Small Change Review
Review of Small Change
Small Change funds transit-oriented development that meets their sustainability and walkability criteria, one of the few crowdfunded real estate platforms open to non-accredited investors. Selection is limited, but Small Change is worth a look for investors seeking a specific kind of civic impact as much as a return.
A General Summary
The creation of niche platforms based on certain geographies, business or investment specialization categories is one of the most exciting things to watch as the investment crowdfunding ecosystem grows. While there are now decades of crowdfunding real estate sites, Small Change is developing a niche by focusing on financing ventures that they believe will “transform cities for good,” as calculated by a “small change index.”
Small Change is working to finance developers of innovative ventures for areas that may be underserved by conventional commercial developments with the focus on modern urbanism and transit-oriented growth (this is the Jane Jacobs-approved crowdfunding pattern).
Investment Types Small Change Offers
Small Change provides a variety of residential, business and mixed ventures. The majority of investments are for 1-3 years, although one recent investment had an expected holding period of 5-10 years, while one for only 3 months. It is rare for a wide range of projects to be found on a smaller platform such as Small Change, although their specific focus is useful – the common thread throughout their projects is that new urban lenses encourage mixed-use, walkability and transit-focused development.
Although some investments are open to all (via Reg CF), others are limited to approved investors (via Reg D).
What do you get when you invest with Small Change?
Specifics vary with investments, but investors in general are given some ownership interest in an LLC, although the specifics can be a little byzantine as with other crowdfunding investments, as Small Change briefly sums up in its FAQ, saying you often have an interest in a limited liability company which owns a property itself. In other cases, you have a promissory note supported by property. Among other businesses, you have a stake in a limited liability corporation that holds a promissory note backed by real estate itself.
How’s Small Change making money?
Small Change itself charges no fees to investors, but as with many real estate investments, a profit is often shared with the sponsor of the business. For example, in an investment which is currently open, investors receive an expected 30 percent share of any income from the selling of the land, with the remainder going to the developer.
Potential Cash Flow and Returns
Details vary according to offerings, but as in most crowdfunded real estate investment, there is regular cash payment (whether for rental or interest payments), and also in some cases, when property is sold or refunded, a share of profits (if any). For example, an active investment offers an 8 percent preferred return each year.
This is distributed quarterly and then has a pro-rata share of 30% of the profit left after the original investment is received by the investor, their full preferred return and a $20,000 payment by the sponsor (equal to the initial capital contribution). Again, investments differ in size.
Wide Range of Offers
Like with a smaller niche site, there are typically only a few investments at any time available, so if the investment in particular does not meet your requirements, you must wait until a new offer has been reached. (But even on larger platforms the same situation is becoming more common).
Although the majority of projects is in their hometown of Pittsburgh, Small Change has financed projects in New Orleans, Washington DC and Los Angeles.
Regulatory Framework and Expectations of Due Diligence
The Reg CF Small Change investment is formally offered via a subsidiary entity, the NSSC Funding Portal, which is an SEC Title III Funding Portal. It ensures that it is subject to a set of laws and responsibilities surrounding education and due diligence for investors. All developers that provide Reg CF on Small Change investments have been subsequently reviewed by key officials and owners and direct links to the respective SEC filings of the developer are given. (Although the “business” raising funds for such ventures, unlike founders or on-going businesses, is often a brand new LLC with no operating background – Small Change provides information on the developers’ past ventures and experience).
Prospective investors do have access to an online forum to ask the developer questions (and to see responses from other parties to previous questions).
Small Change also offers certain investments through SEC Reg D that are only open to accredited investors. These are offered through a different affiliate and are not subject to the same due diligence and disclosure requirements as Reg CF offerings. Prospective investors should know what kind of bid they are checking out before investing.