Great insights into the changes crowdfunding is bringing to real estate...
The Power of Crowdfunding in Real Estate
Within a decade, they expect online fundraising to become not just accepted, but ubiquitous throughout the industry, as part of a multi-channel approach that will include both traditional sources such as banks and private equity firms, and a direct-to-investor channel.
“What we’re really talking about is the modernization of how you fund commercial real estate,” said Darren Powderly, co-founder of CrowdStreet, a three-year-old Portland, Oregon–based firm that provides an online platform for real estate developers and managers to raise capital from investors. “Ten years from now, it’ll be a no-brainer. People will be saying, ‘Of course, I raise money online.’ ”
In some ways, CrowdStreet exemplifies the conceptual evolution of real estate crowdfunding. The venture capital–funded startup’s main thrust has been building a marketplace in which institutional-quality real estate investments—both debt and equity—are offered to a database of accredited investors. In that fashion, CrowdStreet has done 40 deals with an average raise of about $850,000, Powderly said. “We could have done 400 deals, but our marketplace is highly curated,” he said. Last year, CrowdStreet debuted a new product called Sponsor Direct, a “white label”—that is, rebrandable—version of its software that allows developers to do crowdfunding on their own websites as well.
According to GeekWire, more than 20 real estate firms already are using it. “Clearly, technology is dis-intermediating, disrupting,” Powderly said. “This is happening in every industry. It’s shocking that it isn’t happening even more rapidly in our industry, commercial real estate. But it is happening.” Panel moderator Martin S. Burger, chief executive of New York–based real estate development, investment, and management firm Silverstein Properties, said that one of crowdfunding’s advantages is the potential ease of providing investors with documentation.
As an example, he cited the platform developed by Fundrise, which allows investors to pull up information such as construction budgets and commitment letters for projects. “You could touch the transaction,” Burger said.
