By David Drake
The profile of success in the real estate crowdfunding industry is accelerating. Realty Mogul, a leading player in the realty crowdfunding arena, was able to obtain $9 million in Series A funding in March 2014 to expand its operations. Another leading firm, Groundfloor is expanding its operations and market base to make investment opportunities available to 43 million Americans. And just recently, Fundrise hit a major milestone: raising over $10 million from investors in over $38 million worth of deals done on their platform.
“We are now raising roughly $1 million a week. That’s $25,000 per hour,” said Co-Founder Daniel Miller.
What led to Fundrise’s accomplishment in this industry?
Launched in 2011, Fundrise.com has since evolved as one of the most credible platforms in the field. The company started off by taking advantage of the not often used Regulation A before the JOBS Act was enacted. It is a seldom-used proviso that allows Initial Public Offerings (IPOs) below $5 million, and they utilized it with great success.
With the Securities and Exchange Commission (SEC) coming out with new rules on solicitation online, and with another wave of rules that came out which allows for non-accredited investors, Fundrise has sped up on building productive financial partnerships.
First, for some investments, the company only requires a minimum investment of $100, with a projected 8% return. Other companies with higher minimum share have the same probability. Second, Fundrise offers direct investment, cutting out the middlemen and the fees and inefficiencies that went with them. Third, the Millers (brothers Ben and Daniel), founders of the company, have established a reputation that helped them forge deals with various key developers across the US.
Fundrise believes in the power of community investment. It is known for its objective of encouraging social participation in real estate development. Local projects don’t usually entice large investors, but those in the neighborhood can provide the chips to take it off ground.
Say, a community invests in an eco-tourism park where everyone spends money on recreation, food and other stuff. Sustainability is then achieved as investments grow day by day. With the increasing buying power, the cycle simply goes on and on.
Fundrise has made community development as its most compelling point-of-sale.
And one policy the company takes pride in is transparency, which is providing an atmosphere of trust and confidence for those it deals with. This open policy can very well be a huge advantage for the company in wooing those investments.
Sustaining the Momentum
Now that it has reached its $10 million mark, Fundrise without a doubt has cemented its footing, but some perceive it to be limited in scale –working mostly in DC and Virginia- compared to its competitors.
The company, cognizant of this perception, made dealings recently with developers in New York, California, Austin, and Indianapolis. It is fast gaining ground in many states across the US.
For a company that started on a local scale, Fundrise has everything in its arsenal to compete with larger companies and attract institutional capital. Sustaining that momentum is the challenge. But the Millers are unfazed.
JOBS Act and Real Estate Crowdfunding
The history of real estate crowdfunding can be traced back to the JOBS Act. And perhaps one of the most promising fields expected to make a quantum leap with the implementation of the JOBS Act now is Real Estate.
Falling prey to the economic downturn that saw a huge drop in its potential, the real estate market suddenly lands as amongst the most viable and feasible investments with online crowfunding platforms.
Traditional real estate financing through banks takes more time, money, courtesy of mortgages, interests and other clauses. The daunting task of the required paperwork will certainly find fewer takers as public investment can provide more liquidity. Put it simply, the enemy that is red-tape gets the scissors.
Crowfunding’s most obvious edge is transparency. The Securities and Exchange Commission (SEC) has done a great job of ensuring access to information. It can be culture shock to traditional financing but on the long-term scale, it will prove to be beneficial to the investing public since its primary concern is financial security. Although there are certain non-disclosures allowed, the available information is focused on the company’s standing.
Going public, however, will require a cost-effective and highly reputable platform to solicit funding. The public anxiety over fraudulent sites that sprout all over because of the crowdfunding boom should also be addressed. Choosing the best platform is vital. Both offerings and buyers must make sure the site is healthy for their money. Although investing remains a gamble, the tell-tale signs can be told at an early stage as the Jobs Act calls for actual pitches and data.
I see a robust industry coming in with the JOBS Act in place. With a democratized investment setting, the tedious process now voided, and online advertising focused on getting those buyers, Real Estate development gets the rejuvenation it badly needs.
Note: This article appeared on The SohoLoft with this link http://thesoholoft.com/fundrise-revs-up-realty-crowdfunding-fast-gaining-ground-across-the-us-by-david-drake/ on May 13, 2014.
David Drake is the Chairman of LDJ Capital, a private equity advisory firm; The Soho Loft Media Group, a global financial media company which includes Victoria Global. He is also Principal at ConsultDA which engages in regulatory and compliance advice and strategy for public and private companies facing challenges with SEC, FINRA, Attorney General and Exchanges. Reach him at David@LDJCapital.com.