Taking a chance on real estate-crowdfunding has paid off for Mainstreet, a full-service developer of transitional care properties.
And Scott White can’t wait to talk about it at IMN’s Second Annual Crowdfunding Forum for Real Estate West, which takes place in Santa Monica on September 16 and 17.
The executive vice-president will share details of his company’s partnership with real estate crowdfunding platform CrowdStreet that raised more than $1.6-million in one month last summer. Mainstreet announced the sale of the property involved in the deal in August – Stonecroft Health Campus – and a 14-percent annualized return for investors.
White is amazed how much the industry has grown in the past 18 months. It first caught his attention in late 2013.
“Mainstreet has a very entrepreneurial culture,” Mr. White said. “We are constantly looking for different ways to innovate.”
His team agreed real estate crowdfunding looked like an interesting way to raise capital for a company in a capital-intensive industry.
Mainstreet began randomly calling platforms. Some called back and some didn’t. CrowdStreet was one that answered and Mr. White said they were quickly chosen.
“The opportunity we were providing was appealing to them,” he recalled. “I got the sense he (CrowdStreet CEO Tore Steen) was personally committed to making this project work.”
Mr. White’s instincts were correct, noting CrowdStreet went “above and beyond” Mainstreet’s expectations.
The transaction makes it one of the first deals to complete the cycle of development and ROI. Mr. White believes it will take a few more before one can get an idea of how the industry may evolve.
“I still am not sure what to expect. As an observer from the outside it seems too early to know.”
He suggests success may be based on an individual platform’s funding model.
“The biggest question for me is how scaleable it is,” he added. “We raised $1.6 million in a few weeks but we have a $1- billion annual pipeline.”
Like many industry observers, Mr. White likes crowdfunding’s ability to bring together small investors to benefit their local area.
“Crowdfunding democratizes the capital-raising process by bringing in people who do not normally have access to many opportunities. It broadens the investor base beyond the country-club network.”
Looking ahead, Mr. White says Mainstreet’s services are becoming more valuable as the country’s health-care system undergoes rapid change.
“In the United States, the hospital system is breaking down because it is not economically efficient. The business model of an emergency room is different than that of a heart transplant which is different than a kidney transplant.”
As a result, he believes the health care system could see more stand-alone, single purpose facilities in the future.
Good news for Mainstreet, which focuses on developing short stay, transitional care facilities. Mr. White says they can provide a better level of care in a more comfortable atmosphere at a much lower cost.
“Macro forces support this shift,” he explained. “With an aging population and advances in medicine, we are seeing a shift in elective surgery. More people are choosing joint replacement surgery as they aim to maximize enjoyment of their retirement.”
Many of these patients choose to recover in Mainstreet facilities, Mr. White said, which benefits everyone – including the hospitals -who can be penalized for high re-admission rates.