Fundrise, a digital platform where people can invest in real estate projects (known as real estate crowdfunding), has successfully raised far more than the expected $1 million in funds to compose their first non-exchange traded REIT, Fundrise Real Estate Investment Trust, LLC.
As a matter of fact, Fundrise has recently reported that the subscription has surpassed 400 percent, allowing them to halt sales for the time being. The company is branching out from its original model of featuring individual properties with the addition of a blind pool offering. The initial price of the common share is $10 with a minimum investment of $1,000.
A noticeable difference between Fundrise REIT and other traditional non-exchange traded REITs is the upfront fees. The average non-exchange traded REIT typically charge up to 15 percent. This extremely high fee structure drastically reduces the chance of good returns, and obviously are a big turn off for most potential investors. Fundrise, on the other hand, only charges a 2 percent upfront fee due to the fact that the company eliminated the broker-dealer distribution fees. Given the high level of interest from investors they certainly do not need a slate of brokers selling their shares.
That being said, Fundrise does in fact charge penalties to redeem shares. For example, share redemption is not allowed for a minimum of six months from the purchase. There are penalties if shares are redeemed within three years of the purchase as well. After investors hold shares for a three-year period, there is a 3 percent penalty over the most current NAV per share. In addition, redemption will only be available on a quarterly basis and is subject to sufficient funds available.
Fundrise compares their REIT to an ETF or mutual fund. This makes us think that they will diversify across multiple individual properties, most likely composing a portfolio of their individual offerings available on their website to investors. The company favors small real estate transactions, while leaning towards senior and mezzanine debt investments.
Fundrise REIT entails a great deal of investigation since it is a unique vehicle. See there link to offering circular submitted to the SEC.
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Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.