(DISLCAIMER: THIS IS NOT AN OFFER, RECOMMENDATION, OR SOLITICIATION TO INVEST IN THE TULSA REAL ESTATE INVESTMENT FUND, OR ANY OTHER FINANCIAL PRODUCT OR SECURITY. THIS BLOG IS INTENDED TO GIVE GENERAL INFORMATION ON THE FUND AND OUR OPINION)
Millionaire real estate investor and businessman Jay Morrison started the Tulsa Real Estate Investment Fund to revitalize urban communities, reverse gentrification, and give the everyday (not wealthy) person an opportunity to invest in real estate, without the hassle of physically buying and maintaining properties themselves. Jay Morrison is the founder of the Jay Morrison Academy, a company that “gives people from underserved communities the financial education they’ve historically missed out on.”
The academy is based in Atlanta and teaches the power of wealth building, homeownership, and financial literacy. The goal is to empower people from all backgrounds to create generational wealth and enjoy the freedom that comes with it. Before founding the Academy, Morrison was a successful real estate investor, a three-time felon, and high school dropout. Now Jay uses his life experiences and personal story of triumph over incredible odds to inspire other people – from at risk-youth to ex-offenders to real estate professionals – to achieve their own personal American Dream.
The TREF is his latest and largest endeavor. The fund launched its initial public offering on June 1, 2018, providing the everyday person with a unique investment opportunity that was not previously available to them. The fund is a $50 million dollar Regulation A+ Tier 2 real estate crowdfund that finances urban redevelopment around the world, but primarily in the United States. So far, the fund has raised about $6 million, or 12% of its goal.
“This 21st century crowdfunding vehicle, allows members of the community, institutions, and advocacy groups to own an equity stake in redevelopment projects funded by Tulsa Real Estate Fund. We call this "Participation Pass Donation." Every investor (Both Accredited and Non Accredited) will have an equity interest in every project that they invest in, which enables us to take control of our community, circulate our dollars within, take pride in our neighborhoods and unite around our common goals.”
The name of the fund is a reference to the Black Wall Street of Tulsa, Oklahoma in the early 1900’s. During the oil boom of the 1910s, the area of northeast Oklahoma around Tulsa flourished, including the Greenwood neighborhood, which came to be known as "the Negro Wall Street" (now commonly referred to as "the Black Wall Street"). The term "Negro Wall Street" was coined by none other than famed African-American author and educator, Booker T. Washington.
At the time, the Greenwood District was home to dozens of prominent African-American businessmen. Greenwood boasted a variety of thriving businesses that were very successful up until the events known as the 1921 Tulsa Race Riot. In fact, the district was so successful that a dollar would stay within the district an estimated nineteen months before being spend elsewhere. Not only did black Americans want to contribute to the success of their own shops, but there were also racial segregation laws that prevented them from shopping anywhere other than Greenwood. Following the events known as the 1921 Tulsa Race Riot, the area was rebuilt and thrived (with more than 100 MORE African-American businesses in place than there were before the riot itself) until the 1960s when desegregation allowed blacks to shop in areas from which they were previously restricted.
So what does all of this mean to you, today? This is the first time that an investment opportunity of this kind is being offered to the public for investing in urban areas that traditional real estate funds would neglect. However, like all investments, there are some key risks to consider before making the decision to invest. Here is a general overview of fund’s structure, risk factors, and it’s return goals.
Per the investment prospectus filed with the SEC, the fund will purchase single, multi-family, commercial, industrial, and office properties that are cash flow positive (monthly rent income exceeds monthly expenses such as mortgages, operating expenses, taxes, insurance, maintenance, etc.). Depending on how positive the cash flow is will determine if management purchases the property or not. The company has not disclosed a hurdle rate or a target minimum cash flow number.
The fund manager has full-range to invest in any properties that he thinks will be profitable, and is not obligated to get voter approval from investors.
The fund is offering a 1,000,000 Class A shares for $50 per share to raise a goal of $50 million. The minimum investment in the fund is 10 shares, or $500. This investment will remain in the Company’s segregated account for up to 180 days from the first date of deposit, meaning investors won’t be able to liquidate their positions for at least 180 days after deposit.
The fund will pay investors a preferred annualized 8% return (not compounded), as well as 50% of profits that the fund makes. The fund manager will take a 5% management fee monthly, and split the other 50% of the profits.
Investors will receive their 8% preferred return before management fees and profit splits. Note that these returns are not guaranteed, and will be made available according to the profitability and performance of the fund’s investment.
