On May 19th, the Friday before the Victoria Day long weekend, we launched an investment that allowed our investors to participate in a mortgage deal alongside Downing Street. Our allocation for the $3 million deal was $500,000. By the next business day, Tuesday May 23rd, the deal was oversubscribed and we increased our allocation to $550,000. It closed on May 30th.

The deal, in our opinion, provided an attractive risk/return profile for 2.8 acres of lands being developed into townhomes in Richmond Hill, Ontario. The deal enabled our investors to invest with Downing Street and their investors in the junior position of a structured first mortgage investment with a net interest rate of 11.2% and a loan-to-value ratio of 63%. In addition, close to two-thirds of the townhome units were pre-sold with the remaining going on sale soon.

As we continue to grow NexusCrowd, we look forward to providing investors with access to quality real estate investment opportunities.

​In October 2015, NexusCrowd Investors participated in the development of the Galleria Centre, a 238,000 sq. ft. retail centre being developed by our Partner, Terracap Investments through an equity investment. The centre is located near Dixie and Dundas in Mississauga, Ontario. 

We are pleased to announce that demolition is complete and remediation is underway at the site with construction of the project expected to begin soon after.

As with any real estate development project, there are risks. Whether it be receiving municipal approvals, remediation, timing, construction costs, pre-sales, etc., having a development partner with the experience and track record to mitigate these risks is crucial for investors.

As a NexusCrowd Investor, accredited investors have the opportunity to invest alongside our partners and leverage their expertise in developing large scale projects. As an individual accredited investor, unless you have the time, expertise, capital and/or the relationships, participating in these types of investment opportunities is simply not possible. We are changing this.

Last week, The Toronto Star published an article titled “The high-risk world of syndicated mortgages.” The article shed light on something that seasoned real estate players have been aware of for a while but is less understood by most individual investors. It revealed that certain institutions promise extremely attractive interest rates for real estate backed mortgage investments. However, investors aren’t always fully aware of the risks associated with these investments.

The question then becomes, How do you avoid syndicated mortgage investments with disproportionate risk/return profiles?  

Below are a few things to consider before investing in a syndicated mortgage:

1. What are the funds being used for?

• For development projects, syndicated mortgage are typically used to refinance existing debt and/or to cover “soft” costs (eg. legal, planning, permitting, admin, etc.)
• For income producing properties, the borrower is likely looking to take equity off the table to deploy elsewhere
• Fees paid to mortgage brokers and others should only represent a small fraction of the use of funds

2. What is the loan-to-value ratio (LTV)?

• LTV determines how much debt is on a property relative to the value of it. Generally speaking, a lower LTV means a more secure investment
• All syndicated mortgage investment opportunities should disclose the LTV
• Finally, the property value should be determined by a reputable independent appraiser

3. Where does the syndicated mortgage rank in the event of default?

• Syndicated mortgages are often a second mortgage. Second mortgages rank behind first mortgages (senior debt)
• If a syndicated mortgage ranks behind a first and second mortgage or if the LTV is high prior to considering the syndicated mortgage, you should proceed with extreme caution as the risk profile of the syndicated mortgage may be mimicking that of an equity investment which carries much greater risk
• As an investor, you should consider where you rank in the event of a default and if there is enough security to cover your investment

4. Is there collateral security?

• To reduce the risk profile of a syndicate mortgage, the borrower may provide collateral security which may include a blanket mortgage or general security agreement on other assets and/or personal guarantees
• Collateral provide investors greater comfort in the event of default. Even if the subject property cannot recover all the capital, investors will have security on other assets that may make up the difference

5. Risk Disclosure

• Are the companies that are selling you the investment providing you with adequate disclosure of the risks? No investment is risk-free or guaranteed so be aware of companies that claim this.
• Generally speaking, investments that are earlier stage will have a higher risk profile (eg. An office building that is being developed is riskier than an office building that is complete and has tenants paying rent). Higher risk investments should provide higher returns.

6. Is the company offering the investment licensed?

• The companies selling the syndicated mortgages should be licensed by either securities or mortgage investment regulators

7. Who are you investing alongside?

• Investing alongside sophisticated investors who manage a syndicated mortgage provides you with the piece-of-mind that in the event of a default, you will have a professional group working with you to recover your funds
• Investing alongside novice investors may leave you poorly represented in the event of default making your investment a nightmare

​Syndicated mortgages are a great way for investors to gain exposure to private real estate investment opportunities and for developers to raise capital at lower costs but the returns must align with the risk profile. If not, you may be exposing yourself to equity risk for debt returns.

