Is this the first time you are reading the phrase “Equity-based Crowdfunding for Brownfield Redevelopment?” If so, let me introduce you to the latest hot topic in Brownfield Redevelopment.
Last week in Pittsburgh, during the Brownfields 2017 Conference, the prospect of combining Brownfield Redevelopment with ESG Investing through equity-based crowdfunding sparked a lot of excitement. The idea aims to bring together environmentally and socially motivated investors with potential projects that transform blighted neighborhoods into healthy communities.
The key difference between familiar rewards-based crowdsourced funding platforms like Kickstarter and what we’re talking about here is the term “equity-based” - Kickstarter sources funding from backers who receive discounts, but no equity in the ventures they invest in.
Here is what you need to know:
- Typical development financing is comprised of two kinds of capital: equity and debt.
- The value of the land itself (equity) serves as collateral for a loan (debt).
- The challenge of brownfield redevelopment is that contaminated land often does not have enough value - and may have even negative equity - so borrowing funds to remediate and build is expensive, difficult, or sometimes impossible.
Equity-based Crowdfunding for Brownfield Redevelopment is a new way for a developer to raise the equity needed to go to a bank for a loan – or even raise the entire amount needed to complete a project. Those who invest in the project via a crowdsourced equity-based funding platform (e.g. smallchange.com) take on the risk, hoping to be rewarded with a financial return on their investment.
Investors can choose projects, which in addition to remediating a brownfield, may also improve a community’s walkability, feature green building practices, create jobs, or provide equitable housing. And, thanks to the Jobs Act of 2012, and its 2016 revisions pertaining to “accredited” and “non-accredited” investors, anyone can invest in these projects, including community residents who want to see a brownfield redevelopment plan proceed.
Of course, it is wise to consult with a trusted financial advisor, as potential investors must thoroughly review project offerings and understand and accept the risk/reward scenarios of each before investing.