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Real Estate Crowdfunding to top $2.5B in 2015

By Zachary Zagger

Law360, Los Angeles (March 03, 2015, 10:00 AM ET) - - Real estate crowdfunding grew 156 percent in 2014, passing the $1 billion mark, with further growth expected this year as a result of growing investor confidence in crowdfunding platforms as an alternative to traditional banking, according to Massolution's Crowdfunding for Real Estate report released Tuesday.

In the 158-page 2015CF-RE Crowdfunding for Real Estate report, Massolution said 2014 saw real estate crowdfunding campaigns ranging from less than $100,000 to over $25 million emanating from 85 active real estate-focused crowdfunding platforms, both nascent and mature.

The report expects real estate crowdfunding to clear $2.5 billion in 2015, more than double 2014's total, but said that even this optimistic outlook could be understated as there a "few potential breakout opportunities globally" for the industry.

"From so many vantage points, real estate crowdfunding appears destined for explosive growth domestically and globally," the report said. "As this is one version of a 'shared economy' applied with financial services, the ability to aggregate disparate capital into larger endeavors efficiently should give rise to more projects funded, more developments given a chance to manifest, and investors being able to allocate investment portfolios more broadly."

The report said that in many ways, modern-day real estate crowdfunding harks back to the real estate syndication model of the 1980s but uses technology to broaden the reach and efficiency in capital formation.

"And now we see the entrance of the crowd and online intermediation," the report said. "Whether consisting of natural persons or fund managers, the crowd is demonstrating an appetite for real estate, and crowd-based platforms are seemingly savoring and addressing the growing need .... The use of technology and information dissemination bodes well for fragmented capital to find an increasing exposure in real property investments."

In addition, the report pointed to new regulations implementing Title III of the Jumpstart Our Business Startups Act - which would allow true crowdfunding for companies from the general public but would cap the amount that can be raised at $1 million - as likely to increase the market for crowdfunding but said it will depend on the look of the final rules, not set to be released until late 2015.

Further proposals could also have an effect including a revival of measures from the last Congress including the StartUp Capital Modernization Act of 2014, which would increase the limit for general public solicitations to $5 million, the report said. Still, the report noted that the regulatory uncertainty on the federal level has not stopped some states from opening up intrastate crowdfunding platforms.

"Once the rest of the JOBS Act provisions have been finalized by the SEC, we expect to see even more raises done through online crowdfunding platforms for real estate and other industries," Scott Picken, founder and CEO of crowdfunding platform Wealth Migrate, told Law360. "Real estate is the fastest growing segment within investment crowdfunding, and the Title II provisions have significantly contributed to this growth."

Other experts told Law360 that they were optimistic for the overall real estate crowdfunding industry, saying it will playa bigger role due to new technology and the sentiments of younger investors.

"I agree that a certain robustness permeates the business environment for accredited investor crowdfunding," attorney Lewis G. Feldman, co-chair of Goodwin Procter LLP's crowdfunding practice, told Law360. "Crowdfunding is simply the logical manifestation of applying financial technology to private investments, similar to that which brought securities trading, banking, wealth management, manufacturing presales and charitable giving online."

Feldman said young investors are more comfortable with using online tools to purchase and invest. Younger home purchasers are looking to communicate more quickly and fluidly through new technology, and that speed of information has become increasingly important to investors regardless of age or demographic. Crowdfunding accounts for these needs and does so at a lower cost, he said.

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