The crowdfunding site Fundrise is
The New York Liberty Development Corp. issued $1.63 billion in unrated tax-exempt bonds for 3 World Trade Center in October in a limited offering that was only available to qualified institutional buyers.
As the unrated bonds aren't publicly traded at low denominations, Fundrise has created a limited liability partnership solely to hold the 3 WTC bonds, into which crowdfunding investors can buy in for as low as $5,000.
"A lot of primary offerings are only available to qualified institutional buyers," said Ben Miller, co-founder and CEO of Fundrise. "We want to democratize the capital markets."
The Fundrise bonds are part of the senior tranche issued for 3 WTC; it tells investors in the partnership they will receive 5%, tax-free, minus a 0.15% asset management fee.
Miller, who runs Fundrise with his brother Dan, said what separates this offering from other municipal projects geared toward retail investors is low prices combined with increased visibility online.
Fundrise, which was founded in 2012, posted a live offering on its website in mid-January for the planned 80-story building, which will be the third tallest structure at the World Trade Center site.
Crowdfunding involves raising funds for a project through a large number of people online, and this practice is not typical in the municipal bond market or for large commercial real estate developments, according to Dan Heckman, a senior fixed income strategist at U.S. Bank Wealth Management.
"Given the notoriety and size of the project this is more unique than par for the course," said Heckman. "It makes it a little more challenging."
The October bond issue came after World Trade Center developer Silverstein Properties unsuccessfully sought a $1.2 billion loan guarantee from the Port Authority of New York and New Jersey.
Congress authorized the Liberty Bond program in the aftermath of the Sept. 11, 2001 terrorist attacks on the World Trade Center to help finance rebuilding efforts. They allow projects in Lower Manhattan that normally would not qualify for tax-exemption to be financed with tax-exempt bonds.
Fundrise describes itself as a vehicle to democratize investment in real estate; the Liberty Bond program is an unusual vehicle that adds tax-exempt interest to what is otherwise a private property development.
Fundrise said it intends to sell its 3 WTC bonds within five years after the construction is completed as long as they are trading at par or higher.
Its offering information, which notes that the investment is "highly risky and speculative," makes note of the bonds' 2044 maturity and that the bonds may be held indefinitely if they can't be sold at or above par.
Unlike investors in traditional munis, participants in the Fundrise offering don't have access to a secondary market if they need or want to exit the investment.
"We do not expect that such a trading market will develop in the foreseeable future, nor does Fundrise, LLC intend in the near future to offer any features on the Fundrise Platform to facilitate or accommodate such trading," its offering information says. "In addition, the Operating Agreement contains substantial restrictions on the resale and transferability" of the investment.
Goldman Sachs was lead underwriter on the 3 WTC bonds, which are secured by a mortgage on the building, tenant leases and rents.
New York Liberty Development Corp. was the issuer.
The Port Authority of New York and New Jersey has no involvement with the crowdfunding effort.
The 3 World Trade Center building is scheduled to open in 2018 and has 1.85 million in available rental square feet from floors 35 to 80, according Silverstein Properties.
Peter Kozel, principal and director of consulting services for real estate advisory firm Cresa New York, said the developer at 3 WTC has to compete with more affordable rents at nearby Brookfield Place. He added that many businesses are also reluctant to sign leases before a building is completed.
"They have been leasing up a little more slowly," said Kozel of the struggle to fill office space at 3 World Trade Center. "They are in a very competitive environment."
Washington-based Fundrise said if it is able to successfully sell off the shares, $3 million of additional bonds for the project will be released for sale. Miller did not provide details on how much has been raised since the live offering began. He expects online retail-oriented platforms for municipal bonds to become more common in the near future and hopes this will help enhance awareness about important public projects.
"Over the next decade I think you will see this be pretty standard," said. "It's not just about the capital-raising; it's about the education that comes with it."
