Crowdfunding is exploding offering wide capital raising solutions to address the needs of sponsors and developers of real estate projects. According to Dow Jones VentureSource, during the first quarter of 2014, Venture Capital companies raised and funneled $118.5 million into 11 real-estate startups. Biznow reported that real estate crowdfunding startups raised over $1 billion in 2014. According to Jack Quigley, managing director of CrowdfunUP, a new real estate crowdfunding startup in Australia, he believes that this number today has reached $2.57 billion on a global basis.
Crowdfunding makes use of the easy accessibility of vast networks of friends, family and colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word to investors out about a new business opportunity to expand the pool of investors beyond the traditional circle of investors. This platform gives investors the opportunity, not available prior to this, to invest in smaller increments. Unlike the platforms being discussed, most passive real estate investors invest in publicly traded REITs or opt to purchase a limited partnership interest with a significant investment. The typical crowdfunding fee structure ranges from 1%-3% rather than 8%-12% as is typically charged by financial firms.
Some notable venture capital funding for startups in this space include:
- Fundrise raised more than $31 million from Silverstein Properties’ and Ackman-Ziff Real Estate Group in a Series ‘A’ round;
- Realty Mogul raised $35 million in a Series B fifth round. Since it was founded in 2012, brings the total capital raised to $45.1 million. Canaan Partners participated in the last round as did Sorenson Capital. In addition, they made a deal with Direct Lending Investments who committed $73 million to invest in their projects;
- SmartZip Analytics, a provider of predictive analytics to help real estate agents figure out which homeowners are most likely to sell, raised $12 million in July from Crest Capital Ventures, Claremont Creek Ventures and Intel Capital (as reported by the Wall Street Journal);
- Agent Ace Inc., which uses historic home sales data to match homebuyers and sellers with the best real estate agent for their specific home, raised $6 million in August in a Series ‘A’ round from March Capital Partners and Triangle Peak Partners;
- Urban Compass, closed on a $40 million Series B round with investors Advance Publications and Salesforce CEO Marc Benioff, who also pitched into the company’s $20 million Series A round in September 2013. This brings the total amount invested in the company to $73 million. Bloomberg reported that with this new round of funding, the company is valued at $360 million more than double the $150 million from their last round. Their first seed funding was $8 million while still in stealth mode;
- View the Space raised $7 million in December 2014 (Biznow)
Below are some of the leading Crowdfunding real estate startup top picks from CrowdCrux:
Fundrise is an online investment platform that gives the investor the ability to invest directly in commercial real estate. It features both public offerings available to local investors and private offerings available to accredited investors. Fundrise offerings provide shares of equity ownership in specific properties. The company allows both accredited and unaccredited investors to invest in projects and helps developers raise funds.
The Washington Post reported that developers have used their platform to fund investments for more than a dozen projects totaling more than $10 million. Money is currently being raised for four projects, that when realized could top $12 million. According to founder Ben Miller, for their first project they raised $350,000 from 175 people at $100 a share for an open, modern/industrial-style space called Maketto. He claims that what took months to raise the first time, now takes hours.
Urban Compass runs an online marketplace for people to rent, buy, and sell apartments. They will expand from New York City into other metro areas like Boston, Chicago and San Francisco said co-founder founder Ori Allon in an interview with TechCrunch.
Realty Mogul is a marketplace for accredited investors to pool money online and buy shares of pre-screened real estate investments. They offer debt financing of up to $1.5 million for residential properties and $25 million for commercial properties. It also has a commercial property equity option for up to $5 million. The platform caters to both accredited retail investors and institutional investors.
In an interview with Biznow, Jilliene Helman, CEO of Realty Mogul, said that when they launched in 2013 they started with 6,000 investors who invested $14.6 million in projects worth $100 million. Now they have 20,000 investors and their investments have reached $150 million spread across 265 properties valued at $600 million and achieving returns over 20%.
CrowdStreet is a fundraising platform connecting accredited investors with professionally-managed real estate investments offering, equity and debt investment opportunities, including direct investments in multifamily, retail, office, industrial and land opportunities.
GroundBreaker provides technology for deal sponsors and developers. Platform allows one to raise capital directly from your investors and close your deals online. Post-closing, they give you a toolset to manage investor reporting and distributions.
Crowdbaron has developed an international platform and accepts members from different countries around the world.
iFunding is a real estate crowdfunding platform that allows individual investors to select and make direct investments in pre-vetted institutional real estate assets. They source commercial retail and single family residential projects. Using their search tool, investors (users) can select the exact type of investment property they are looking for.
Prodigy Network is one of the early pioneers that was founded seven years ago in Bogotá, Colombia. . Investors can buy and sell shares through a resale program, which functions like a secondary market. Prodigy salesmen deal by phone, email or in person with potential investors.
Currently, Prodigy is raising $171 million in $20,000 increments for a mixed-use skyscraper development in Bogotá, Colombia. In addition, for another project in Colombia, Prodigy raised the capital for a building called BD Bacatá that will be the nation’s tallest. About 3,100 investors kicked in $171.8 million of the $239 million needed to build the 66-story skyscraper in downtown Bogotá. Last year Prodigy raised $24.5 million from 48 investors—who had each put in a minimum of $250,000—to buy a downtown Manhattan building located at 84 William Street that it plans to turn into a hotel.
Patch of Land is an online syndication platform that allows accredited investors the opportunity to pool their money to buy a loan. The loan is tied to a residential property that is being rehabilitated and the property is intended to be sold directly after rehabilitation. Investors earn monthly interest on their money with a balloon payment at the end. The average hold for a loan like this is 6-9 months. The other option they offer is to purchase a piece of a specific commercial property. That property is acquired and managed by a professional investment company with a track record. Investors are entitled to a share of the cash-flow and share of the proceeds when the property is sold. The average hold for an investment like this is 3-5 years.