Crowdfunding Has Place at the Table

PALO ALTO, CA-Crowdfunding has been getting a lot of attention as a method—good or bad—of fundraising for real estate investments. As GlobeSt.com reported earlier this month, some experts see potential risks in this method for inexperienced investors, but other experts say crowdfunding is a way to bring more capital into the market and allow more investors to enjoy the benefits of real estate investing for smaller increments of capital.

“There's definitely a place for crowdfunding in real estate,” Adam Hooper, CEO of locally based RealCrowd Inc., tells GlobeSt.com. “It's an asset class that has typically been reserved for the ultra-affluent or 'typical' type of buyer, but our level is maybe $5 million to $20 million in total purchase price.  We replace that network of 50 to 100 people with thousands, making it available to people who would never have the opportunity to invest in this asset class. We think there's big room for investing in commercial real estate through crowdfunding.”

The passing of the Jobs Act in 2012 brought about several new crowdfunding platforms, including GroundBreaker, a general solicitation platform for real estate projects. According to founder Stefano D'Aniello, the Jobs Act allowed issuers who choose to advertise a deal to no longer be limited to selling to a limited number of unaccredited investors, as dictated by the Securities Act of 1933. Crowdfunding provides a mechanism for unaccredited investors to invest in these deals, but “these crowdfunding rules, however, are still being drafted by the SEC and we do not expect them anytime soon.”

Hooper says we're probably looking at the middle to the end of next year before the SEC and FINRA are finished examining the Jobs Act and determining how crowdfunding should be impacted, but he is cautiously optimistic. One change that has positively impacted crowdfunding is that solicitation has been given the green light. “Crowdfunding firms can now advertise with the specific offerings that we're raising money for,” says Hooper. “This is a huge shift, and it will have a big impact on how people access capital and transact deals. Far more people can be aware that these deals even exist and can invest in these deals.”

When crowdfunding proper for non-accredited investors opens up, “it can be more revolutionary and have more impact than even solicitations,” Hooper adds. “There are still some question markets, but this is definitely a market that's ripe for some disruption. It'll be interesting to see how it all plays out for the next couple of years; we're excited to see where it all goes.”