Crowdfunding in commercial real estate
By: J. David Chapman/October 27, 2016
In 1997, a British rock band funded a reunion tour through online donations from its fans. This may have been the first example of a concept now known as crowdfunding. The crowdfunding industry has quickly emerged as a popular option for entrepreneurs to validate their ideas, gain exposure, and acquire funding. Crowdfunding revenues have grown from $530 million in 2009 to more than $34 billion in 2015.
It was only a matter of time until someone thought of using the platform to fund a real estate project. The JOBS Act in 2012 gave real estate investors the green light from government regulators to begin funding real estate projects using crowdfunding platforms. The legislation allows non-accredited investors to back private companies. Before the legislation, accredited investors – those with a net worth of at least $1 million – were the only ones allowed to invest. The law went into effect in 2014, and in 2015 over $2.5 billion was raised via the platform to fund real estate projects.
I had the opportunity to visit this week with Ashley Smith, who along with Tim and Marylee Strange, is adding convenience and efficiency to the fragmented commercial real estate crowdfunding platforms with their new company called CrowdSeekr.
Smith describes crowdfunding as a disruptive technology that is fundamentally transforming real estate investment. Many people still confuse the new platforms with early online fundraising efforts such as Kickstarter, not recognizing that today’s crowdfunding companies attract institutional-quality commercial real estate assets for private equity, peer-to-peer investment.
It can be extremely difficult to get your real estate deal, product, or development listed on a good crowdfunding platform. Managers of the platforms are incented to place high-quality deals, with the probability for good financial returns, on their sites to keep the investors coming back for more. Even with the check-and-balances, the industry still lacks the sophistication of Wall Street and due to the proliferation of real estate platforms, investors may feel overwhelmed by the prospect of registering and searching on dozens of websites.
Crowdseekr’s proprietary technology customizes searches of deals from multiple platforms revealing investment opportunities that match the investor’s desired results. We can be proud that a technology company right here in Oklahoma City is making its mark in this rapidly growing and maturing industry.
J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).