Capital from the Crowd
- Jul 02, 2015
Crowdfunding has seemingly taken the world by storm, with individuals and companies turning to the Web to raise money for everything from a friend’s medical bills to Greece’s national debt. With $16.2 billion raised globally to date, it’s not surprising that the portion directed at commercial real estate investment has grown to more than $1 billion.
For the real estate sector, the concept introduces a host of new opportunities, along with a slew of new concerns. On the concern side: Who are the new companies being formed? What’s their investment track record? What kind of risks are they taking relative to the returns? How much do the individual crowdfund investors know about real estate, and where are they getting their information? And 10 years from now, which companies will be left, and what exit strategies will be available? (The once popular tenant-in-common deals come to mind.)
On the opportunity side: Quite simply, this opens up a whole new source of investors, especially for smaller and more complicated deals that may not attract the more established investment crowd. And according to Fundrise co-founder & president Dan Miller, crowdfund investors are stepping cautiously, observing and asking questions for several months before taking an active role in any deal. Furthermore, in some cases they are investing alongside more established real estate players and even company principals.
Certainly, it pays to be cautious. At the same time, the deals are starting to involve more significant assets and companies, which are lending further credibility to this rapidly growing sector. So where does it go from here? Who knows—next year, a crowdfunding deal might even be a contender for CPE’s Distinguished Achievement Awards.
Speaking of the awards, this year marked the inauguration of our Best Design category, and we welcomed a number of leading architecture and design experts to evaluate the variety of deals it attracted. The winning entries stood out for their uniqueness, including such characteristics as, in one case, cantilevered concrete slabs, and in the other, a resemblance to an aircraft hangar coupled with a carbon footprint smaller than a Prius. Other awards this year went to a lease and a development that transformed their markets, a bridge loan that helped revitalize an almost dead project, property management strategies that transcended the experiences of even the highly expert teams that devised them, and game-changing mergers and acquisitions. Their stories are worth a review.