Crowdfunding Can Speed Up Transactions

LOS ANGELES—Last week, GlobeSt.com reported on our conversation with several executives familiar with the subject about both the positives and negatives to crowdfunding. Here, we speak with a fresh crop of financing and crowdfunding experts about the pros and cons of this method of fundraising. And stay tuned for an upcoming feature on crowdfunding's progress in our sister publication Real Estate Forum.

GlobeSt.com: What are the pros and cons to crowdfunding in CRE, as you see them?

Dan Miller, co-founder and president, Fundrise: Through a crowdfunding platform, firms are able to raise funds more quickly without having to use a broker and pay the high fees traditionally associated with that process. Electronic systems employed by crowdfunding firms can also speed up the underwriting and fundraising process, while allowing for transparency not often seen in commercial real estate deals, allowing for the ideal competitive situation when trying to achieve a transaction.

Real estate investment has traditionally taken place offline, so there is a bit of a learning curve for some companies as online origination, fundraising and management start to move online. Additionally, as with any new capital source, there is a level of familiarity and trust that needs to develop before it really starts to scale. I would say that crowdfunding is right on the cusp, but not fully there yet.

Judd Hollas, CEO, EquityNet: Pro: Quick and effective access to capital. Crowdfunding provides entrepreneurs with access to investors that they would not ordinarily have if they were to pursue funding through traditional means. Entrepreneurs can easily sort through thousands of investors to find those who want to commit their investment dollars to companies operating in the CRE industry in a very short time span.

Con: At this time, only accredited investors can participate in crowdfunding. Rules that would allow almost anyone to participate in crowdfunding are still pending. Once those rules pass, however, we will see an influx of capital available to those in the CRE industry.

Daren Powderly, CCIM, co-founder, CrowdStreet: Pros: It works. Simply put, online fundraising via CRE crowdfunding portals has proven to be a viable method of raising capital. Today, the capital amounts are in the $500,000 to $2-million range, yet those numbers are steadily increasing. With more accredited individual and institutional investors joining portal networks, the capital amounts will significantly increase in the months and years to come.

Cons: Timing and certainty of capital, particularly during an acquisition situation, are the biggest obstacles. Sponsors sometimes have 30 days to close a transaction, and adding a crowdfunding raise to the workload can prove to be difficult. CrowdStreet and other platforms are partnering with private-capital companies to provide both speed and certainty to our fundraising efforts.

Jilliene Helman, founder and CEO, Realty Mogul: The pros to crowdfunding are unprecedented access to commercial real estate transactions for a broader scope of investors. Alongside greater diversification potential and lower minimum investments, crowdfunding broadens the capital base for CRE. But it is not without its pitfalls. Lack of liquidity in transactions, real investment risk and lack of day-to-day control for investors are potential cons.

Adam Hooper, CEO and founder, RealCrowd: Pros are speed, efficiency, reach of networks and ability to find new pools of capital that were to date unable to be reached. Cons depend on the platform and the business model, but a concern for some operators is how will this new regulatory world impact how they have been doing business, and how (or does) this increase any liability they will have toward this new pool of investors?