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Crowdfunding for Historic Redevelopment

By CED Guest Author

Published October 11, 2021


Main St Historic Buildings
Main St Historic Buildings

Crowdfunding or the act of raising investment dollars locally within a community can be traced in North Carolina to the early 20th century and potentially even earlier. Many of our community’s most iconic buildings were developed with financing provided by local residents.

In early 1921, a committee of local residents in the City of Albemarle came together with the vision of building a downtown hotel. As they wrote in a 1921 opinion piece in the Stanly News-Herald, building this hotel would “mean a new start towards building up Albemarle” and that executing this vision “will show to those who do not live here that we mean to grow and make something out of our town.” Due to the success of this local campaign, the Albemarle Hotel opened in 1923.

Similarly in the City of Fayetteville, fourteen local business people organized The Community Hotel Co. with the goal of raising $200,000 to build a downtown hotel. As these organizers wrote, “The purchase of stock should appeal to every citizen…because the project is distinctly a community enterprise and a new and modern hotel will be a very definite asset to the entire community.” The Community Hotel Co. raised $271,000 from 593 people and enabled Fayetteville to build what later became known as the Prince Charles Hotel, which opened in 1925.

While not technically called crowdfunding, these two examples resemble today’s notion of crowdfunding: public campaigns to raise investment dollars to support local transformative community economic development projects. However, campaigns like these began to dissipate in the late 1920s due to the Great Depression and the formation in 1934 of the U. S. Securities and Exchange Commission (“SEC”). Under SEC regulations, crowdfunding campaigns became regulated and more complicated.

Today, crowdfunding has reemerged as a potentially important new tool for local communities to raise local dollars in support of important community projects. As explained in an earlier blog post, Title III of the 2012 JOBS Act introduced Regulation Crowdfunding (“Reg CF”) with specific requirements and limitations. This version of crowdfunding did have some success in raising capital. According to Crowdfund Capital Advisors data, Reg CF campaigns raised $239.4M in 2020 with the average raise of $308,978. According to Kingscrowd, Reg CF has raised more than $514M since 2016.

Reg CF recently evolved with a new rule amendment that became effective on March 15, 2021. The amended rule made two notable changes that were designed to spur more investment:

Reg CF is not new. Our team at the Development Finance Initiative (“DFI”) has been evaluating the impact of Reg CF on potential community economic development projects. While it is still early in Reg CF’s history, momentum does appear to be growing behind crowdfunded projects. Not only are annual dollars raised through Reg CF increasing, but new platforms to conduct fundraising campaigns and help funders and projects find each other are emerging as well.

In DFI’s experience working with local governments to attract private investment to community economic development projects, one barrier is finding investors who are willing to accept the risk of investing in those projects. We believe that a local Reg CF campaign could be one part of a solution for small communities that find it especially challenging to find investors for development projects. If your community has interest in discussing this further, please reach out to us.

 

Jordan Jones is a Development Advisor with the Development Finance Initiative. Outside of his work with DFI, he is a private developer who has used Reg CF to finance a landmark development project. Contact the author for more information about the cited news reports from the 1920s.

Published October 11, 2021 By CED Guest Author

Main St Historic Buildings
Main St Historic Buildings

Crowdfunding or the act of raising investment dollars locally within a community can be traced in North Carolina to the early 20th century and potentially even earlier. Many of our community’s most iconic buildings were developed with financing provided by local residents.

In early 1921, a committee of local residents in the City of Albemarle came together with the vision of building a downtown hotel. As they wrote in a 1921 opinion piece in the Stanly News-Herald, building this hotel would “mean a new start towards building up Albemarle” and that executing this vision “will show to those who do not live here that we mean to grow and make something out of our town.” Due to the success of this local campaign, the Albemarle Hotel opened in 1923.

Similarly in the City of Fayetteville, fourteen local business people organized The Community Hotel Co. with the goal of raising $200,000 to build a downtown hotel. As these organizers wrote, “The purchase of stock should appeal to every citizen…because the project is distinctly a community enterprise and a new and modern hotel will be a very definite asset to the entire community.” The Community Hotel Co. raised $271,000 from 593 people and enabled Fayetteville to build what later became known as the Prince Charles Hotel, which opened in 1925.

While not technically called crowdfunding, these two examples resemble today’s notion of crowdfunding: public campaigns to raise investment dollars to support local transformative community economic development projects. However, campaigns like these began to dissipate in the late 1920s due to the Great Depression and the formation in 1934 of the U. S. Securities and Exchange Commission (“SEC”). Under SEC regulations, crowdfunding campaigns became regulated and more complicated.

Today, crowdfunding has reemerged as a potentially important new tool for local communities to raise local dollars in support of important community projects. As explained in an earlier blog post, Title III of the 2012 JOBS Act introduced Regulation Crowdfunding (“Reg CF”) with specific requirements and limitations. This version of crowdfunding did have some success in raising capital. According to Crowdfund Capital Advisors data, Reg CF campaigns raised $239.4M in 2020 with the average raise of $308,978. According to Kingscrowd, Reg CF has raised more than $514M since 2016.

Reg CF recently evolved with a new rule amendment that became effective on March 15, 2021. The amended rule made two notable changes that were designed to spur more investment:

Reg CF is not new. Our team at the Development Finance Initiative (“DFI”) has been evaluating the impact of Reg CF on potential community economic development projects. While it is still early in Reg CF’s history, momentum does appear to be growing behind crowdfunded projects. Not only are annual dollars raised through Reg CF increasing, but new platforms to conduct fundraising campaigns and help funders and projects find each other are emerging as well.

In DFI’s experience working with local governments to attract private investment to community economic development projects, one barrier is finding investors who are willing to accept the risk of investing in those projects. We believe that a local Reg CF campaign could be one part of a solution for small communities that find it especially challenging to find investors for development projects. If your community has interest in discussing this further, please reach out to us.

 

Jordan Jones is a Development Advisor with the Development Finance Initiative. Outside of his work with DFI, he is a private developer who has used Reg CF to finance a landmark development project. Contact the author for more information about the cited news reports from the 1920s.

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