Raising capital has taken on new life with crowdfunding.
Traditional ways of raising capital by creating a business plan, building a prototype and shopping it around to private investors have widened as crowdfunding – a way or raising capital online through the collective effort of individual investors – gains popularity. From multi-family projects to flex office and even Class A, trophy properties, owners and developers are using the power of technology to secure capital.
NAIOP is featuring a panel on crowdfunding at the upcoming Commercial Real Estate Conference 2015, this October in Toronto. Mark Roderick, shareholder with Flaster/Greenberg PC, chatted with NAIOP about what crowdfunding means to CRE.
NAIOP: How is crowdfunding used for real estate investment?
Roderick: Simply put, a sponsor lists a deal on a crowdfunding site and investors choose whether to invest. The difference from traditional efforts is that this is all done online. In almost all deals today, only accredited investors may participate, although that’s changing soon.
Probably 90 percent of the business crowdfunding being done today is in real estate. You can invest in everything from single-family fix-and-flips to a high-end hotel in San Francisco to Three World Trade Center. You can invest in short-term, hard money loans, first mortgages, mezzanine debt, equity and everything in between. Together, real estate crowdfunding sites will probably raise $1 billion of capital in 2015 – a drop in the bucket in the total market, but growing exponentially. Every real estate project can potentially be funded through crowdfunding.
NAIOP: Name some of the most popular and useful online tools.
Roderick: There are a wide variety of popular crowdfunding sites today, but here are just a few: Fundrise, RealCrowd, Patch of Land, iFunding, Realty Shares and Realty Mogul. Each has its own perks and benefits for both owners and investors.
NAIOP: Provide any examples of extraordinary success for a crowdfunding initiative.
Roderick: Today, deals listed on the top crowdfunding sites are often sold out in 15 minutes. Given how far we’ve come and how quickly, that’s extraordinary! It’s important to be mindful in crowdfunding: 1) Invest through a reputable site. Do your homework. 2) Diversify. Don’t be afraid to invest in something new or out of the ordinary. 3) Understand the risks associated with real estate investing.
Tweet Roderick in advance of CREC ’15 – @crowdfundattny – and start the conversation early. Hear more from his top panel discussing Crowdfunding: New Ways of Raising Capital at the Commercial Real Estate Conference, October 13-15, in Toronto. See the conference website for details on who attends, hot sessions and project tours.
