Crowdfunding Nod Has Positive Implications

BEVERLY HILLS, CA-Very recently, the SEC unanimously approved proposed rules on Title III crowdfunding as described in the JOBS Act that will permit businesses or investor groups and funding portals to participate in securities-based crowdfunding. If the final rules are voted through, then—following an implementation period that could take place as soon as early 2014—an 80-year ban on unaccredited investors making private placements could be lifted.

“From a macro level, millions of more individuals will have access to private investment who did not previously,” Jilliene Helman, CEO and founder of Realty Mogul, a locally based marketplace for accredited investors to pool money online and buy shares of pre-vetted investment properties, tells GlobeSt.com. “From that perspective, there's a broader capital source in the private market, and things get more competitive. I don't think it's going to happen overnight—it will creep up in in the industry—but more things will be funded through individuals.”

As GlobeSt.com reported in September, some experts see potential risks in crowdfunding 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., told GlobeSt.com at the time. “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 potential ruling could impact the real estate investment community in a big way if unaccredited investors pool their money to invest in real estate, including new construction, community landmarks and other areas, and it has the potential to flood the market with hundreds of millions in additional investment dollars. Helman says her firm has already seen crowdfunding for accredited investors grow, having funded $8 million itself since its inception this past spring. “With a broader scope if investors able to access this market, it's just going to continue to grow.”

The one concern Helman has about the proposed rules is regarding audited financials, which would mandate that anyone who raises capital of between $.5 million and $1 million to have their financials audited. “This is going to eat into investor returns.”