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Issue: 04/20/2015
Entrepreneurs Hope To Bring Crowdfunding To P3 Projects04/14/2015
By Aileen Cho
If a fledgling venture succeeds, members of the publicmight be able to participate in crowdfunded publicprivate partnerships for infrastructure projects.
Brian Ross, a former construction manager, conceivedthe idea in fall 2013 and formed a venture calledInfraShares with Pablo Nunez, an entrepreneur with P3experience in Europe and India. Ross envisions thatindividual investors will be able to peruse P3 projectsand make investments accordingly, through the websiteInfraShares.
Through his experience with P3s in waterwastewater,Ross says, "one common criticism was that foreign firmswere the main investors getting big returns, but there wasno investment opportunity for the local community."
Ross has been contacting numerouspublic and private infrastructurestakeholders. "The feedback is that itis a good idea, but they're not surehow the mechanics are going towork," he says. "P3s are rather new inthe U.S., and crowd funding is totallynew."
Morteza Farajian, program managerwith the Virginia Office of PublicPrivate Partnerships, last year led the writing of anacademic paper on crowdfunding and P3s as part of his
graduate thesis. The paper, submitted to the Transportation Research Board, notes that the 2012 JOBS Act "removedthe Securities and Exchange Commission's restriction on public offerings, allowing for 'crowdfunding' equityinvestment in new ventures. InfraShares allows P3 developers to raise equity from a broad base of individualinvestors, which increases public engagement and drives political support."
Says Farajian, "This could be the next wave that comes to project delivery." He says he and Ross discussed how toget state transportation departments to embrace the concept based on Farajian's study of actual P3 projects.
The InfraShares website is targeting qualified individuals and couples that have a net worth exceeding $1 million, notincluding the primary residence; an annual income of $200,000 in each of the two most recent years; or joint incomewith a spouse exceeding $300,000.
Once InfraShares partners with a P3 developer and launches a crowdfunding campaign, an accredited investor canread about it on the site and invest as little as $500. If the funding goal is reached, the investors all join a limitedliability company. Investor revenue would come from monthly interest payments; in the case of an equity investment,from user fees or availability payments; and a share of the proceeds when the asset is sold or refinanced.
Still in the prototype phase, the website does not yet have a list of projects. Ross says he has reached out to stateswith active P3 efforts, such as the proposed Purple Line transit project in Baltimore, the Pennsylvania P3 bridgebundling and Colorado's Interstate 70 project.
"SEC only just finalized the rulemaking on the crowdfunding legislation. How will we implement it?" Ross asks. "I'vebeen doing the deep dive on how this will work. I believe I've come up with solutions, but it's now a matter ofperception in trying to get the broader community to accept this as a viable concept."
One inherent challenge is that, while crowdfunding can raise millions of dollars, public infrastructure projects underP3s will cost billions of dollars, notes Brad Guilmino, national director of financial services at HNTB Corp. "I think thebigger thing is for individual investors to know how to analyze this asset and understand their risk factors."
Both Guilmino and Farajian note that the perceived social benefit of a project in one's community may be a big plus.
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4/22/2015 Entrepreneurs Hope To Bring Crowdfunding To P3 Projects | ENR
http://enr.construction.com/business_management/finance/2015/0420entrepreneurshopetobringcrowdfundingtop3projects.asp 2/2
"Individual investors [may] accept a lower rate of return due to lack of pursuit risk and perceived social return," statesFarajian's paper.
Public reluctance to raise the federal fuel tax to help fund projects has pushed the movement to develop userfeebased alternatives, and this idea can help further that discussion, says Guilmino. "[With this website], you can pickand choose an asset you believe in," he says.
Keywords: Crowdfunding; InfraShares; P3s; Bonds; Infrastructure; Investment
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