CrowdFundBeat News Desk,
In the world of commercial property investments, $1.5 million could be viewed as a rounding error. According to an article published by Forbes, the owners of the Hard Rock Hotel Palm Springs said they sold 15 percent stake for that sum to a group of 85 people. This deal is noteworthy not because of the amount raised but because of how it was raised: Generally Solicited via an online funding portal (Also known as “Crowdfunding” )
Real estate does not seem like an obvious play for crowdfunding because of how expensive it is. Only a few crowdfunding projects have raised more than $10 million dollars which is not considering a large amount for corporate real estate. However, according to Forbes the idea of crowdfunding in real estate is catching on. There are now several firms seeking to become the go to portal of real estate investments, including the Beverly Hills based site Realty Mogul, who oversaw the campaign that raised $1.5 million for that Palm Springs hotel. Another is Fundrise, a DC based platform who is noted for developing the new World Trade Center. In June, the Wall Street Journal reported that these and other real estate crowdfunding firms have raised $135 million in debt and equity for developers.
The question of why real estate investors are interested in crowdfunding has a simple answer: the thrill. People like being able to invest in a single property and not a grouping of properties. Investing in real estate is also a common investors relatively. Investors feel comfortable when investing in real estate because there is alto of available information to use in evaluating the property or structure that is being funded. Landlords and developers are turning to crowdfunding because banks and other financing sources have turned them down.
Thus just proving the importance of crowdfunding in this field.
So where is this heading? According to the Forbes article this is a hopeful first step and is not going to displace large-scale funding from institutions. This form of raising capital looks like it will only work for smaller projects because often times properties will carry significant debt and the sponsor can default. Overall this is a positive step for crowdfunding as a whole.