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SOURCE Broadstone Real Estate
ROCHESTER, N.Y., Sept. 23, 2013 /PRNewswire/ -- The Jumpstart Our Business Startups Act (or 'JOBS Act') was signed into law by President Obama on April 5, 2012 to spur economic growth within the small business sector. One provision of the Act increased the maximum number of investors permitted to invest in private offerings, which has already had a favorable impact on small businesses seeking to grow. With additional clarifying regulations from the Securities and Exchange Commission (SEC) becoming effective today, private companies will have even greater flexibility to raise capital necessary to fund their growth while still remaining private.
For the first time, private offerings of shares to accredited investors can now be advertised publicly – thereby allowing greater transparency for private investments. The JOBS Act made this happen by lifting the ban on general solicitations for what are known as SEC Reg D offerings.
Broadstone Real Estate is an example of a company that is growing rapidly, thanks to several business-friendly provisions contained in the JOBS Act. Broadstone, a certified Women Owned Enterprise based in Rochester, NY, is the sponsor and manager of two private Real Estate Investment Trusts (REITs), Broadstone Net Lease and Broadtree Homes. Growing and managing these private REITs is currently the primary activity of BRE and its employees.
The Previous Challenge.
Since admitting its first outside shareholders at the end of 2007, Broadstone Net Lease (BNL) has continued to attract new investors, primarily by word of mouth, through its Reg D offering. It now has approximately 700 shareholders that have invested over $320 million.
"On the surface, you would think that attracting so many new investors would be good news; however, prior to the JOBS Act, our success caused challenges," says Amy Tait, Chairman, CEO and co-founder of Broadstone. "Under previous securities laws, we would have been deemed public once we reached 500 shareholders. We didn't want to cross that threshold without first also gaining enough critical mass to justify the costs of running a public company. Ideally, we wanted to at least double in size again before considering a public offering."
According to Chris Czarnecki, Broadstone's Chief Financial Officer, "In the REIT industry, it is generally understood that the critical mass needed for a public REIT to trade efficiently is now at least $1 billion of market capitalization, preferably higher."
In early 2012, with 400 shareholders and only 100 remaining slots for private investors, Broadstone had to turn away many potential investors to preserve the space needed for large scale growth capital. "BNL was in the awkward position of getting too big to stay private, yet it was still too small to effectively be public. We were stuck in the middle," said Czarnecki.
JOBS Act Impact to Date.
The investment vehicles managed by Broadstone have already been favorably impacted by the JOBS Act. BNL now has a much longer runway to remain private -- it can admit up to 2,000 shareholders instead of only 500. Consequently, BNL dropped its minimum investment from $500,000 to $250,000, and has since admitted approximately 300 new investors, with many taking advantage of the lower minimum amount.
Broadstone also launched its second private REIT, Broadtree Homes (BTH), earlier this year, which has a minimum investment now of just $50,000 – a much easier entry point for investors interested in the new single family home rental sector. Broadtree Homes buys, renovates and rents homes in Palm Beach County, Florida, and in the suburban areas outside of Rochester, New York and Minneapolis, Minnesota. "This business serves a great social need, as a growing number of American families are no longer able or anxious to own a house, yet they still prefer to live in a home with a yard in a stable neighborhood and good school district. Nationally, investor activity in the single family home rental market is helping to drive the recovery in the housing sector, boosting consumer confidence and strengthening the overall economy," said Tait.
Effective today, private equity funds, hedge funds and other private companies like Broadstone are no longer required to limit access to information to only investors considered "accredited" by SEC standards, as they were in the past. As a result, Broadstone has just launched its new website, Broadstone.com, where both current and prospective investors can benefit from increased transparency regarding BNL and BTH. Management can now also talk more openly to the press and can even run advertisements.
"By allowing investors and their financial advisors to efficiently learn about our REITs and invest directly, there is less cost involved in raising equity capital than there would be through more traditional public distribution formats. This translates into higher returns available to be paid out to our shareholders," said Tait. Broadstone will still only be able to accept investment subscriptions from accredited investors and there are new regulations that require additional steps to verify an investor's financial status. Accredited investors generally must have a net worth of at least $1 million, excluding their home, and/or at least $300,000 of annual income.
The JOBS Act has, in fact, helped to create several new jobs at Broadstone, with 15 of its 32 central office positions added in the past 18 months. "Many investors are attracted to our private REITs because of the relatively high current yields combined with the potential for growth over time. As more people are now able to access information about us, we expect that our pace of growth will accelerate even further," said Tait.
Based in Rochester, New York, Broadstone Real Estate, LLC currently manages commercial and residential properties located in 27 states. Broadstone is also a Registered Investment Advisor, and serves as the asset manager for two private REITs, Broadstone Net Lease and Broadtree Homes. Broadstone Net Lease invests in freestanding, single-tenant, absolute net-leased properties located throughout the Unites States, and Broadtree Homes currently invests in single family homes for rental in three states. Broadstone is being recognized as a Rochester Top 100 firm for the third year in a row, and is a certified Women Owned Enterprise.
Additional information can be found at www.Broadstone.com.
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