LOS ANGELES—Few subjects have sparked as much controversy orinterest in commercial real estate as crowdfunding has. Whether or not it is viewedas a legitimate source of funding, there's no denying that theindustry is growing. We spoke with CrowdStreet CEOTore Steen to get his outlook on this burgeoningmarketplace and fundraising vehicle going into 2015.

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GlobeSt.com: What do you believe will be some of thelargest trends in the overall crowdfunding industry in2015?

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Steen: I see five key trends occurringin the overall crowdfunding industry.

  1. Crowdfunding will become a key consideration or part offinancing for any startup. Not just an afterthought or interestingmarketing avenue, the tools, reach and platforms are now there andproven for the entrepreneurs to leverage. This method forfundraising can be used by for-profit companies, non-profitcompanies and community groups. It will become as common to use thecrowd as going to the bank.
  2. We will see the acceleration of “funds” being launched—not justsingle assets—on crowdfunding platforms everywhere fromequity-based commercial real estate to donation-based non-profitopportunities.
  3. Specific to equity crowdfunding of commercial real estate, wewill see more large CRE firms launch their own branded marketplacesto attract retail investors to their projects in an efficient andeconomical way.
  4. With the delay of Title III of theJOBS Act and states continuing to roll out theirown legislation around crowdfunding, we will see continued growthof platforms that have state-specific offerings.
  5. With the rapid growth in this market, we will begin to see somevery interesting merger and partnership activities starting to playout.

The future is bright for the continued growth of crowdfundingmarkets. According to the World Bank, by 2025, theglobal crowdfunding market potential could be between $90 billionand $96 billion. Today, it is about a $10-billion market.

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GlobeSt.com: Given a year of real estatecrowdfunding performances, how should investors interested in CREcrowdfunding deals evaluate the platforms in 2015 and anyguidelines for success and mistakes to avoid?

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Steen: As an investor evaluates theplatforms as a means for exploring potential investmentopportunities, there are several key areas they should consider.Investors should review the types of sponsors (commercial realestate operators and developers with postings) that are associatedwith the platform. In other words, what is the quality of thesponsors as demonstrated by their years of experience, expertise,projects and returns to their investors? Another key factor is theinformation that is being provided on each project. Investorsshould consider the depth and transparency of the information thatis presented on the project, including legal documents, financialsand other important details necessary for proper evaluation of theopportunity. Another important factor to consider is the team'sexperience level and expertise behind the platform. Knowing thatthe management team has years of experience in commercial realestate, Internet technologies and securities should beconsidered.

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GlobeSt.com: What are emerging commercial realestate markets and sectors for crowdfunding in 2015? Why are theyripe for crowdfunding, and how can investors get in thegame?

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Steen: We see the following key trendsaccelerating in 2015 for commercial real estate markets andsectors:

  • Increase in asset quality. For 2014, the typesof assets that were predominantly marketed through real estatecrowdfunding platforms were less than institutional grade, which isnot surprising as smaller, entrepreneurial sponsors were logicalfirst movers in the space. Now that the industry has begun to gainundeniable momentum, we expect larger institutions to enter themarket and bring larger, institutional-grade properties.
  • Increased investor participation. Accreditedinvestors will continue to be exposed to the benefits of investingin alternative assets via equity crowdfunding platforms. Theplatforms themselves will increase their marketing budgets, improvetheir websites, make it easier for investors to invest via IRAs anddefined contributions 401Ks and feature higher-quality investmentofferings, so the practice will continue to gain acceptance amongstinvestors and participation rates will increase.
  • Ground-up development. As the real estatemarket matures, we will see more ground-up development of propertytypes such as industrial, office andmixed-use urban infill.Multifamily development has been strong forseveral years now, but much less so for the other property types.With vacancies decreasing, rents rising and the economystrengthening, developers will have a higher levelof confidence to break ground on new opportunities.
  • Product types. With the two bulges in ourpopulation caused by Baby Boomers andMillennials, certain product types that matchtheir needs will be of interest—healthcare,senior housing, creative officeand adaptive re-use.

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GlobeSt.com: Will there be more crowdfundingcommercial real estate platforms launching in 2015 or is this theyear of consolidation?

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Steen: Both. We will continue to seemore platforms launching either with a product, market orfinancial-instrument expertise. More states continue to passcrowdfunding legislation, and Title III of the JOBS Act is expectedto be finalized next year, which opens up more possibilities.However, I would expect that some platforms that have not been ableto gain traction will cease or be consolidated with others.

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Carrie Rossenfeld

Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.