Crowdfunding & Community Ownership
How to Start a Crowdfunding Campaign
A Step-by-Step Guide to Starting Your Crowdfunding Campaign for Community Ownership
Real Estate for All!
What are we up against? The United States has a long and brutal history of taking the land from Indigenous communities, displacing Native Americans, and discriminating against Black and POC communities with systemically racist policies like redlining. On top of all that, buildings account for 40% of CO2 emissions. We are facing record high housing costs, which only furthers the wealth inequality and environmental injustice with the most expensive neighborhoods enjoying sustainable housing, access to green spaces and parks.
Homeownership in the City of Boston, or in many cities, is a goal that is out of reach. There are 2 options for real estate ownership in the status quo, owning a house or renting. Owning a house requires an initial down payment (is that within reach?) and paying a mortgage and maybe HOA fees. Renting does not require as much cash upfront, but it can be expensive over time.
Community Ownership is a topic that has really been on the rise in the real estate industry among developers, architects, and city planners. There are many factors to consider and depending on the project, traditional developers have different approaches to address it, ranging from community meetings, a community benefit agreement, or putting money in a fund for inclusionary housing. Most fall short of true community ownership, with the exception of traditional homeownership options like condos or single family homes.
In the last decade, there has been an increasing trend in people using crowdfunding platforms to fund their projects. In this article, we will discuss how crowdfunding could be used to achieve true community ownership of any kind of building development - rental apartments, mixed use, commercial, etc. We will also take a look at a CoEverything case study: a community crowdfunding effort that we successfully completed for a 29-unit affordable mixed use apartment building in Fields Corner called Dot Crossing Apartments. This is a TLee Development project led by Travis Lee and Dariela Villon-Maga of DVM Consulting.
What is Crowdfunding?
Crowdfunding is a fundraising approach that enables individuals and organizations to raise small amounts of money from a large number of people. This method has been used for many purposes, including for personal causes and for businesses.
In our case, we thought we could use crowdfunding as an alternative way to finance affordable housing and make community ownership of real estate accessible to neighbors of all income levels.
Not too long ago, investing in real estate was only available to wealthy people with over a million dollars - a.k.a. Accredited Investors. However, that changed with the 2012 JOBS Act and the introduction of Regulation Crowdfunding (Reg CF) in 2016. I like to say that Reg CF is for “Regular People,” meaning that now, anyone who is 18 years or older can invest in the projects where they live and work. Everyone can invest and own real estate for as little as $250 per investment, for instance.
Step 1: Gather a group of Community Advisors
When developers are looking to build a new project in your neighborhood, it can be a very traumatic experience for the long-time residents. In order to make sure that crowdfunding for community ownership is what the neighborhood really wants, it's critical to first get all of your neighbors on board. Developers with deep ties in the neighborhood should reach out to long-time residents before anything else, so they can gauge how eager they may be to support and champion the idea.
Two years before we launched our Crowdfund campaign, we first sat down over lunch with 8 long-time BIPOC Dorchester neighbors to talk through the idea. This group became our Community Advisors who helped to shape the strategy for the crowdfund offering, education series, campaign, and decision-making process for the future Community Crowdfund investors.
Step 2: Build Trust with your Neighbors
Our Community Advisors pointed out that because neighbors are skeptical of developers and that in Dorchester, neighbors have often been subject to predatory and extractive scams and “investments,” it would be important to build trust. We did this in two ways: first, we ran a series of accessible education workshops on real estate finances. The workshops are aimed at a broad audience, with the goal of building trust with neighbors by appealing to different groups through offering a free workshop. Second, the community advisors acted as a megaphone, and as each of them is a trusted member in the neighborhood, they invited their networks to attend the workshops.
One year before we ran our Crowdfund, we led a workshop series, titled “Real Estate for All”. We covered Real Estate Development Basics, Public Process & Participation, Financial Models/Proforma, "Affordable Housing", Alternative Community Investment. We had a lot of fun with it, creating interactive workshops that were recorded to Youtube. Then, those who wanted more information could opt-in to a text or email week-long follow-up, where we sent short 3-7 minute videos every day on specific topics, featuring interviews with our Community Advisors. We closed the series with a Meet and Greet / Q&A, so that those who participated could get to know others who were like-minded neighbors interested in being a part of something together.
