Can Crowdfunding Cure Income Inequality?

CHICAGO—Crowdfunding has become one of the hot topics in commercial real estate, and while many people hope the technique can bring in needed dollars to help finance individual deals, Scott Picken hopes it can change the world. The founder and chief executive officer of Wealth Migrate, a global real estate platform with offices in London, Atlanta, Asia and South Africa, saw a great deal of poverty growing up in South Africa. But he predicts that in the near future at least one billion people, including many in developing countries, will gain access to real estate investments through crowdfunding and make a real dent in the problem of income inequality.   

“Right now, for the vast majority of people the system is set up for failure,” he tells GlobeSt.com. When the US Congress passed the JOBS Act three years ago, it limited the commercial real estate crowdfunding space to accredited investors, shutting out all but the wealthy. But it also included provisions that required the Securities and Exchange Commission to issue regulations that would open up the space. But although the agency last week issued new rules that make it easier for small- and mid-sized businesses to raise capital, it is still mulling over changes needed to bring non-accredited investors into the crowdfunding arena.

“That would have a huge impact,” Picken says. Currently, even middle-class investors are largely shut out of the higher returns generally available in the world of real estate, and have to be content with investing in stocks and bonds, falling further behind the already wealthy. And people in developing countries have no opportunities at all to invest.   

Picken has more than 16 years of experience in the industry, and along with the executives at Wealth Migrate, has handled $1.3 billion in real estate transactions internationally. Founded in 2010, the company focuses on investments in the US, UK and Australia “because that is where global capital is looking to do deals at the moment.”  

He remains realistic about the scale of the challenge, which goes far beyond a few changes to US law, especially when it comes to bringing in those from developing countries who only have small amounts to kick in. The middle class in many countries may already have access to the technology needed, but mobile phone technology has to spread throughout Africa, India and other regions for crowdfunding to work there.

Furthermore, an entire infrastructure needs to be built that can educate potential investors and provide through third-party oversight protection against fraud or investments that are overly risky. “We need to figure out how to give clients comfort that due diligence has been done,” he says. “It's not going to happen tomorrow morning.”

However, the expected changes in US law should also “open up the worldwide market,” he says. Other nations like Australia, Malaysia and others look to the US due to its importance and will make corresponding changes to their own regulations, creating a “massive impact for investors worldwide.”

If it sounds far-fetched that crowdfunding could expand enough to actually impact income inequality, Picken points out that during the dot.com bust, when companies on the Internet became punchlines, few would have predicted the rise of powerful corporations like Google and Amazon. “We still have to go through that process.”

“It's not about taking away from the 1%,” he adds, but building the capacity for billions of people to become insiders, at least in one small way. “If you do that we will create a more sustainable planet for all.”