The eREIT Shift and the Future of Real Estate Crowdfunding

Only accredited investors could access crowdfunding platforms prior to enactment of the JOBS Act in 2015, writes Clinton.

NEW YORK CITY—As the nascent “real estate crowdfunding” industry picked up steam after the JOBS Act of 2012 was signed into law, the concept of owning distinct, tangible real estate assets was harped on by early-stage luminaries. This new platform economy represented the opportunity for individual investors to own a share of something real; to participate in the growth of the neighborhoods and cities they loved. While this kind of messaging permeated the marketing pages of the early players in the space, it was—then, as now—primarily about returns, portfolio strength and offering an alternative to stocks and bonds. Above all, real estate crowdfunding was presented as an exciting new way for individual investors to access an asset class previously available to only ultra-high-net-worth and institutional investors.

It’s curious, then, to see Fundrise and RealtyMogul—two of the earliest and most prominent companies in the space—explicitly pivot to a REIT model, seemingly de-prioritizing direct investments in distinct projects. Although rebranded with the new “eREIT” moniker, these investment vehicles are strikingly similar to the non-traded REITs that were raising billions of dollars annually long before anyone had ever heard of crowdfunding. Why did this happen, and what does it augur for the industry going forward?