Equity crowdfunding has demonstrated its ability to impact any number of industries. From restaurant chains to rental car companies to the mobile banking sphere, its capacity to transform startups is well-documented, and we’ve examined some of the biggest crowdfunding raises of recent years on this blog.
One of the industries on which equity crowdfunding has had the largest impact is real estate – transforming the possibilities of the industry in more ways than one. Today, we examine the marriage of the real estate and equity crowdfunding spheres, and how they will evolve in the rapidly changing economic landscape.
“The real estate crowdfunding market is only a few years old, but it has taken off” – University of Pennsylvania
The real estate sphere has been as renowned for high yields as it has for a lack of innovation. But the mingling of equity crowdfunding in its domain has affected different levels, from sales, to deal-making, in order to ultimately improve the user experience. The investing appeal lies in the asset class seeming less risky than other early-stage investments but still offering risk-adjusted returns. The UK and the US have witnessed continued growth in the real estate crowdfunding domain. Previously, real estate investment was a private realm, with access limited to a personal network – no longer.
The restrictive thresholds imposed by the pre-crowdfunding real estate industry excluded retail investors from the expansive market, and the inefficiency of this model has since been felt. In the US, the enacting of Title 2 of the JOBS Act, eliminating the restriction on general solicitation, enabled companies to publicly advertise offerings – it was no longer a matter of ‘who you know’, as a new domain of investors could access deals via mobile platforms.
Even veterans from real estate adopted the platform, recognising the potentials of this different category of investor finally tapping into the industry. Allowing millions of investors access to real estate has disrupted the game, in the best sense of the over-used term. The transparency that has resulted benefits all, as investors have access to a much broader array of information and material, and investment decisions are more informed than before. Marketing deals to a wide section of the public makes access to capital far simpler for operators and real estate companies alike.
“The advent of crowdfunding has definitively changed real estate investing in more ways than one and the effects have been largely positive.” - Forbes Magazine
The Success Stories
Crowdfunding real estate platforms have cropped up to unite a broad range of investors in this exciting industry. New Zealand has now seen its first real estate equity crowdfunding platform emerge in 2016, in Property Mogul. This followed a successful raise of £843,100 in 10 minutes by UK-based crowdfunding platform Property Partner, equaling £1311 a second. CrowdFund Insider claimed real estate crowdfunding may be “the hottest sector within the crowdfunding industry”. In New York, platforms like Money360, The Carlton Group, RealCrowd, and Patch of Land have all closed at least $3 million in funded rounds.
The big class of potential investors who have long wanted to tap into this industry can finally have their say, and these results demonstrate how active they can be.
As ever, critics have said that the inclusion of different investment classes could potentially have negative results for smaller investors, who don’t have the buffer of higher net income to protect against the risks traditionally associated with real estate investment. But this does a disservice to the investment nous of smaller investors, as it does to the benefits of having better access to material and information from an open raise. The inclusion of real estate crowdfunding at present goes a long way to the projections of the crowdfunding industry to hit $3.5 billion in 2016.