A rendering of the proposed New York Wheel on Staten Island. (Perkins Eastman via The New York Times)
Investing in stocks is at times compared to a thrill ride - a rocket ship taking off, or a roller coaster rushing down.
The comparison may be more apt than usual for a new investment - a 630-foot Ferris wheel under construction on Staten Island - that soon will be marketed via a Wall Street version of crowdfunding.
Project leaders of the New York Wheel, which has already raised about $450 million in equity and debt, plan to seek another $30 million through North Capital Private Securities, a Utah broker-dealer that intends to sell some of the new shares via its 99Funding online crowdfunding platform and other crowdfunding sites.
Crowdfunding on websites such as Kickstarter has allowed people and organizations to raise money for various projects from supporters who don't have any formal economic interest in the ventures.
Numerous online venues, often in partnership with smaller and midsize securities firms such as North Capital, have adopted provisions of the Jumpstart Our Business Startups Act of 2012, or JOBS Act, which loosened restrictions on stock sales by business startups.
Jim Dowd, founder and chief executive of North Capital, said he believed the $500 million New York Wheel project "is going to be the largest transaction we're aware of that has crowdfunding."
The sale of these new shares is possible under a JOBS Act provision that went into effect in 2013, allowing private stock sales to "accredited" wealthy investors who meet certain income or net-worth tests.
While some of the shares will be sold conventionally by brokers, Dowd said, other shares will be sold through 99Funding to "self-directed investors," those who sign up on their own. He said the offering was planned for a 90-day period before the year's end.
The New York Wheel was originally backed by a group of wealthy investors including the real estate moguls Jeffrey Feil and Lloyd Goldman and the Jordache jeans magnate Joseph Nakash, said Rich Marin, the project's chief executive. A sprawling outlet mall is also planned nearby.
Marin and Dowd are longtime business associates who both previously worked at Bear Stearns and Bankers Trust. North Capital plans to add up to a dozen other crowdfunding sites to participate in the fund-raising, and expects to set a minimum investment size of $5,000 to $10,000, Dowd added.
Construction on the wheel began in May, after the project raised $195 million in senior debt from the Highbridge Capital Management hedge fund unit of JPMorgan Chase, and $150 million in additional debt from CanAm Enterprises, under a U.S. program that allows foreign nationals - CanAm investors, in this case - to gain legal residency in the United States by making job-creating investments. Another $24 million is due next month from the CanAm investors.
One sign of risk associated with the project is that the Highbridge debt carries an interest rate of 10.25 percent. But the CanAm interest rate is just 2.75 percent.
An earlier effort at selling stock to round out financing for the wheel - which began last fall by another securities firm, Houlihan Lokey - raised $31 million, falling about $15 million short of its target, Marin said. The project's original backers invested about $80 million, he added. The Houlihan sale was cut short by the New York Wheel project leaders, who needed to close other components of the financing - curtailing Houlihan's time to try to raise the remaining funds.
The ability of startups to raise money via crowdfunding is expected to expand further once securities regulators complete the rules under another part of the JOBS Act that will allow businesses to raise funds from accredited and unaccredited investors.
Dara Albright, a crowd-finance expert who co-founded the LendIt and FinFair conferences on alternative finance, cautions investors not to lose sight of the inherent risks in such ventures, especially because these investors don't typically get the same amount of information about sales, profits and other business metrics that public companies are required to disclose.
"These things are risky," she said.