Own a piece of “The Rock.”
That was the Wednesday morning wake-up call Andre Carpiac, majority owner of Hard Rock Hotel Palm Springs, put out to investors to raise $1.5 million — or more — through a crowdfunding offer by the Beverly Hills-based real estate tech company, RealtyMogul.
In a rarity, if not a first, in the hotel business, investors can fork over anywhere from $10,000 to $200,000 to buy VIP status and a sliver of the 163-room resort property in downtown Palm Springs.
Beyond the welcome bottle of champagne and cheese plate, VIP “crowdies” have been told to expect room upgrades, use of the owner’s pool deck cabana — when available — a 25 percent discount on room rates and $50 per year in food and beverage credits.
Accredited investors will also get a crack at shared income from quarterly rental payments and any appreciation of the hotel when it is sold, the RealtyMogul.com offering says.
Carpiac, of Kittridge Hotels Resorts, called the equity owner investment opportunity in the Hard Rock-linked affiliate, WealthForge LLC, a “winning formula” for everyone. It is the first major hotel in the United States to be crowd-funded in an online marketplace, and he believes it won’t be the last.
By noon Wednesday, RealtyMogul executive chair Jay Samit said $500,000 was raised in the online marketplace for the crowdfunding investment.
“In the last 24 hours, it’s been off the hook,” Carpiac said Thursday.
Crowdfunding, a financial services industry buzzword, is catching on in the online world for commercial real estate investment. It differs from a Real Estate Investment Trust in that the crowdfunding portfolio is typically smaller and its properties or investment pool is well-defined.
REITs generally involve large entities. Crowdfunding allows a large pool of investors — the crowd — to pool money together to buy shares of real property like apartment buildings or retail centers. The fundraising is typically orchestrated by means of a Web platform.
Before it branched into the real estate realm, crowdfunding has been used to finance video games, motion picture promotion, disaster relief, political campaigns, citizen journalism, the British rock group Marillion’s tour of the U.S., start-up companies and even the construction of the platform for the Statue of Liberty.
Hard Rock’s solicitation falls into the category of equity crowdfunding for perks.
IN THE POOL
“The more investors we attract, the more we invest in the hotel,” Carpiac said. “This is an ideal for the die-hard investors who have to travel a lot, have discretionary income and want to own a piece of Hard Rock Hotel.”
Carpiac said a portion of the money raised — it could be more than $1.5 million — will be spent on big-name entertainment for the GoldenVoice venue, a nightclub, spa and salon expansion and a signature restaurant. Six months into the grand opening, he said, Hard Rock Hotel has “blown through all of its goals.”
“We’ve been spectacularly successful,” he said. “This is not a move to shore up finances. We think it’s a great concept: It’s cutting-edge.”
There are risks: Private placement investments are not bank deposits and are not guaranteed, and may lose value.
OUTSIDE THE BOX
Bruce Baltin, senior vice president of PKF Consulting in Los Angeles, said he isn’t aware of any other hotel in the U.S. that has ventured into crowdfunding as a real estate securities investment tool.
“That doesn’t mean it hasn’t been tried,” he said.
Baltin said he wasn’t surprised to hear crowd-funded investment is moving into the hotel scene.
“Crowd funding is growing as a means of raising capital and hotel REITS have been around for a long time,” he said. “People do buy stock in companies that own hotels.”
Alan Reay, a California-based hospitality industry analyst, said this is the first he’s heard of a hotel business soliciting investors through crowdfunding.
If the call is not being made with intent to use the funds as a loan and the investors become minority partners, Reay said the solicitation makes sense.
Carpiac is no stranger to the real estate investment world.
The 1999 UCLA graduate with a degree in business and economics has, through Pacifica Capital Group, been involved in acquisitions, dispositions, leasing and asset management of Southern California commercial real estate.
What Carpiac likes about the RealtyMogul-managed offering is the company acts as the middleman, vetting investors. Equity crowdfunding can be tricky. At the same time, Carpiac said it’s an equity investment in a hard piece of real estate asset.
“But if you buy stock in a public company, or you’re investing with a venture capital firm or you are buying a piece of real estate, there’s always risk in any investment class,” he said.
“It’s all very regulated, and the company is extremely credible,” he said. It has a substantial data base already, with over 8,000 investors.
Samit, a UCLA grad, said the Beverly Hills-based RealtyMogul venture in the past year has crowd-funded more than $100 million in property value in multifamily housing, public storage and shopping centers.
Hospitality falls into that category, he said, and Hard Rock Hotel Palm Springs was selected because of its iconic, recognizable brand. “It’s a great property to show what can be done with crowdfunding for hotels,” he said.
Though the investment goal is $1.5 million, Samit said the bar can be raised a bit higher. Once the investor pool is identified, computer software divides the equity share. The investment is not as simple as rolling a sizeable IRS return into the crowd-funded kitty.
One has to be accredited to jump into the pool.
Accredited investors are defined by the Securities and Exchange Commission as having $200,000 of annual income per individual — $300,000 per couple — with the expectation of that continuing, or, a net worth of more than $1 million excluding the value of a primary residence.
There are 9 million accredited investors in the United States.
The Hard Rock opened on Oct. 4, 2013. Though the property is flagged as a Hard Rock hotel, it is not managed or operated by Hard Rock International.
Contact Debra Gruszecki at 951-368-9423 or email@example.com
Investors pool their money, usually over the Internet, to provide financing in the form of equity.
The least developed form involves selling small amounts of equity to a large number of investors.
Make sure the opportunity has been filed with appropriate regulatory agencies, like the Securities and Exchange Commission. Securities should not be sold unless the sale is accompanied or preceded by a prospectus.