[CORRECTION: This story has been edited from a previous version to fix inaccuracies and clarify statements about NYCE. It has since been republished.]
NYCE. is part of a Regulation Crowdfunding effort by a Danish real estate investor and author, backed against a $57 million real estate development pipeline. The aim is to buy and build urban real estate and create wealth in America’s minority community. And now you can invest in NYCE. through the WeFunder platform.
To date, NYCE. has raised more than $513,000 from 90% first-time investors of color, resulting in coverage from CNBC, The Guardian and Forbes. The man behind the company is Philip Michael, a real estate entrepreneur with an active Instagram following.
His book, “Real Estate Wealth Hacking”, describes how he turned $500 into $1 million in assets. This started by putting the minimum 3.5% down payment on FHA mortgages. He argues that the racial wealth gap can be narrowed by young people using debt to leverage a minimum of equity into managed property.
“The number one driver behind the wealth gap is absence of home ownership,” Michael tells InvestorPlace. “That’s what we want to change.” Michael says the company plans to convert the Reg CF offering to a Regulation A offering with a $50 million cap. “When it comes to real estate ownership, the barrier to entry is minimal,” says Michael. “Saving $500 a month for six months is enough to get you nearly $100,000 worth of real estate.”
NYCE. would use its money to build out properties alongside his partner — his nephew Martin Braithwaite, also Danish-born, currently playing for FC Barcelona.
Philip Michael is a 36-year old Danish-born entrepreneur in New York. He had a brief stint as a boxing announcer, but he quickly took his writing talents to Bisnow, which now focuses on commercial real estate and is owned by the private equity firm Wicks Group.
An article he wrote at Entrepreneur in 2018 describes a “little-known loophole” for investing in real estate. It uses the 1031 Exchange, a method of swapping property tax free to defer capital gains. It also uses Section 721 of the tax law to turn 1031 cash into a fund.
Crowdfunding grows it into something that can make significant deals. The idea is to hold as many assets as possible with a minimum of cash and re-invest the capital gains.
While Braithwaite’s football career has drawn some media attention to NYCE., the company is basically a crowdfunded piece of Michael’s real estate action.
The risks of NYCE. are obvious when you look around. The novel coronavirus pandemic has had a dramatic impact on urban real estate, especially where the company is investing. That could spell opportunity if the company can buy now at low prices.
But NYCE. is investing in rental properties, in markets that currently suffer from very high unemployment. Real profits could be some years away.
“Real estate has been exposed to a large degree, especially retail, office and hospitality,” writes Michael. “We seek to hedge against that by targeting areas with recession-proof dynamics such as NYC rentals and student housing at a top school and high demand.”
According to NYCE’s WeFunder page, which shows Michael and Braithwaite in street wear, the $25 million dollar company wants to raise $50 million through a Reg A offering backed by rental property in Jersey City and Philadelphia. As of July 21, 48% of the $1.07 million of startup capital had been raised through its Reg CF offering. Initial funds would go into digital ads, the rest into operating the business.
Michael says he has already turned $850,000 of cash into $10.2 million in assets, through subsidiaries. The WeFunder page claims NYCE. has $57 million in projects under development, one of them 60% complete.
Attorney Dmitriy Ishimbayev serves as NYCE’s general counsel and sits on the board of directors. He did some work writing about the redevelopment of the London Olympics site while at New York Law School, and has a business degree from Brooklyn College.
The Bottom Line
What makes NYCE. different from 1,000 other young real estate go-getters is the pitch. It explicitly attracts people of color, promising to create a proprietary “Robinhood-like app,” hoping to create 100,000 millionaires of color by 2030.
“It’s not just black men. We want to create a wealth ecosystem for people of all colors,” Michael clarifies. “I always say that wealth is a function of the conversations around the dinner table. Minorities haven’t invested, which has contributed to wealth gap in this country. So that’s the obvious place to start. My ideal scenario is to create a system where color is rendered moot. Which I truly believe it is.”
Most of the WeFunder page consists of testimonials from investors, talking about the mission and dreams of wealth.
You can find hundreds of small companies investing in real estate, even urban real estate. But you won’t find many with Michael’s brash pitch, or high ideals.
That doesn’t mean you’re investing in ideals. To invest in NYCE. means buying into real estate and Michael’s wealth system. Read his book and kick the tires on his deals before making your decision.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks