Case Study – Mainstreet
Mainstreet Innovation in Action
Indiana-based Mainstreet is a trailblazer in creating a new generation of senior housing, including long-term and short-stay transitional care properties. So, it is no surprise that the company was first in line to utilize the CrowdStreet real estate crowdfunding platform.
Changes in the JOBS Act have allowed us to democratize the investment process, bringing these opportunities directly to the investors.–Zeke Turner, Mainstreet CEO
Mainstreet has built its rapidly growing company on innovative ideas. Zeke Turner founded the company in 2002 and continuously pushes his team to think differently and be creative. This philosophy has driven the company to develop more than 20 properties, all of which are vastly different than what most people would consider to be “traditional” nursing homes. Rather, Mainstreet focuses on delivering award-winning concierge-based healthcare properties known as Next Generation® Medical Resorts.
The strategy to deliver senior housing and transitional care facilities that offer a high level of service has landed the company on Inc. magazine’s list of 500 fastest growing companies for the past four consecutive years.
Mainstreet’s focus on innovation led the company to seek out CrowdStreet to help finance its latest development – Mainstreet Bloomington, a short-stay transitional care and assisted living facility in Bloomington, Ind. The property contains 100 recovery suites in a 66,197-square-foot building that sits on 18.4 acres. This Next Generation™ style facility features the company’s trade-mark assortment of amenities that include world-class care, a rehabilitation center, movie theater, salon, game room, on-site restaurants and walking trails. Construction began in June 2014 with completion scheduled for May 2015.
Testing the waters
Mainstreet Bloomington became the developer’s first foray into crowdfunding and marked the debut crowdfunding offering for CrowdStreet. In 2012, the Jumpstart Our Business Startups Act, or JOBS Act, made it possible for firms such as CrowdStreet to publicly advertise real estate investment opportunities to accredited investors. This enabled developers like Mainstreet to expand their fundraising efforts beyond its direct relationships to a nationwide pool of prospective investors.
Mainstreet recognized crowdfunding as a vehicle to open up investment opportunities to a broader array of investors. Historically, real estate investors would often need an “inside track” to get in on such direct investment opportunities by having the right connections. “Changes in the JOBS Act have allowed us to democratize the investment process, bringing these opportunities directly to the investors,” says Mainstreet CEO Zeke Turner.
“There is no doubt that our business is a capital intensive business, and the recent changes in the law made crowdfunding an exciting initiative for us,” says Scott White, Mainstreet’s chief operating officer.
The first step was choosing the right crowdfunding partner. Mainstreet was among the first firms in the country to use crowdfunding to finance real estate, particularly for a development opportunity. Initially, Mainstreet wasn’t entirely sure where to start, notes White. In late 2013, crowdfunding for real estate was still brand new and there were no dominant leaders. The developer started researching crowdfunding firms online and making cold calls.
Through that process, Mainstreet found CrowdStreet and spoke to co-founder Darren Powderly.
“We believed that Darren and the team that he has assembled – a team of great senior leaders – would get it done, and they did get it done,” he says. Mainstreet also was looking for a provider where customer service came first. “That is the mantra that we heard from the CrowdStreet team,” he adds.
“I am absolutely certain that when we do another crowdfunding initiative, we will use CrowdStreet.”–Scott White, Mainstreet COO
Rewards beyond capital
The initial goal was to use the CrowdStreet crowdfunding platform to help Mainstreet raise $1.5 million in mezzanine capital to finance a portion of the $13.4 million total project cost. CrowdStreet met and exceeded that goal by enabling Mainstreet to raise $1.6 million. The capital raise occurred quickly, with the deal fully committed in about three weeks, and closed in about four weeks.
“CrowdStreet helped Mainstreet raise a large amount of capital in a very short period of time, while allowing Mainstreet to remain firmly focused on its core business,” says CrowdStreet Co-founder Darren Powderly, CCIM. “The CrowdStreet marketplace is designed to simplify transactions between U.S. accredited investors and real estate operators like Mainstreet. The Bloomington campaign produced a tremendous result, and we look forward to generating more interest and capital for Mainstreet in future projects.”
Mainstreet readily admits that being one of the first real estate crowdfunding projects was a learning curve. But the benefits of the process were worthwhile in more ways than one. Certainly, crowdfunding proved to be a quick, efficient and cost-effective means of raising capital. In addition, the crowdfunding platform helped Mainstreet reach new investors who might not otherwise have even heard of Mainstreet.
The project drew investors from multiple states, including both the East and West Coasts.
The crowdfunding opportunity was broadly marketed to a wide investor pool through a website, billboards and other advertising. Those efforts had the added result of boosting Mainstreet’s brand equity and brand awareness, as well as bringing greater attention to the Mainstreet Bloomington project. “Regardless of the capital we raised, we created a fair amount of recognition and brand equity around the Mainstreet name here in Indiana and even outside of Indiana through crowdfunding,” says White.
Finding the right partner
In the end, the result was due to a successful collaboration between the two firms. “When we selected our crowdfunding vendor, we were looking for someone who was going to partner with us,” says White. Mainstreet also wanted a firm who was committed to the success of the deal. “There is not a doubt in my mind that this project was as important, and maybe even more important, to them as it was to us,” he adds.
Since there was no real estate crowdfunding template, it was important for Mainstreet to have the right partner. The process wasn’t without its bumps along the way. “That is to be expected when you are a pioneer laying the foundation for a whole new industry and a whole new way of raising capital,” says White. “CrowdStreet stood behind their product and they made sure that they did the right thing by their client,” he says.
“American consumers have embraced Mainstreet’s transformative properties, which offer desirable care and rehabilitation services. It’s only natural that investors would embrace the same model,” adds Turner. “We’re energized by this initial response and are excited to offer more of these opportunities in the future.”
Overall, the experience has convinced Mainstreet that crowdfunding is a viable tool for its fundraising toolbox. “It is still too early to determine how much, how often and what exactly the next project will look like,” says White. “But, I am absolutely certain that when we do another crowdfunding initiative, we will use CrowdStreet.”
CrowdStreet provides a crowdfunding marketplace that connects accredited investors with institutional-quality real estate investments. With its cloud-based fundraising and investor relationship management platform, CrowdStreet offers real estate operators, funds and private equity companies an online vehicle to raise capital and manage relationships with new and existing investors more efficiently and cost effectively. Based in Portland, Ore., CrowdStreet was founded in 2013 by a team with deep experience in commercial real estate, finance, consumer Internet and software development.