September 6, 2016
By: Alex Lassar, Senior Vice President
Though still a nascent sector, online crowdfunding platforms have proliferated in recent years as individual investors look for ways to get into the world of direct real estate investing. According to the Real Estate Crowdfunding Review, there are now more than 100 crowdfunding sites operating online.
That’s a pretty stellar growth rate considering crowdfunding for real estate wasn’t permitted prior to 2013. According to the Cambridge Judge Business School, investors channeled almost $500 million into real estate last year through such platforms.
While most crowdfunding sites cater only to accredited investors (those earning more than $200,000 per year or with a net worth of more than $1m) easing SEC regulations are gradually opening the field up to non-accredited investors. Some sites open the door to investments as small as $1,000.
Data released this month by San Francisco-based RealtyShares, show that to date 90 real estate properties in California have benefited from a total of $53 million in financing through its crowdfunding platform, with some individual investments as small as $5,000. While most of these deals were for debt or equity for residential real estate investments, sixteen commercial projects have received funding via the platform including an apartment complex in the Bay Area and a shopping center in Sacramento.
Crowdfunding is another example of greater efficiency in the real estate capital market being made possible through the use of technology. While real estate financing in the larger institutional commercial real estate capital marketplace (think, properties valued at +$10M) is unlikely to be replaced by such platforms, there is clearly a growing appetite among small investors looking to participate in commercial real estate.