Could you make money if Mom's nursing home does a good job?
More than 6,100 people from around the world recently gave a man named Zack “Danger” Brown about $51,000 … to make potato salad. The campaign, done through the website Kickstarter, put the concept of “crowdfunding” back in the headlines. Another recent crowdfunding project might mark a watershed moment in long-term care financing: senior living investment company Mainstreet raised more than $1.6 million in a month through a website similar to Kickstarter.
I first encountered crowdfunding when I was doing marketing for the Chicago Fringe theater festival. We asked fans of the festival to throw in a few bucks through Kickstarter, and in return they received some festival swag, like a button or shirt. This is the typical way that crowdfunding has worked, and it's proven so easy and effective that more sophisticated versions have emerged — including the real estate investment model used by Mainstreet.
Instead of a shirt, people who contributed to the Mainstreet campaign received equity in a soon-to-be opened facility in Bloomington, IN. Mainstreet anticipates that the stakeholders will receive a 14% annualized yield. (The actual return will depend on how well the 100-unit facility performs.) The folks at CrowdStreet believe this was the first example of a senior living investment opportunity funded through a website such as theirs, the company's Vice President of Product & Marketing Steve Drew told me in an email.
Unlike our Fringe festival project, not just any Joe Schmo could take part in the Mainstreet crowdfunding. Only accredited investors (read as: really rich people) could get on the CrowdStreet website and buy in to the facility — for a minimum investment of $10,000. However, it looks like regular Joes soon might be able to get a slice of the pie: The Jumpstart Our Business Startups (JOBS) Act — sponsored in the House of Representatives by the outgoing Majority Leader Eric Cantor (R-VA) — opened commercial real estate to non-accredited investors.
The Securities and Exchange Commission currently is drawing up rules to implement that JOBS Act component. Once the rulemaking is complete, “you can expect that far more crowdfunding investment opportunities will become available for non-accredited investors,” said Drew.
“It's going to democratize the capital-raising process,” Mainstreet Chief Operating Officer Scott White told me. He expects that all real estate companies are going to experiment with crowdfunding.
There are a few reasons to be cautious. If the SEC rule is “too tricky,” then Mainstreet and similar companies probably won't court non-accredited investors, White said.
Financial experts have raised some red flags about consumer protections. It's “definitely going to be a dangerous field” in which “fly-by-night schemes” might take advantage of people who are not savvy about the market, said Melissa Francis of Fox Business, in an interview with Mainstreet CEO Zeke Turner. Francis advised that potential investors “look for folks like [Mainstreet], who are well-known, reputable.”
Still, even if this type of crowdfunding were limited to accredited investors, demand appears to be substantial. The Mainstreet project attracted investors all across the country, White told me. The company marketed the opportunity through TV interviews, a website, blast emails and even billboards, but White credits word-of-mouth most of all for the rapid nationwide response.
I'm no finance expert, but I like the idea of expanding the number of people who have a stake in the performance of long-term care facilities. Congress has been woefully neglectful in making necessary reforms to the LTC system, whether it's addressing the way that people pay for care or making sure that a crushing regulatory burden doesn't doom providers and drive professionals from the field. So far, the public has not taken lawmakers to task for this.
As more baby boomers put their parents in facilities — and enter themselves — I think we could see much more pressure on Congress. A larger pool of financial stakeholders who educate themselves about how senior living facilities operate and succeed would only add to this pressure. Is it possible that boosting the number of people with greenbacks in the game at the same time that more people need long-term care might be a one-two punch that knocks this country's system firmly into the twenty-first century?
Tim Mullaney is McKnight's Senior Staff Writer. Follow him @TimMullaneyLTC.