Step 3: Get ready for your Crowdfund Campaign!
Crowdfunding is not for the faint of heart! Much of the paperwork and heavy lifting will be taken on by the platform that you choose - all Reg CF crowdfunds are regulated by the SEC and must be hosted by an official online platform. But before you decide on what platform to use, it's important to create a plan. It's crucial to think about the following 4 phases - preparation, launch, running and completion.
Preparation. Preparing your campaign strategy is everything - a successful Crowdfund is all about how well you market your project leading up to, and once it is launched on the platform. CoEverything coordinated three months of campaign planning before going live on the platform. With the Community Advisors, we identified our target audiences, values propositions, a distributed leadership structure, our resources, campaign timeline and phases. Though our official Reg CF was open to anyone in the U.S., we marketed specifically to BIPOC Dorchester homeowners and renters. Note that the SEC is highly regulatory when it comes to what you can say and when, so we were pretty limited in announcing anything about the crowdfund to the public before we launched. There is an option to officially “test the waters” with the SEC, but we didn’t take this route.
Launch. Once you choose a Reg CF online platform to host your project, they will help you with all the paperwork required to launch your Crowdfund. In our case, we chose Small Change, as it has a focus on real estate projects. We compiled narratives, financial spreadsheets, legal documents, CPA documents, high quality photographs, and even filmed and edited a pitch video. As our goal was to provide community ownership, we offered a Preferred equity investment with a $500 minimum, a projected 6% return annually, a 20% bonus with equity returned, where the developer would buy back the investment at year seven. This was a negotiation between the General Partner (Tlee Development) and the Limited Partner (Healthy Neighborhood Equity Fund) and the Debt Lender (MHIC) based on parameters set by the Community Advisors, to try to create an offering that would be meaningful to local neighbors. When we finally had the paperwork completed and the building permit, we were ready to launch the Crowdfund!
Running. We ran the campaign for 4 months, with the first month as a “silent” phase - we did not widely advertise that it was live, and instead focused on getting investments from our Community Advisors and close partners who we already knew would invest. In the remaining three months of the campaign, we did targeted email outreach to folks who had participated in the Real Estate for All workshops, presented about the opportunity to all of the neighborhood civic associations, and attended partner events through our network of Community Advisors. We put a banner on the job site pointing neighbors to the Small Change platform, and even got a write up in the Dorchester Reporter! Partnering organizations, like Boston Ujima Project and Union Capital Boston also amplified our message by sharing it out through social media posts. We even hosted a monthly private small group Q&As inviting people we knew to learn more. We made sure we complied with all of the SEC regulations, which limited what we could say about the offering.
Completion. Once the offering was closed, we successfully raised $142,500 from 81 individual investors. We did it! We sent out thank you emails and announcements to all of our partners and mailing list, and celebrated our success! We exceeded our minimum investment goal of $50,000 and minimum goal of 30 investors in the crowdfund. Over half of our investors are from Massachusetts and just under half are from Boston/Dorchester.
Step 4: Community Participation
Now, unlike most Reg CF offerings, we included democratic participation as part of the offering to Crowdfund investors. We thought we could do better than the “business as usual” for community engagement (i.e. community benefit agreements or inclusive community engagement checklists) to offer community investors each one vote towards the Project Oversight Committee. So, w e ran an elections! Every member gets 1 vote for each seat, regardless of the amount of money they invested in the Crowdfund. The committee will also include residents members (once the building is rented) and TLee Development. More than 10 people nominated themselves to the committee, and 35+ local crowdfund investors elected their committee members.
In parallel, we hosted a Community Listening Session for two potential retail candidates for the ground-floor commercial space. After a successful pitch session attended by over 75 neighbors, the Committee chose a non-profit book store as their final choice. This was in line with the survey and feedback form that was sent out, along with a recording of the community listening session.
The Value of Community Ownership - Being a Part of Something!
Community participation and ownership are essential for creating a sense of belonging and unity among neighbors. When people are actively involved in the activities and decision making of their community, they become more invested in its success and wellbeing. Community participation also provides an opportunity for neighbors to come together, share resources, ideas, and perspectives to make their neighborhood a better place. Through our Crowdfunded affordable housing project, we learned that neighbors want to be able to work together to improve the quality of life in their area while also feeling a part of something bigger. And, if they can make some money in return, all the better!