Crowdfunding sector growing some grey hairs

By Konrad Putzier

A good way of measuring how the real estate crowdfunding industry has changed in the past months is to count gray hairs.

Last winter, it was hard to find anyone over 40 at the nascent industry’s conferences. Now, a noticeable influx of distinguished real estate executives, along with their firms, is changing the field.

Since its inception, real estate crowdfunding has been dominated by young tech entrepreneurs with lofty visions of democratizing investment and little ties to the industry establishment. This dominance is starting to fray.

In April, the decades-old real estate investment banking firm, Carlton Group, announced the launch of its own crowdfunding platform.
Last week, Nicholas Schorsch’s integrated finance behemoth RCS Capital followed suit. A number of mortgage and finance brokerages in New York City are now cautiously talking about launching their own platforms.

This influx raises questions over the future of crowdfunding. Observers have long agreed that most crowdfunding startups will fail, leaving a few big players behind. It suddenly seems possible that these big players won’t be successful startups, but firms that have already been dominating real estate finance for decades.

One distinct advantage established firms have over their startup rivals is scale. “We will raise $12 billion by traditional means this year, are based in Manhattan, and have occupied eight floors of our building,” said Michael Weil, president of RCS Capital Corporation (RCAP).

Weil hopes that these existing structures will help RCAP’s new crowdfunding platform “We R Crowdfunding” – set to launch in September – generate higher returns than its rivals. The platform will also give crowdfunding investors access to RCAP’s 9,200 financial advisors, and real estate is only one of the many asset classes it will offer.

“This was a great time to enter the space and, frankly, to add some structure to something that doesn’t have the typical boundaries our industry is used to,” Weil said, explaining that he currently sees a lack of financial expertise in the somewhat unregulated crowdfunding field.

Scale has become more important as crowdfunding firms have started to look at bigger deals. Initially, startups like iFunding, Fundrise or Patch of Land mainly offered equity investments in single-family homes with a total deal volume of less than $1 million to a large number of retail investors.

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