Crowdfunding real estate catching on: The concept allows small investors to invest in their neighbourhoods

Changing the landscape: Daniel Miller (left) and Benjamin Miller, of Fundrise, at their office in Washington. Real estate upstarts like Fundrise are allowing the public to invest in an asset class that has traditionally been the exclusive domain of wealthy investors and private equity firms. - PHOTO: NYT

Changing the landscape: Daniel Miller (left) and Benjamin Miller, of Fundrise, at their office in Washington. Real estate upstarts like Fundrise are allowing the public to invest in an asset class that has traditionally been the exclusive domain of wealthy investors and private equity firms. – PHOTO: NYT

[NEW YORK] THE practice of crowdfunding real estate is spreading from South America – where Prodigy Network recently raised around US$239 million from 3,100 Colombians to build a 66-story skyscraper in Bogota – to New York, where developer Urban Muse is hoping to offer a slice of a Brooklyn Bridge Park project to the public.
Taking a page from websites like Kickstarter and Indiegogo, real estate upstarts like Fundrise, Property Peers, Realty Mogul and Prodigy Network, which is based in New York, are transforming the way real estate projects are built and who profits from them. They allow the public to invest in an asset class that has traditionally been the exclusive domain of wealthy investors and private equity firms.
“It’s a very simple concept,” said Daniel Miller, co-founder of Fundrise. “You should be able to invest in your neighbourhood.” Mr Miller, 25, and his brother Benjamin, 36, are the pioneers behind Fundrise, a Web platform that lets communities invest in local real estate projects.
Sons of a prominent developer in the Washington area, the brothers began wondering a few years ago why people in a community, like the transitional H Street NE neighbourhood near Dupont Circle, could not have more of a say in what was being built there.
They realised that who the investors are and where the money comes from determine what gets built: Distant private equity backers who see a deal as simply an investment vehicle tend to put up cookie-cutter projects and strip malls anchored by chain stores – hardly what the community might want or need.
“Who your money is affects what you build, but no one ever thinks about that,” said Benjamin Miller, who also co-founded a site called Popularise that lets developers solicit input from the community. “We’re taking an institutional asset and changing who gets to invest in it.”
A faded two-story brick building on Washington’s H Street seems an unlikely site for a revolution. But the unassuming structure on Monday became the latest commercial development project to be open to public investment.
Financial stakes in the renovation project were offered to residents of Washington and Virginia on Fundrise.com. By Tuesday morning, investors had snapped up 1,500 shares priced at US$100 a share. All told, 3,500 shares were offered to the public – or 25 per cent of the project cost (the rest was raised from private investors and West Mill Capital, the Millers’ development firm).
Cameron Cook, a 25-year-old project manager and Web developer who lives close to H Street NE, was among the first to invest, paying US$1,000 for 10 shares. In addition to the potential financial gain – an estimated 7 per cent annual dividend from rental revenue plus appreciation in the property – he was drawn to the novelty of the idea and the ability to directly take part in the neighbourhood’s revival.
“I think it’s cool that the community can be more in control of what’s happening around them,” Mr Cook said.
That seemingly simple idea is a radical departure from conventional practice and requires some financial and regulatory gymnastics. Under current law, only wealthy “accredited” investors (typically those with a net worth of US$1 million or more) are allowed to invest in private firms.
But recent changes to securities laws ushered in by the Jumpstart Our Business Startups Act, signed into law in April 2012, will soon make it much easier for the Millers and other new-breed developers to “crowdfund” real estate.
Lately, the Miller brothers have been to New York, where they talked with developers about using the Fundrise platform on community-scale projects in the US$500,000 to US$1 million range. They have been in touch with Jason Goodman, the chief executive of Third Ward, which is building a 30,000 square foot commercial kitchen and incubator in the Crown Heights section of Brooklyn, and Dan Biederman, the developer behind the Bryant Park revival.
In their first New York partnership, they teamed up with Glauco Lolli-Ghetti, founder and principal of Urban Muse, to bid for rights to develop a parcel on the northern edge of the Brooklyn Bridge Park development project.
The site, a fenced-in lot adjacent to the Manhattan Bridge, is zoned for up to 130 residential units as well as ground-floor retail. Mr Lolli-Ghetti envisions a 120,000 square foot building designed by Snohetta, which created the Norwegian Opera House and the Sept 11 Memorial & Museum.
Under the joint bid, Urban Muse would allow New Yorkers to invest up to US$1 million in the retail component.
“Retail is such an amenity, I wanted it to be woven into the community,” said Mr Lolli-Ghetti, although he worries that city officials handling the request for proposals might consider public participation “a gimmick”. He is not sure crowdfunding is suited to large, complex projects.
“In real estate, US$10 million to US$20 million projects are easy,” he said. “But if you need US$500,000 to buy a (small) property and put a local tenant on the street floor, you can’t do it. It’s too small for private equity.”
Mr Goodman of Third Ward, the co-working and educational space in Bushwick, is a long-term leaseholder who said owning the building through usual lending would require putting 50 per cent down in cash – or US$7.5 million, an amount out of reach for now.
Buying it with the help of small investors is “something we’ve started to explore again”, he said. (Its Crown Heights commercial kitchen project opening next year is largely financed by Goldman Sachs.) The Third Ward mailing list of 80,000 people, 3,000 members, 15 investors and thousands of students who have taken classes there over the past six years could be a ready investor base.
“Many of them would be very interested in different ways of participating,” Mr Goodman said. “This is game-changing for small businesses like ours but also for the neighbourhood. It’s bottom-up development instead of top-down, and that is totally unique. Nobody understands a neighbourhood better than the people who live there or are stakeholders.
“To me, it’s like, why hasn’t this already happened?” – NYT