The fund will not pay investors their 8% preferred return or 50% profit share until after 12-18 months of investment. Afterwards it will be paid monthly.
The 8% annual return is comparable to the return an investor might achieve from traditional buy-and-hold real estate investing (although some investors earn much higher than 8%).
Like all investments, there are risks that investors should consider before investing money. The company outlined the following risk factors in their public filings (it is necessary reading the entire prospectus before investing):
- We are significantly dependent on Jay Morrison. The loss or unavailability of his services would have an adverse effect on our business, operations and prospects in that we may not be able to obtain new management under the same financial arrangements, which could result in a loss of your investment.
- Our business plan is significantly dependent upon the abilities and continued participation of Jay Morrison. It would be difficult to replace Jay Morrison at such an early stage of development of the Company. The loss by or unavailability of his services would have an adverse effect on our business, operations and prospects, in that our inability to replace Jay Morrison could result in the loss of one's investment. There can be no assurance that we would be able to locate or employ personnel to replace Mr. Morrison should his services be discontinued. In the event that we are unable to locate or employ personnel to replace Mr. Morrison we would be required to cease pursuing our business opportunity, which could result in a loss of your investment
- We are an emerging growth company with a limited operating history
- We were organized in July 2016 and have not yet started operations. As a result of our start-up operations we have; (i) generated no revenues, (ii) will accumulate deficits due to organizational and start-up activities, business plan development, and professional fees since we organized. There is nothing at this time on which to base an assumption that our business operations will prove to be successful or that we will ever be able to operate profitably. Our future operating results will depend on many factors, including our ability to raise adequate working capital, availability of properties for purchase, the level of our competition and our ability to attract and maintain key management and employees.
- The profitability of attempted acquisitions is uncertainy
- We intend to acquire properties selectively. Acquisition of properties entails risks that investments will fail to perform in accordance with expectations. In undertaking these acquisitions, we will incur certain risks, including the expenditure of funds on, and the devotion of management's time to, transactions that may not come to fruition. Additional risks inherent in acquisitions include risks that the properties will not achieve anticipated sales price or occupancy levels and that estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate. Expenses may be greater than anticipated.
- An investment in the Interests is highly illiquid. You may never be able to sell or otherwise dispose of your Interests.
- Since there is no public trading market for our Interests, you may never be able to liquidate your investment or otherwise dispose of your Interests. The Company does currently have a redemption program, but there is no guarantee that the Company will ever redeem or "buy back" your Interests. Further, no one is allowed to redeem their Interests until twelve (12) months after the Interests were purchased. The Company will only redeem Interests up to 5.0% of the value of the assets as calculated on December 31 of the prior year.
- Investors will not receive the benefit of the regulations provided to real estate investment trusts or investment companies.
- We are not a real estate investment trust and enjoy a broader range of permissible activities. Under the Investment Company Act of 1940, an “investment company” is defined as an issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis.
- We intend to operate in such manner as not to be classified as an "investment company" within the meaning of the Investment Company Act of 1940 as we intend on primarily holding real estate. The management and the investment practices and policies of ours are not supervised or regulated by any federal or state authority. As a result, investors will be exposed to certain risks that would not be present if we were subjected to a more restrictive regulatory situation.
- Subscribers will have limited control in our company with limited voting rights. The Managing Members will manage the day to day operations of the Company.
- We may require additional financing, such as bank loans, outside of this offering in order for our operations to be successful.
- We have not conducted any revenue-generating activities and as such have not generated any revenue since inception.
- Our offering price is arbitrary and does not reflect the book value of our Class A Interests.
- Investments in real estate and real estate related assets are speculative and we will be highly dependent on the performance of the real estate market.
- Our independent auditors have expressed substantial doubt about our ability to continue as a going concern in the independent auditors’ report to the financial statements included in the Offering.
- The Company does not currently own any assets
- Our Manager will have complete control over the Company and will therefore make all decisions of which Members will have no control.
It is important to know that you should not be investing any money that you cannot afford to lose. In the case of the TREF, you should only be investing if you feel comfortable with the risk-to-reward offering, management's investment policy, and are able to have [at minimum] $500 tied up into an account for 12-18 months with no return. The risk of losing all your money is always present.
I will personally be investing in the fund because of what it represents for African-American wealth and my confidence in Jay Morrison’s ability to manage a real estate investment company, which he has proven with his personal track record. My decision to invest is based upon my own analysis, and financial ability to invest. This is not a recommendation or promotion to investment in this fund, so please do your own research and decide if this investment is right for you.
- Alex James, Founder