New SEC Rule Means Real Estate CrowdFunding

Design-led housing developer breaks world record for equity crowdfunding

By Colleen M. Sullivan

Can the Security and Exchange Commission’s (SEC) new crowdfunding rules prove a boon for real estate?

Jilliene Helman sure hopes so.

After years of working as an investment advisor and wealth manager, “I sort of started seeing this pattern. Our wealthiest and most successful clients were all real estate investors,” she says. She’s now hoping to bring a taste of that success to the masses.

Crowdfunding is a mechanism which leverages the power of the Internet to help get new projects off the ground using contributions from hundreds or thousands of small investors. In a mere four years, Internet startup Kickstarter has become a multi-million dollar company by riding a tidal wave of other people’s money, becoming the go-to platform for creative types like artists and designers looking to fund their next album or create a new iPhone case.

But while Kickstarter is aimed at funding single projects, many observers are just as excited about crowdfunding’s potential to help launch new companies – and now, thanks to new rules loosening the reins of financiers, entrepreneurs like Helman are hoping to bring that same model to real estate.

For decades following the Great Depression, the SEC kept a gimlet eye over the investment world, requiring that investors in certain risky asset classes be “accredited” – that is, that they met certain high net worth and/or income requirements. Accredited investors were presumed to be sophisticated and familiar enough with investing that they understood the risks they were taking, while companies looking to offer stock or other securities to the general public faced much greater scrutiny and stricter regulations.

Last year, however, Congress passed the Obama administration’s JOBS Act, which loosened many of those restrictions, paving the way for new companies to use crowdfunding to generate equity.  Helman’s company, California-based Realty Mogul, is planning to use the model to fund new commercial and residential developments.

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