Should Real Estate Developers Care About Crowdfunding?August 12, 2015
Crowdfunding has come to commercial real estate investment, and is making itself at home. The 2012 JOBS Act In United States, helped clear the way for the online purchase of real estate assets, and today savvy real estate developers are using this alternative funding approach to connect with likely investors across the country. They’re finding that crowdfunding is an alternative solution for funding when other – more traditional – approaches are becoming harder and harder to secure.
Real estate crowdfunding is going mainstream, and has grown tremendously over the last few years. In fact, the industry has generated over $1 billion in real estate revenue in 2014, and that number is predicted to top $2.5 billion this year. Projects that have been funded in this way range in value from $100,000 to $25 million, yet most are in the $1-4 million range. Many of these projects would be considered too small to attract the attention of big investment players and REITs, so before crowdfunding they might have languished on the shelf for lack of support.
Why Should Real Estate Developers Care?
For real estate developers, crowdfunding offers a wealth of benefits that we don’t normally see with traditional funding methods. Among those benefits are transparency, faster funding, greater access to investors and capital, and a “captive audience” for pitching deals.
Take transparency, for example. Crowdfunding platforms allow investors and developers to connect in ways they never have before. Investors can view all aspects of the deal prior to investing, and developers have a streamlined platform by which they can display the details of their projects. The second benefit – faster funding – is the mainstay of the crowdfunding initiative. When you use the resources of a “crowd”, deals can move forward at lightning speed. This increase in funding time reduces the risk of developers missing opportunities because funding did not come through fast enough.
And then there is the connection of investors to developers. These platforms allow developers to reach a wide pool of investors from across the country – investors who have already shown an interest in investing in potentially profitable projects. In essence, it’s a captive audience that has already made their intentions know. No longer do developers have to rely on their personal or professional connections to get deals funded.
Real Estate Crowdfunding for the 21st Century
The popularity of crowdfunding for real estate represents the larger shift in thinking about how the Internet can help make transactions more efficient and inexpensive. It will no doubt have some influence on banking as a whole, though it is unlikely that it will replace traditional institutions anytime soon. Crowdfunding platforms are looking for this type of funding option to open up new opportunities to developers, as well as small individual investors looking to participate in the commercial real estate market.
Author credit: Realconnex