Heather Martel is co-founder and Chief Operating Officer of ProjectFRED, a new fintech, blockchain-powered commercial real estate startup launching this month out of Ann Arbor that allows the individual small investor to get into the world of commercial real estate investing through a fractional investing app. ProjectFRED was founded by a neurosurgeon turned blockchain coder, a marketer, and a real estate broker, who wanted to make it easier for commercial real estate listings to meet their investment goals and for people just starting investing or wanting a portfolio across the United States through smaller investments to jump in to real estate using only an app. Investors are alerted to new properties coming on the market and can swipe through investment properties as they are available, which creates a targeted way to help $100 million in commercial real estate in Ann Arbor move more quickly.
“Our mission is to provide investment opportunities for all,” Martel says of the app’s initial limited launch, which aims to remove barriers to people getting started with investing. “ProjectFRED takes away the institutional feel and offers ease of use for new investors,” Martel tells Cronicle.
The ProjectFRED process is open to accredited and non-accredited investors. That means no income requirements or regulatory issues to sort out, though it does create one challenge. Because ProjectFRED investors are going in on a fractional title shared with other investors, if they want out of an investment they need to put their share back on the market and find a replacement before they can back out. Investments can be offered for aftermarket sale on an exchange market after one year.
“It’s like Tinder for commercial real estate,” Martel says of the ease of swiping through investments, “but it’s not as simple…. It’s easy enough for a high schooler to use, that’s our goal,” but that means investors need to do their homework on what their commitments are.
Listings on ProjectFRED include the cap rate, usually 6-12% for solidly profitable investments, and include all the due diligence on problems the property might have that need fixing up front. That’s where ProjectFRED does the heavy lifting. Not only do they create the platform and app to list these properties, which are starting in Ann Arbor but expanding to include the entire United States in the coming few years. ProjectFRED also does the homework on each property’s financials and inspections so you know what you’re getting into with an investment.
To begin, you sign up as a member, with no minimum. ProjectFRED just opened a seed round of funding several weeks back, and should complete its proof of concept phase by end of year. Investors who sign up with ProjectFRED read bylaws on properties and can vote or be silent investors through FRED-managed block owners’ associations. Quarterly dividends are automated based on the cap rate, to minimize surprises. There is no broker fee.
“We do work with brokers but investors don’t have to work with a broker if a property is unlisted and the investors bring the buyer,” Martel explains. Sellers who want to list their commercial asset on ProjectFRED pay no broker fees, and ProjectFRED manages the association for investors after the sale.
Because all of this is managed through fractional titles and automated contracts, the process to invest in a property can be weeks instead of months. “Investors develop an offering around a building,” Martel says, “and set an open and close date on the investment. That can be 2-3 weeks.” ProjectFRED can also source what a group of investors are looking for if, say, they are looking to purchase a building together for a particular use.
ProjectFRED will officially launch early 2020, but you can sign up now to be in the loop as the company gets on its feet. It’s not for everyone, but ProjectFRED removes barriers to individual small investors that otherwise can be tough to overcome even on intimidation factor alone. We’ll look forward to seeing where this company goes next year and beyond that.