Written by The Business Journal Staff
Craig Scharton on Thursday announced the formation of Fulton Street Investors, LLC, with the goal of raising up to $5 million during the fund’s first year to purchase, renovate and lease downtown properties. He said Fulton Street Investors is likely the first investment product in the Central Valley to use a direct public offering model to raise capital.
At a presentation he hosted at the Pacific Southwest building in Downtown Fresno, Scharton called the program “the secret sauce for revitalizing Downtown.”
Direct public offerings differ from more conventional investment opportunities that are typically regulated by the federal Securities and Exchange Commission. To participate in certain securities, an investor must be “accredited,” meaning he or she must have a net worth of at least $1 million, excluding a primary residence, or have income of at least $200,000-$300,000 annually.
“What it really means is a lot of people more in the middle class can now invest alongside accredited investors and have the same kind of opportunities,” Scharton said.
Scharton said Fulton Street Investors will be open to institutional and accredited investors and up to 500 non-accredited investors. The amount non-accredited investors can put up depends on their net worth.
At the high end, people with minimum net worth of $250,000 and minimum gross income of $65,000 can invest up to 10 percent of their net worth, as can people with a minimum net worth of $500,000 irrespective of income.
At the low end, a person with minimum net worth of $30,000 and minimum gross income of $30,000 can invest $500.
Investors will be paid quarterly dividends from leases on properties the group purchases and will reap additional future gains through the sales of properties the group renovates and eventually resells.
Scharton said that Fresno Chaffee Zoo CEO/Director Scott Barton was “investor no. 0001. Scott was the first person to step up to the plate,” Scharton added.
Scharton, a former City of Fresno official who has been at the forefront of Mayor Ashley Swearengin’s downtown revitalization movement, said Fulton Street Investors has been 10 years in the making. The project really picked up steam when Oakland-based law firm/financial advisory firm Cutting Edge came on board. The firm specializes in direct public offerings, and reportedly in the space of a few years has gone from working on one to more than 30.
Direct public offerings often have a focus on community-based reinvestment, as does Fresno’s effort.
“Decades of disinvestment have led to a ghost town-like status in downtown Fresno, in sharp contrast to the abundant agriculture lands outside of the city,” wrote Andy Bamber, director of partnerships for Cutting Edge, on the firm’s blog. “Through the use of a DPO, the group will give Fresno residents a chance to invest in the underlying real estate at the center of the revitalization plan, and be a part of the city’s success.”
Scharton said Fulton Street Investors will target one- to three-story buildings in the downtown core. The group will purchase the properties, and working with local contractors and suppliers, renovate them and then lease them for a variety of uses including restaurants, retail, loft housing or creative office space, with an eye toward mixed use.
By first renovating the properties, Scharton said the group will bridge the gap often faced by downtown property owners who are hesitant to renovate their buildings without solid tenant commitments.
“I tour businesses around potential buildings on a weekly basis,” Scharton said. “One of the stumbling blocks is there aren’t a lot of fully renovated spaces. The owners are reluctant to bring them up to leasable conditions.”
“This fund really helps solve that problem,” added Scharton, who will earn up to $60,000 per year to be the fund’s manager. Scharton said Thursday that he would also purchase common shares in the investment group.
Veronica Stumpf with Fresno commercial real estate brokerage Stumpf and Co. is a Downtown Fresno proponent who has been involved in many downtown property transactions. She thinks this effort will address a growing interest in supporting downtown beyond shopping or living in the area.
“All eyes are on downtown — and not just out-of-town investors,” Stumpf said. “We are seeing a growing interest from local investors.”
“This seems like a good opportunity,” she added.