Raising a Property’s Equity Through an Online Platform

An online platform can put a property’s equity offering in front of individual investors the sponsor does not know, and it can run subscriptions and investor reporting in one place. Access is gated by screening of both the sponsor and the business plan, and the cost is a success-based fee paid to a broker-dealer. The test that matters is how much of the equity requirement the platform fills net of that fee within the closing window, and what fills the rest.

Two screens stand between a sponsor and a live offering

A platform decides who it will carry, and the decision happens twice: once on the sponsor and once on the property.

The sponsor screen is about scale and track record. Sponsor screens can be tight: a platform may work only with sponsors typically holding a couple of hundred million dollars in assets under management, or substantial development experience, and may not host a sponsor’s first deal.

The property screen is a separate underwriting. The platform asks whether the business plan is viable and tests the assumptions behind it, which means a qualified sponsor can still bring a plan that does not get listed.

Property type shapes the history behind a platform’s judgment. A platform’s history can skew heavily to one asset type; for example, about 75% of one platform’s historical business has been multifamily, with the remainder in other commercial assets. A sponsor with a plan for an office building, industrial property or retail property is therefore asking the platform to apply underwriting that has been exercised less often.

Passing both screens gets an offering listed. It does not produce a single dollar of equity, because the subscriptions still depend on investor decisions.

“First and foremost, we limit the types of sponsors that we work with. Typically, sponsors will have a couple of hundred million dollars in assets under management.”

A success fee on subscriptions and an asset fee on a fund are different charges

On the digital platform, the transaction runs through a broker-dealer that takes success-based fees, so the cost arises only when capital is actually raised.

A fee model needs three inputs before it can be compared with any other channel: the rate, the base it applies to, and who pays it. If the fee is taken out of subscriptions, the investors’ gross total exceeds the cash that reaches the property by the fee amount. If the sponsor pays it separately, the property receives the full subscription and the sponsor carries an extra cash cost.

Fund management is typically priced as a percentage of assets under management, such as 1% to 1.25% depending on the fund. The charge recurs on assets held, so it describes a service delivered over time. Placing a property’s equity is a separate service.

Putting the two rates side by side without adjusting the base produces a meaningless comparison. A percentage of assets that is charged each period and a percentage of subscriptions that is charged once only line up after both are converted to dollars over the same hold or the same raise.

“On the digital platform, we structure those transactions through a broker-dealer. We take success-based fees.”

Platform capacity fits a sponsor’s gap only when the gap is investors

Whether a platform fits depends on what the sponsor is short of: a base of individual investors, or room to raise a large amount.

Some sponsors raise only on a platform because they lack a big network of individual investors. For that sponsor the platform is the entire source of equity, so its capacity is the sponsor’s ceiling.

The opposite case also occurs. Crowdfunding sites are limited in how much they can raise, which makes them less efficient for larger sponsors. A sponsor needing a large equity check from a channel with a lower ceiling ends up with a shortfall that another source has to cover.

The two statements pull on the same variable from opposite ends. A sponsor with no network gains the most from reach but may find the ceiling binds on a bigger deal. A sponsor with a deep network has less to gain from reach and faces the same ceiling. The decision test is the size of the equity requirement against what the channel can fill, then the identity of whoever fills the remainder.

Worked example: a $1,900,000 equity requirement raised with a 5% success fee

This hypothetical case holds the net equity requirement at $1,900,000 and the platform success fee at 5% of platform subscriptions, paid out of those subscriptions. Both cases share one closing window, and no other charges apply. Any balance not raised on the platform comes from the sponsor’s own investors at no fee.

Base case. Platform subscriptions are $2,000,000. The fee is $2,000,000 multiplied by 5%, which is $100,000. Net platform proceeds are $2,000,000 minus $100,000, or $1,900,000, so the requirement is met in full by the platform and the remaining gap is $1,900,000 minus $1,900,000, or $0.

