Online discount brokerage ZonicRealty.com Inc. has announced plans to file for a direct public offering of common stock to raise an estimated $3 million.
ZonicRealty — which currently has 22 sales associates in three New York markets — plans to sell 500,000 shares of common stock priced at $6 per share directly to the public.
The Saratoga Springs-based firm claims to be the first real estate company to do a "DPO." The company intends to file a registration statement with the Securities and Exchange Commission before the end of this quarter and expects approval of its DPO in the third or fourth quarter.
In an initial public offering, or IPO, a licensed broker-dealer typically acts as an underwriter and sells the company’s shares to the broker’s customers. In a DPO, the company saves the cost of an intermediary and can sell directly to anyone, including its own customers, employees, family, friends, suppliers and distributors.
One of the reasons ZonicRealty chose a DPO instead of an IPO was the opportunity to raise capital directly from its "affinity group," including customers and individual investors, Eric Eckardt, ZonicRealty’s founder and CEO, told Inman News.
A DPO also allows the firm to offer stock options to its employees, "so they can share in the success of ZonicRealty.com," Eckardt said.
In addition to minimizing cost, a DPO would allow ZonicRealty "to manage its distribution of shares while controlling the process, leveraging our strengths in social media where we have over 11,000 followers on Facebook alone," he added.
A DPO was also "an alternative to venture capital, allowing us with more flexibility and (a) broader investor base to target. Furthermore, I found banks weren’t lending, and if they were, we would be restricted by their financial covenants," Eckardt said.
Eckardt has a background in investment banking and is a founding partner at Veracrest Capital Partners, a financial advisory firm that specializes in DPOs for entrepreneurs and small businesses.
According to Veracrest’s website, a DPO "is in effect a self-underwritten initial public offering, meaning the company markets the offering itself without any restrictions on advertising, sales or qualification of investors."
As is the case with an IPO, companies undertaking a DPO are required to file a prospectus and a registration statement with the SEC. In many cases, audited financial statements are also required.
A DPO "does not automatically mean there will be a secondary trading market for securities on a securities exchange such as NASDAQ," Veracrest notes. But companies that choose to go the DPO route "can easily apply to have (their) securities traded by filing an application with a licensed broker dealer to trade on any quotation or trading exchange it qualifies for."
Once approved by the SEC, ZonicRealty intends to market the DOP "directly … to the public on its website and through various (Financial Industry Regulatory Authority) broker-dealers," the company said.
Proceeds from the offering will go toward the firm’s "national expansion strategy, additional technology development, and operating capital," the company said.
ZonicRealty launched on Jan. 1 of this year. The firm offers brokerage services at a reduced commission, offering sellers a commission fee as low as 4 percent and buyers a 20 percent commission rebate. The firm has no brick-and-mortar offices. Its agents collaborate through an online 3-D virtual intranet site called ZonicCloud and complete transactions paperlessly.
ZonicRealty also offers a social platform, Zocial, that links to Facebook and encourages homeowners to post about their home and neighborhood from their perspective.
"Our consumer-centric business model is designed to allow our firm to scale quickly while disrupting traditional real estate markets," Eckardt said in a statement.
ZonicRealty currently operates in three New York markets: the Greater Albany area, the Syracuse area, and Long Island. The brokerage has applied for licensing in Florida and California and expects approval by month’s end.
ZonicRealty plans to first expand to two Florida markets, Tampa and Sarasota, and one California market, Los Angeles. Elvis Wayland-Ortiz, currently registered as the broker for Re/Max Time Realty in Rancho Cucamonga, Calif., will be ZonicRealty’s broker of record in the Golden State. He plans to convert his team of 43 licensees to the ZonicRealty brand, though Eckardt conservatively estimates that ZonicRealty will have a total of 45 sales associates as part of its brand by the end of the month.