Extending a fund maturity date inspires a digital transformation for iCap Equity.
iCap Equity Background
Innovation is a core value of Seattle-based real estate investment company, iCap Equity. CEO Chris Christensen founded iCap with a unique preferred equity model that provides attractive, flexible capital to builders and developers in the Pacific Northwest. The company has four funds with more than $100M in assets under management, raised from more than 1,100 investors through 17 broker-dealer and RIA partners.
The iCap team is now pioneering a new, more liquid model for real estate investments. Leveraging Harbor’s digital platform for alternative assets, iCap is making it easier for investors to get into its new and existing funds, easier for iCap and its broker/RIA partners to manage those investors, and easier for investors to exit funds when desired through a new private secondary marketplace powered by blockchain technology.
“Our vision is to be the world’s most innovative and reliable real estate investment company.”Chris Christensen, iCap Equity CEO
iCap’s innovative real estate model
Often, small to medium-sized builders have trouble securing the full financing they need to capitalize on opportunities. iCap bridges the gap between accredited investors and successful builders, allowing deals to be realized that otherwise wouldn’t happen.
Supported property types include multifamily, mixed-use, single family residences, light commercial (strip malls, small office buildings, retail), and condominiums. The funds, structured as debt vs. equity, pay investors a fixed monthly interest rate, offering a variety of yields up to 12 percent. Like most private investment funds, investor capital is typically locked up for the length of the fund. For iCap funds, that is three to five years.
Solving for liquidity needs
When iCap extended the maturity date on its first fund, most investors were happy to continue receiving 12% interest. However, it needed to find a way to allow some investors to exit while allowing others to continue.
In 12 months, iCap facilitated nearly $2M in secondary transfers for investors. However, the traditional secondary transfer process in private equity is notoriously manual, time consuming, and costly, and iCap needed a better way to handle more transactions to meet investor needs.
Having read about how Harbor’s platform streamlines the secondary transfer process using blockchain technology and a branded private marketplace, Christensen and his team set out to deliver a new, more liquid model for its existing and future funds.
“With Harbor, we are able to provide the same strong returns, but also an option for investors to more easily liquidate if desired. It provides the best of both worlds, and is a game-changer for not only real estate-based investments, but the entire alternative investment industry.” Chris Christensen
Private marketplace powered by blockchain
Like most private securities, iCap fund investments were illiquid, in large part because of the lack of visibility, transfer cost, legal process, friction, and delay in the current paper-based transfer processes. A transition to digital private securities backed by blockchain technology brings efficiencies and automation to the secondary transfer process, allowing iCap to lift transfer restrictions while maintaining control and compliance.
iCap’s private marketplace aggregates interest from buyers and sellers across iCap funds and allows them to find each other and transact in accordance with securities regulations. Harbor’s platform operates under regulatory requirements and rules defined by iCap, allowing only compliant transfers to occur among trusted investors and broker partners. Blockchain technology is used to enforce the rules and securely record transfer of ownership.
For issuers like iCap, enhancing fund liquidity options reduces the need to provide traditional redemption programs, which often come with steep discounts. Allowing investors to liquidate, even investors with small holdings, can also improve fund marketability.
The ability to automate compliance also has the potential to one day connect qualified investors around the world through private marketplaces and exchanges to create larger pools of capital and more reliable liquidity.
Creating opportunities for brokers and RIAs
A critical requirement for iCap was integrating broker-dealers and RIAs into the process. Harbor allows each partner to see and manage their investors across funds, as well as match orders and transfer holdings in coordination with their investors.
This provides a win-win for brokers, advisors and their investors – investors have liquidity options and brokers earn commissions on the transfers and then work with clients to reallocate funds.
“Technology that provides more liquidity among alternative assets could be transformational. This will aid investors who need liquidity by providing an early exit, while assisting other investors to obtain access to alternatives that were previously closed.” Michael Bradley, CEO, Bradley Wealth, an investment advisor firm
An end-to-end digital experience
Moving forward, iCap will offer a fully digital investment experience, including guided investor onboarding and verification, e-signatures for investment documents and online payment options. Once in the fund, investors can access their own portal to review documents and disclosures, and even indicate interest in selling their investment in coordination with their broker or advisor.
What started as a specific need for liquidity options following an extended maturity date has resulted in a complete digital transformation of the investment lifecycle for iCap. It is now easier for investors to get into new and existing funds, easier for iCap to manage investors, brokers and advisors in one system, and its secondary marketplace provides a more liquid model for real estate investing that is already grabbing attention industry wide.
“Ultimately, we believe more liquid alternative investments will allow investors to allocate more of their portfolio to higher-return private assets.” Josh Stein, Harbor CEO