The gross subscription needed to net $1,900,000 can be checked the other way: $1,900,000 multiplied by 100, divided by 95 (100 minus the 5% fee), gives $2,000,000. Because the fee comes off the gross, the gross has to be larger than the cash target.

Stressed case. Platform subscriptions reach only $1,200,000 in the same window. The fee is $1,200,000 multiplied by 5%, which is $60,000. Net platform proceeds are $1,200,000 minus $60,000, or $1,140,000.

The remaining gap is $1,900,000 minus $1,140,000, or $760,000, which is 40% of the requirement. The platform supplied $1,140,000 divided by $1,900,000, or 60% of the net equity.

On the same basis, the stressed case costs $100,000 minus $60,000, or $40,000 less in fees. It also leaves $760,000 that the sponsor’s own investors must fill. A lower fee bill is a byproduct of the shortfall and says nothing about whether the channel did its job.

What the platform handles after closing and what it leaves to the sponsor

Once an investor is in, the platform can serve as the single place for distributions, tax returns and quarterly reports, and the subscription itself can be completed digitally.

That centralizes delivery of reports but does not produce their content. The property business plan, the explanations behind a variance and the answers to property-level questions still come from the sponsor.

Online reach also leaves the relationship work in place. Online fundraising can reach everyone, everywhere, all the time, but the attract and nurture process still has to happen, and doing it online makes the sponsor’s time more efficient. Prospective investors research the sponsor before investing, and a sponsor without a good online presence can be invisible to those who search for solutions online.

Visibility cuts both ways. On a platform, investors can see hundreds of deals and compare them apples to apples. An offering with thinner terms or a weaker explanation is set beside others on identical fields, so the sponsor’s materials carry more weight, not less.

Pitfalls in costing and sizing a platform raise

Applying the fee to the wrong base is the most common arithmetic slip. If the target is net cash to the property and the fee is a percentage of gross subscriptions, the gross must be the target divided by one minus the fee rate. In the example, a $1,900,000 net target at 5% needs $2,000,000 gross, and simply adding 5% to $1,900,000 would give $1,995,000 of subscriptions, which nets $1,895,250 after the fee and leaves the property $4,750 short.

Using a fund management rate as a placement cost mixes two services. A percentage of assets under management recurs while assets are held, and a percentage of subscriptions is charged on a single raise. Their dollar costs are comparable only after both are converted over the same period.

Reading one platform’s stated sponsor screen as a general entry test misleads. A requirement of a couple of hundred million dollars in assets under management describes one operator, and a sponsor below that level cannot conclude another platform applies the same cut, just as a sponsor above it cannot conclude a listing is assured.

Counting a completed review as committed capital is a sequencing error. Underwriting of the business plan answers whether the plan looks viable. Equity exists only when investors subscribe, so a closing budget should carry subscriptions net of fees and not the amount marketed.

Judging the channel by the fee alone hides the funding consequence. In the stressed case the fee falls by $40,000 while a $760,000 gap opens, and the correct comparison deducts net platform proceeds from the net requirement before anything else.

Questions that frame a platform equity decision

The amount of net equity the platform can realistically raise within the closing window sets the size of the gap that another source must cover.

Payment of the success fee out of subscriptions or separately by the sponsor determines whether the property receives the gross subscription or the gross minus the fee.

The fee base may be gross subscriptions or another measure. A rate means little until the base is fixed in dollars.

Any recurring charge based on assets under management accrues over the hold and must be added to the one-time fee in a like-for-like cost.

The plan must address any shortfall in platform subscriptions. The sponsor’s own investor base, a second channel or a smaller deal each carry different timing and cost.

The platform’s screening history indicates its experience with the property type being offered. A historical mix concentrated in one asset type bears on how familiar the underwriting is.

After closing, a reporting portal delivers documents, and the sponsor still supplies the explanations for property-level investor questions.

Side-by-side presentation puts the offering’s terms and materials under direct comparison with other listings on identical fields.