments

4 min read

Hotel Crowdfunding vs. REIT Investments — Investing Tools for the 21st Century

The 21st century has brought about quite a few developments in the real estate industry. As with most industries, technology has played a huge role in propelling the real estate industry forward. Two have jumped to the forefront within the real-estate industry: Crowdfunding and Real Estate Investment Trusts (REITs).  These two innovations – particularly as they relate to hotel crowdfunding, are alternatives to the traditional investing methods. Now, many investors wonder how to best utilize hotel crowdfunding and REITs for their investment or capital raising needs.

What’s so Special about Crowdfunding for Hotels?

With the passing of the Jumpstart Our Business Startups Act of 2012 (JOBS Act), online platforms such as EquityRoots can now solicit the sale of real estate backed securities to prospective investors by registering Form D with the SEC—the Security and Exchange Commission, or qualifying for an exemption. When using general solicitation, all purchasers of the public offering (in this case hotel assets) must have accredited investor status. The JOBS Act has also paved way for non-accredited investors to participate.  More recently, and under newer offering types like Title IV Regulation A+, unaccredited investors can participate under certain limitations.  This opens up the possibility for online platforms to extend investment opportunities to everyone, not just accredited investors anymore.

Under these circumstances, hotels are a great asset class to crowdfund because of its existing large and loyal customer bases associated with each of the top Hotel chains such as Marriot, IHG, Hyatt and Hilton.  In most cases, commercial real estate like hotels yield investors a greater rate of return than residential real estate investments.  Equity crowdfunding investments can easily exceed the typical returns from residential real estate, often seeing a rate of return above 20% when factoring 5-year holding periods and including the disposition proceeds.  The cash flow performance of hotel assets can also impress investors, especially when the development is backed by a strong reservation system and strong brand.  Crowdfunding is not limited to equity, you can also crowdfund a mortgage or a business loan.

 

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What’s the infatuation with REIT(s)?

Real Estate Investment Trusts (REITs) didn’t start to matriculate in the investment marketplace until the 1960s—when Congress introduced this investing tool into the U.S. economy. What is a REIT? By definition, it is a corporation that owns and operates income producing real estate. More specifically, it joins the capital of several investors and investors earn a share of the income produced, yielding a 8.8% rate of return averaged over the last 10 years.

A REIT offers investment flexibility at a reasonable entry price. REIT(s) can invest in multiple asset classes such as retail, residential, healthcare, offices. and for each of these asset classes, investors can earn a share of the income produced. Many people find REIT(s) an attractive investment because of it’s liquidity, meaning you can wake up and sell it if you need the cash.  Be weary, certain REIT’s often have restrictions on when and how much you can sell.

Conclusion & Comparison

After comparing the two investment tools, it’s clear that each has their pros and cons. A REIT’s ability to earn a reasonable rate of return and the liquid nature of the investment may be a good fit for some people. But for the savvier investor that can decipher between good/bad markets and good/bad flags, they have multiple options on what they can invest into.  It is not uncommon for online investors to yield a higher rate of return through a variety of equity and debt instruments via crowdfunding, and outperform their REIT counterparts.  Real estate and hotel crowdfunding may allow people to diversify their portfolio by personal preferences that are strategically better than a giant pool of assets accumulated over time.

The same cannot be said of REIT(s).  Essentially, a REIT is a pool of multiple properties that you are investing into.  Sometimes the REIT picks good apples and sometimes it picks bad apples, and sometimes the good ones go bad over time, you’re essentially investing into the average. REIT(s) do not allow the investor to pick and choose which investment type they would like to fund, whereas crowdfunding gives control back to the investor and allows them to choose investments that may be most suitable for them, sorting by debt, equity, brand, flag, geographic market, hold period, etc.

Remember, that all investments come with risk.  Investing is inherently taking on some form of risk for a potential reward.  And although people have 24/7 internet access to crowdfunding platforms, they should consult an attorney or financial advisor prior to investing.  Crowdfunding platforms like www.equityroots.com enable its online investors to easily share due-diligence documents and investment contracts with their attorney prior to investing.  Past performance is never a guarantee of the future.

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