New U.S. Reg A plus funding rules that kicked in mid-June allow middle class mom and pop investors to have skin in a game previously open only to high net worth individuals and could have a major impact on how entrepreneurs grow their companies. “This is going to be huge and we want to get in early,” Steve Sadler, CEO of Allegiancy, a Richmond, VA, firm told the Wall Street Journal.
Allegiancy manages low rise office buildings, including properties in the Triangle, Greensboro, Winston-Salem and Charlotte. They include the Colonnade Center and the Wells Fargo Tower in Raleigh and the West Gate office building in Durham.
His firm did get in early, testing the waters by raising $5 million – the limit under previous Reg A rules – from 107 investors. The new Reg A rules allow businesses to raise up to $50 million in private equity and permit less wealthy middle class investors to participate. They also eliminate requirements for businesses raising more than $20 million to pay separate fees and file with the Securities and Exchange Commission and regulators in each state where investors buy shares.
Allegiancy now plans to raise an additional $30 million under the new Reg A rules and use the money to double its 19-person staff and expand its real estate assets under management from about $1 billion now to $5 billion. The company had $2.5 million in revenue last year.
Sadler says the new rules should have “A favorable impact on real people who want to grow a company and hire folks.” In the recent past, he notes, small businesses have had a tough time raising money. Banks are reluctant to lend, the regulatory burden of raising equity through traditional means is heavy, and “Sometimes it seemed like you couldn’t get a break.”
The new rules, which come from a provision in the 2012 JOBS Act, open up a much wider class of potential investors. “I think you’re going to see a lot of interest from companies you’d recognize,” Sadler says. “Successful restaurant owners who want to open new locations or try new concepts, the propane distributor serving farms who wants to create a larger brand. The rule change has the potential to kick-start some exciting activity.”
He adds, “Most of these things get off to a slower start than you might expect, but I think you’ll see a lot of people become believers in the next 12 to 24 months.
That’s important to the economy overall, he says. The public market cap is in the $15 to $20 trillion range, he notes, but the private market cap is more like $80 trillion. And private markets, Sadler says, are the job creation engine in this country.
Bullish on the Triangle
Some of the expansion Allegiancy wants to pursue is likely to take place here in the Triangle.
Sadler tells WRAL Techwire he’s bullish on the Triangle specifically and the South in general. That, he says, is because “There’s real value in the secondary markets beyond the buildings and properties themselves.”
For instance, if you go into a major market like Houston and buy office space, if the oil and gas economy falters, vacancies go up, fewer tenants are available and things can kick into a “death spiral.”
“The beauty of a town like Raleigh,” Sadler explains, “is that it’s not one-dimensional. It has solid, stable local government that understands the need to grow the business community, you have RTP, the universities and all those technology companies. For us, we always prefer to manage a product with more than one opportunity to succeed.”
Look at the Colonnade building where the recently sold Salix Pharmaceuticals is a major tenant. “In Raleigh, we have so many prospective tenants no one is fearful that the world’s coming to an end because a tenant might vacate the space.” In the case of Salix, which has a lease Sadler says is 20 percent under current market rates, it could even be a good thing. “But if a market is not firing on all cylinders, it might be different.”
Allegiancy web site: http://www.allegiancy.us/