The Fair-Haired Dumbbell Regulation A+ Offering

On the corner of NE MLK and Burnside in Portland, the new Fair-Haired Dumbbell building is nearly complete. The building has garnered attention for its unique architectural design and painting plans. But more important for developers is the way the building was funded: with crowdfunding pursuant to the recently revised Regulation A, popularly known as Regulation A+.

Guerrilla Development is the company behind the Fair-Haired Dumbbell. Crowdfunding allows issuers like Guerrilla to sell unregistered securities, like an investment in the Fair-Haired Dumbbell, to the public under certain circumstances. Guerrilla promises investors eight percent returns each year on their investments over the course of three to five years, about eight times higher than most savings account interest rates. Investors have to meet certain financial qualifications, but need not be "accredited investors." Guerrilla plans to raise about $1.5 million of the $18 million it needs to fund its project through a Reg A+ offering.

Both federal and state laws control the sale of securities. Regulation A+ provides an exemption from federal securities registration requirements, relieving issuers of some of the onerous legal requirements related to registration and ongoing reporting, and under certain circumstances, also preempts state "blue sky" securities laws. Unlike the very popular (and very traditional) Regulation D private placement exemption, Reg A+ allows issuers to sell up to $50 million of securities to people who aren't wealthy, and allows issuers to advertise their securities publicly.

Real estate developers are uniquely positioned to sell securities pursuant to Reg A+, as compared to other issuers, because a real estate project is not an ongoing company. Instead, the raise ends, the project is built and sold, and investors get cashed out. Reg A+ requires issuers to comply with some pretty heavy ongoing reporting requirements, but when the project is sold and there are no more investors, ongoing reporting requirements cease to apply. This exit scenario compares favorably to that envisioned by the typical tech company (which generally does not take advantage of Reg A+). A tech company is an ongoing concern that would want to find a second round of investors as it grows, an effort that would be complicated by having hundreds of crowdfunded owners from the first round. With a real estate project, investors agree to the exit prior to investing and get their investment plus a return when the project is sold, without the hassle of dealing with the same issues raised in other types of transactions.

Whether you like the architectural and painting design or not, the Fair-Hair Dumbbell has blazed a new trail in Portland, demonstrating a new, viable path to (at least partially) funding a real estate project.