NexusCrowd's CEO and co-founder, Hitesh Rathod will be speaking at the second annual Canadian Crowdfunding Summit on Thursday, March 3rd at 3:00 p.m. He will also be participating in a Real Estate Crowdfunding Panel at 3:45 p.m. NexusCrowd is proud to be a Silver Sponsor for the Summit which will be held in downtown Toronto, at the MaRS Discovery District.

In his presentation, Hitesh will provide a primer on Real Estate Crowdfunding for Accredited Investors. Crowdfunding technology has spawned a new era for accessing the private capital markets. In the past, individual investors were limited to their own networks, geographies and/or private investment funds. Today, just about anyone can invest in hundreds of private investment opportunities through crowdfunding platforms. Real estate crowdfunding, in particular, has seen significant growth and interest from investors.

​NexusCrowd announced today that it has joined the MaRS Financial Technology (FinTech) cluster. Established in 2015, the cluster connects the financial services sector with high impact startups to drive innovation and growth in the fields of financial services, emerging payments, peer-to-peer transactions, crypto-currencies and alternative lending.
 
“This is an exciting time for the FinTech industry and we are thrilled to be part of Canada’s leading cluster”, said Hitesh Rathod, CEO NexusCrowd. “Our relationship will give us access to valuable resources including MaRS’ strategic network of partners while also creating opportunities to collaborate with like-minded high potential companies.”
 
Learn more about the MaRS FinTech Cluster
 
About MaRS Discovery District
MaRS Discovery District (@MaRSDD) in Toronto is one of the world’s largest urban innovation hubs. MaRS supports promising young ventures that are tackling key societal challenges in the health, cleantech and information and communications technology sectors. In the last three years, these ventures have raised $1.3 billion in capital and earned $640 million in revenue. In addition to helping startups launch, grow and scale, the MaRS community is dedicated to cross-disciplinary collaboration, commercialization of discoveries and driving ideas to impact.
 
About NexusCrowd Inc.
NexusCrowd is the first investment platform in Canada that provides accredited investors with exclusive access to co-invest alongside institutional investors in deals that have reached at least 50% of the funding target.
 
NexusCrowd is led by a team with expertise in financial services, technology and institutional finance. It's the only investment platform in Canada with an exempt market dealer license that uniquely partners with institutions on equity and debt investments. Combined with proprietary investment and fundraising technology, NexusCrowd provides a simple, transparent process for accredited investors, and a frictionless way for private equity partners to raise new capital. 

The new OSC rules on equity crowdfunding are an important and significant leap forward for innovation and entrepreneurship in Canada. For the first time in history, small and medium sized businesses will be able to raise money from the ‘crowd’, leveraging the power of the internet. On the same note, it allows investors to take a real stake in companies, bringing Canada closer to the already burgeoning crowdfunding industry in the US, Australia and parts of Europe.
 
Overview of the Regulations
After several months of anticipation, securities regulators in five provinces (Ontario, Quebec, Manitoba, New Brunswick and Nova Scotia) announced new equity crowdfunding rules. Beginning in early 2016, the rules will allow businesses to offer equity stakes to a large number of investors using an online portal. 
 
The Basics:

• Companies are permitted to raise up to $1.5MM over a 12-month period
• Accredited investors can invest up to $25K per investment, limited to $50K annually
• Non-accredited investors can invest up to $2.5K per investment, limited to $10K annually in Ontario
• Companies looking to raise capital can now use a streamlined 11-point disclosure document as opposed to a 38-point prospectus
• To qualify, platforms must perform specific due-diligence on companies raising capital
• Securities are limited to simple, non-complex securities

 
Benefits and Potential Pitfalls

• The tight investment limits on both issuers and investors have the potential to create a significant administrative burden on issuers, who prefer to focus on building their business. Companies will have to manage hundreds of smaller investors, if they intend to raise the maximum amount.
• The streamlined capital-raising process may expedite the process for issuers; but for investors there are fewer protections to guard against fraudulent company pitches.
• Most securities issued in private markets are not “simple” – they are typically issued in the form of convertible debentures or preferred shares with specific terms and conditions. By requiring securities to be, “simple,” companies are limited in how they structure deals, which could adversely affect future fundraising rounds. This limitation would suggest that companies looking to raise larger sums of capital and investors looking to invest larger sums in private deals will continue to operate under existing exempt market rules.
  
