LOS ANGELES—Crowdfunding experts continue to see positive implications from GlobeSt.com’s recent online poll about the acceptance of crowdfunding for real estate transactions. While most admit that this form of fundraising is not necessarily for everyone or every deal, they say the poll results show that widespread acceptance in the industry will happen in a matter of time.
As GlobeSt.com reported last week, 84% of respondents to a GlobeSt.com online poll said they consider crowdfunding to be a legitimate and reliable source of fundraising for real estate transactions—with qualifiers. The results indicate that crowdfunding is gaining ground as a capital source among industry professionals.
GlobeSt.com spoke with Alon Goren, founder and CEO of InvestedIn—a Los Angeles-based white-label crowdfunding company—and Adam Hooper, CEO/founder of the Palo Alto-based RealCrowd crowdfunding platform, about the poll results and what they mean for crowdfunding’s future in the real estate industry.
GlobeSt.com: What do these results say to you regarding how the real estate community feels about crowdfunding?
Alon Goren: For an emerging industry, these are extremely promising figures. At the earliest stages of e-commerce, there were few people who believed anyone would buy anything online. Anyone who tells you that crowdfunding as an industry, especially real estate crowdfunding, is anywhere near where it can be or could become in terms of adoption is dead wrong. The biggest players in the space are still learning, still adapting and still evolving. Next year, those numbers will definitely be different, with some of the voters actually having experience in crowdfunded deals.
Adam Hooper: The most insightful result from the survey is that it shows people are open and aware, at least at some base level, of the concept. Let’s be very clear: this is incredibly early in the space, and a large number of people (both operators and investors) still have no exposure or awareness of how it really works. Combine that with the nuances of non-accredited true “crowdfunding” per Title III of the JOBS Act vs. online, accredited-only syndication as we are doing, and it’s obvious there still needs to be a tremendous amount of education for all parties involved. As noted in the original article, the first impression of “crowdfunding” is Title III for non-accredited investors—which does carry a $1-million-per-year-per-company max. That will have a limited-use case in the more institutional space, where we see the removal of the ban on general solicitations as the biggest game changer.
GlobeSt.com: To what do you attribute the modifications in the poll answers (i.e., only for certain types of deals; not now, but possibly in the future)?
Goren: Makes sense. Not everything is for everyone, and not all deals are for the masses. Not only that, but the regulations just won’t work for certain types of deals.
Hooper: I would also chalk this up to the relatively new nature of the industry. While there has been hundreds of millions of dollars of real estate value through our platform and more than $10 million of total equity contributed through our platform, many still see this as unproven. Naturally, as our industry continues to mature, it will gain more credibility. I think that given the volume of transactions that are occurring through various platforms, this is already too big to ignore.
GlobeSt.com: As crowdfunding becomes a growing form of real estate fundraising, of what should investors and the real estate industry be aware?
Goren: There will be many forms and structures that different crowdfunding sites adopt. Some will not fit your investment style or criteria, and that’s OK. Not all deals are for you. Just like you may have a sweet spot off-line, you’ll find your spot(s) online as well. The best technology should be used to streamline the process and amplify what’s available offline. Use that to your advantage.
Hooper: Traditional investors in the space should be worried about the vast amount of liquid capital this can bring into the space and, naturally, when you bring that much liquidity in you can create a more competitive deal environment. Investors who are participating through these platforms will need to pay careful attention to how the real estate operators are vetted and educate themselves on the basics of real estate investing. Also, they need to be cognizant of how the platforms are structured and are charging fees to make sure that they are investing directly into the real estate ideally with no additional fees to them—not into a start-up fund of a funds-management company.
GlobeSt.com: What else can you tell us about crowdfunding’s acceptance in the real estate industry?
Goren: It’s inevitable.
Hooper: The acceptance has been very positive from all perspectives (operators and investors). We are working with institutional real estate operators and private-equity funds that are interested in participating in the space as well as bread-and-butter syndicators that love the idea of bringing efficiencies to their traditional models. Our ultimate goal is to bring efficiencies to the private-capital-raising process, and when you can bring massive efficiency to a time-tested—but archaic—business model, history has proven it will be well received.