Ms. Maryse Mills-Apenteng
United States Securities and Exchange Commission
Division of Corporate Finance
100 F Street, NE
Washington, DC 20549
March 10, 2022
RE: Groundfloor Real Estate 1, LLC Post Qualification Amendment No. 27, further correspondence.
Ms. Mills-Apenteng,
Pursuant to more recent discussions with staff, the issuer proposes to add the following risk factor to Post Qualification Amendment No. 27 and seek qualification of the same. The proposed risk factor follows:
The company could be found in violation of Section 5 of the Securities Act. The Company may be required to repurchase LROs that were sold prior to qualification of this post-qualification amendment.
This Post Qualification Amendment was originally filed on October 20, 2021. The Company filed for the sale of $38,584,150 of LROs through this Post Qualification Amendment. A total of $17,211,580 of these LROs have been sold to date to 9,877 purchasers. Shortly after filing this Post Qualification Amendment, the staff of Securities Exchange Commission’s Division of Corporation Finance emailed a letter to the Company, dated October 28, 2021, in which they indicated they did not intend to review the amendment and that qualification could be requested. Due to the Company’s oversight, qualification was not requested. The Company nonetheless commenced sales of LROs from this PQA shortly after receipt of the above referenced letter from the Commission. As a result, the original Post Qualification Amendment was not qualified for sale at the time that sales commenced, which is a possible violation of Section 5 of the Securities Act of 1933, as amended. Pursuant to Section 5 of the Securities Act, an issuer may not commence a public offering of securities without an effective registration statement or an exemption. By failing to qualify the offering under the PQA with the SEC prior to making offers and sales of the LROs, Section 5 was possibly violated since the offering of LROs did not meet the requirement for qualifying the LROs as exempt securities pursuant to Section 3.
Because the company could be found in violation of Section 5, the purchasers of the LROs may have a right to rescind their purchase for up to one year from the date of purchase. The Company does not admit any wrongdoing or liability in connection with this PQA’s LRO sales prior to qualification. However, the Company may be forced to offer all such purchasers a right of rescission of their purchase. The total exposure to the Company is approximately $17,211,580. If all purchasers requested a rescission of their purchase, it would likely have a material adverse effect on the Company’s liquidity and capital resources and results of operations. In addition, the Company may be forced to liquidate other assets, slow loan origination and seek other financing to fund the rescission offer, which may not be available on terms we consider favorable.
Should you or any other staff have questions, please contact me at 202-758-8041.
Thank you.
Nick Bhargava
Groundfloor Finance Inc.
Member / Manager of Groundfloor Real Estate 1, LLC