On February 2, 2018, the Tulsa Real Estate Fund (“Tulsa”) received its Notice of Qualification as a Regulation A+ Tier 2 crowdfund becoming the first African American owned crowdfunding platform focused on “buying the block.”
SEC qualification does not mean approval in the ordinary sense. The SEC has not, and will not, assess the merits, accuracy, or completeness of the Company’s information in its Offering Circular. Qualification means Tulsa met the legal disclosure and regulatory requirements under Regulation A+ to begin selling its units to the public. Under the law, SEC is only required to ensure that the Company tells investors everything. Admittedly, an investor interpreting “everything” to determine if an investment is a good fit, can be hard. Here’s a link to the Offering Circular. But here’s five things I think you need to know before investing.
This is not the IPO that you are used to
In 2012, President Obama infused new life into the investment world by signing the Jumpstart Our Business Start-Ups Act (the JOBS Act). The Act created a less cumbersome path for small and large businesses under $1 billion to obtain funding. It increased the amount of money that small businesses could raise from $5 million to $50 million. It also provided provisions for non-accredited investors, who are normally excluded from this process, to get involved through crowdfunding. The act’s rule, Regulation A+, essentially created a “mini IPO” process for small businesses.
Many investors are familiar with JOBS Act facilitated IPOs such as Snapchat, Dropbox, and Blue Apron. However, potential Tulsa investors need to understand they may not be able to sell their units because “no public market exists” and that their ability to transfer the units are limited. To withdraw, a member who has been in the investment for at least 12 months, must contact Tulsa directly.
The Specifics of the Investments are unknown
As of the date of the Offering Circular, Tulsa had not identified the assets it intended to acquire. Members will not have the opportunity to evaluate Tulsa’s investments before they are made which, as Tulsa disclosed, makes the investment more speculative. Although Tulsa’s name pays homage to the infamous Black Wall Street which was located just outside of Tulsa, Oklahoma, Tulsa will be investing in single family, multi-family and commercial properties throughout the United States in urban neighborhoods.
Tulsa Real Estate Fund is not a $50 Million Real Estate Fund
As of the date of its Offering Circular, the Company had $0 in cash and total liabilities of $15,350. The fund is authorized to raise up to $50 million over a twelve-month period as a Tier 2 Real Estate crowdfund. Generally, the average fund raises $18.2 million.
The independent auditors noted substantial doubts that Tulsa will be able to continue operations for the foreseeable future without needing to liquidate to fulfill its financial obligations. Management’s plans to reduce or minimize the auditors’ doubts report were insufficient to modify their opinion. Therefore, it seems unlikely that the fund will be able to meet its strategy of paying a preferred annualized return of 8% or realize a profit to distribute to its members.
The offering price is arbitrary
The company’s offering price of $50 per unit is “arbitrary and does not reflect book value of [the] Class A interests.” Currently, the Tulsa does not own any assets; it has not “conducted any revenue-generating activities” nor has it “generated any revenue since inception.” As a result, the per unit offering price is solely a function of raising capital, 1,000,000 units at $50 per unit, not a true reflection of the company’s value.
Once you’re in, you’re locked in for at least a year.
Tulsa is a long-term investment. The minimum investment is $500. However, subscribers may start to fund their investment account with $50; they have 180 days to become a member.
However, once an investor becomes a member of Tulsa, they are locked in for 12 months. After twelve months have passed and a member wishes to withdraw, Tulsa will use its best efforts to return the member’s money. In the event Tulsa does not have sufficient cash available, it will not liquidate assets and will distribute the cash available on a pro rata basis.
The Tulsa Real Estate Fund is an excellent concept to help combat gentrification in African American communities. If I were not solicited on multiple occasions about the merits of the investment, I would have reserved comment.
This company has been in existence since July of 2016 but has yet to purchase any real estate. It is impossible to determine the company’s ability, regardless of the manager’s experience, to sustain itself let alone provide its stated annualized return. There is a strong possibility, as noted in the Tulsa’s Offering Circular, that investors could lose “their entire investment.” I have an additional concern regarding the ability of novice investors to manage their expectations regarding the company’s performance and return.
At this point, Tulsa is a purely speculative investment. It should only be considered as an option for a sophisticated investor who can withstand the loss of their entire investment and fully appreciate and withstand the risks that accompany investing in this type of offering.