• The rules may be very effective for small local businesses that are looking for support from their community who will not only invest in the business, but also use their services. The rules are a win-win for this niche as both the business and investor rely on each other to ensure success for the other.

 
No matter how you look at it, crowdfunding is breaking down barriers and providing a fresh and forward-thinking way to invest and raise capital.  One thing is clear, these new regulations signal that equity crowdfunding is not a passing fad – it is here to stay and it’s time to start paying attention.  

With several equity crowdfunding platforms in the marketplace, individuals need to be cognizant of the potential for fraud and poor-quality investment opportunities. Equity crowdfunding has created the ultimate democratizing vehicle for individuals who are interested in investing in private investment opportunities. However, there are key elements that individuals should consider before making the decision to invest through a crowdfunding platform:

1. Is the platform licensed? Securities regulators have a responsibility to protect investors and they do this by vetting platforms, the individuals behind them and the business model. They also ensure that platforms have the right compliance procedures in place. If a platform is not licensed or if the platform is a "division" of an existing licensed entity (meaning they have not gone through the regulatory scrutiny to obtain a license), it should raise a big red-flag for investors.
2. What materials are available for you to make decisions on an investment? Investors should have access to sufficient information to make a decision on an investment. This generally should include: i) an understanding of the business model, ii) financial statements or projections, iii) investment terms and structure, iv) liquidity strategy, and v) disclosure of fees, risks and conflicts of interest.
3. Does the management team of the platform have the right experience? Private investments are typically not structured as simple common stocks or bonds. There can be many complexities with the structure of an investment, the securities being offered and the valuations. Investors should be looking for a platform with a management team that has experience in analyzing, structuring and executed complex transactions.
4. What happens after you make an investment? Since there are no regular reporting requirements for most private investment opportunities, many issuers tend to provide updates on the business or material changes only when it presents the issuer in a positive light. Investors should be wary of platforms that do not provide regular reporting on their investment opportunities because most individual investors will have very little influence when it comes to reporting.
5. Who is investing alongside you? As an individual investor, you will generally have no power on the structuring and valuation of an investment opportunity and the management of that investment. Platforms that offer the opportunity to invest alongside sophisticated professional investors who structure, value and manage an investment will provide individual investors with a greater sense of comfort and peace-of-mind.

Crowdfunding has provided investors with greater access to the private investment market. With greater access and opportunity, comes greater risk. Before selecting a crowdfunding platform, investors should look into how they mitigate risk, as highlighted above.

NexusCrowd Chief Executive Officer and co-founder, Hitesh Rathod will be speaking at the World Money Show Toronto 2015, on Friday October 30th at 2:35 p.m. He will also be participating in a FinTech panel at 3:45 p.m., moderated by Adam Nanjee, head of the FinTech Cluster at MaRS.  NexusCrowd will also be exhibiting at the show which will be held in downtown Toronto, at the Metro Toronto Convention Center on Friday, October 30th and Saturday, October 31st.

In his presentation, Hitesh will be discussing how, “Commercial Real Estate Is No Longer Just for the Well-Connected.”  Crowdfunding technology has spawned a new era for accessing the private capital markets. In the past, individual investors were limited to their own networks, geographies and/or private investment funds. Today, just about anyone can invest in hundreds of private investment opportunities through crowdfunding platforms. Real estate crowdfunding, in particular, has seen significant growth and interest from investors but how do you avoid getting fleeced and what are the right structures?

Welcome to the NexusCrowd blog! We recently launched our online investment platform, and are excited about the enthusiastic response from investors, partners and the media.  The mission of NexusCrowd is to provide more investors with exclusive access to private investments that were previously unavailable, (or only accessible to institutions and ultra-high net worth individuals).

For example, NexusCrowd provides accredited investors with access to the equity portion of real estate development investments, for as little as $10,000. In the past, similar investments would require a $150k+ investment, and “insider connections.” Not any more. Now, through NexusCrowd, you have access to exclusive private investments, and the unique ability to invest alongside experienced, successful institutions, who handle the management and reporting functions.

​This blog aims to provide you with the latest company and industry developments, along with tips and commentary on key issues, regarding real estate and equity crowdfunding, private investment, and related topics. 

We encourage you to explore our site. And if you have any questions, our leadership team will be happy to answer any inquiries you may have. Feel free to drop us a line or register for free with the NexusCrowd platform.