Source: BT Perium – AMY CORTESE

HEADLINE NEWS

This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news [...]

NPRAfter Outcry, Crowdfunding Site Patreon Backs Off Plan To Raise ...NPRThe popular crowdfunding service Patreon has backed off plans to change its payment structure, after widespread, vocal and passionate opposition from creators and their fans. Last week, the site announced it woul [...]

ForbesCrowdfunding Do's And Dont's From iFundWomen's Karen CahnForbesDuring our conversation, she was transparent in sharing that her first software company, VProud, failed because she “did everything backwards” and spent too much time trying to perfect the product. “Pe [...]

TechCrunchHow hate speech crowdfunding outfit Hatreon crept back online ...TechCrunchIf you want to make a living creating white supremacist content, you're probably not going to do it via sites like Kickstarter and Patreon, which prohibit hate speech. Fortunately there's Ha [...]

EntrepreneurWhy Some Small Business Owners Are Turning to Crowdfunding to Save Their CompanyEntrepreneurMany owners of beloved local businesses, especially in pricier cities, have been forced to swallow their pride and appeal to their customers in times of crisis -- a process streamli [...]

Times of IndiaPT Usha takes to crowdfunding to run schoolTimes of IndiaCHENNAI: Legendary athlete PT Usha, called 'Payyoli Express' by her fans, has taken to crowdfunding and raised Rs 20 lakh to train budding girl sprinters and runners at her school in the hope of turning t [...]

Crowdfund InsiderNew Investment Crowdfunding Platform Launches in North Carolina as Full Stack Platform Including Intrastate NC ...Crowdfund InsiderUnder NC PACES, or “North Carolina Providing Access to Capital for Entrepreneurs and Small business Act,” crowdfunding legislation, issue [...]

ChronicleLiveNo need for banks as North East businesses turn to crowdfundingChronicleLiveCrowdfunding has developed a reputation for helping weird and wonderful projects become a reality. But while creative projects have utilised crowdfunding for some time, more and more North East bu [...]

Crowdfunding For French CastlesNPRYou too can own a French chateau, in part, anyway. Romain Delaume, CEO of Dartagnans, tells NPR's Scott Simon about a crowdfunding effort underway to preserve La Mothe-Chandeniers. SCOTT SIMON, HOST: What if I told you that for about $60, you cou [...]

TechCrunchFormer Gawker employees are crowdfunding an effort to buy Gawker.comTechCrunchWhile Univision acquired most of Gawker Media's sites last year (and renamed them as the Gizmodo Media Group), the deal didn't include Gawker itself. In fact, BuzzFeed reported last month [...]

CFB Finance

Marketwired

  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |