Jay Morrison, Real Estate Investor and Community activist launched The Tulsa Real Estate Fund or TREF on June 1st. TREF is a black owned crowdfund aimed at “buying back the block” in an effort to regain ownership in black communities. In its first week the fund managed to accumulate just under $10 million which is very impressive. Anyone is able to join for just $500 or 10 shares. Members who joined from June 1st through the June 19th will be honored as founding members.
Although this is a great idea, just like any investment it must be thoroughly vetted. I have talked to numerous people who are interested in becoming investors in addition to reading social media commentary and what I have come to realize is that many people do not have a good grasp of investing as a whole let alone investing in a crowd fund. Anyone who is not experienced in investing needs to be equipped with a broad knowledge base before committing a penny to any money making venture.
Minimum Purchase $500 or 10 shares
1 year lock up (Prevents selling of shares for one year)
Dividend payout - Quarterly
Preferred Returns - 8%
Fund Fees - 5.5% taken out of initial raise before 8% return/Than 50% amount above 8% return
These fund facts are what many people are glossing over without understanding the true interpretation. Many funds specifically mutual funds have a minimum purchase amount, so this here is not unusual. The one year lock up period is a little long as normal IPOs have lockups of 90 to 180 days. What I really want people to pay attention to is the 8% “preferred” return. What exactly does “preferred” mean? No one can say exactly at this time. Lastly and what may be the most unsettling to me is the fact that 50% of the fund gets paid out in a fee to fund manager who is Jay Morrison himself. Mr. Morrison only pledged $10,000 of his own funds and is the sole controller of the fund’s capital. Entities of this size usually have a board of directors or a group of decision makers. I myself have personally invested with Mr. Morrison myself so I can speak from an experienced perspective.
Let’s break down the numbers. 8% on $500 is a return of $40 per year. Not a hefty sum of money but at the end of the day your money is working for you. I do not think anyone should be putting their only $500 into this investment. I urge anyone who does not have an emergency fund to establish that first. After the first $1,000 is accumulated than begin to educate yourself on different types of investments while still continuing to build your emergency fund.
According to the SEC circular this is a growth company that has zero track record. It is very different from investing in a company that has been around for decades and earned millions for its investors over that time.
“We are an emerging growth company organized in July 2016 and have recently commenced operations, which makes an evaluation of us extremely difficult. At this stage of our business operations, even with our good faith efforts, we may never become profitable or generate any significant amount of revenues, thus potential investors have a high probability of losing their investment.”
Additionally, there is no clear plan for the fund. What projects are TREF targeting? How soon will the capital be allocating to purchasing any asset? Lastly, the company is going to leverage $10+ million to gain more capital for investments. This means the creditor must be paid back before the investor. I feel $10 million is enough to go out and fund projects without taking on more debt to capitalize these endeavors. Just another thing that needs to be heavily considered before investing in TREF.