In 2014, global crowdfunding grew by 167% to reach $16.2 billion raised—$9.4 billion in the United States alone, and $1 billion of that in real estate. This year, Massolution, a crowdfunding research and advisory firm, predicts that number will more than double.
Many industries are taking advantage of this innovative platform, including businesses, entrepreneurs, social causes, films, performing arts, music, and recording arts. Real estate has particularly latched on to the model, with Times Realty News tracking 152 real estate crowdfunding platforms in the United States and 62 globally as of December 21.
Whether you’re a new or seasoned commercial real estate sponsor, tapping into a crowdsourced platform like iFunding should be taken into serious consideration for financing acquisition and development projects in the new year. Here are four reasons why crowdfunding makes sense:
1) It’s an excellent alternative to traditional lending sources
Since the market downturn, banks and other traditional lenders have enacted stricter credit and lending standards. Crowdfunding can fill in gaps created by more diligent underwriting and provide capital for projects that these lenders may otherwise find too complex. Larger institutional lenders may also pass over opportunities underneath a certain price threshold, instead preferring one $30 million investment to managing six $5 million investments. Crowdfunding is a strong contender in the mid-market space.
2) It taps into an entire new class of hungry investors
Companies like iFunding track the solicitation, preferences, and commitments of thousands of accredited investors whom sponsors or developers may not have access to via traditional networking. Crowdfunding’s digital platform allows for a broader promotional reach, introducing projects to investors who may not otherwise be familiar with the sponsor or geographical area.
Overall, crowdfunding broadens participation in real estate investment. iFunding’s typical customer is an entrepreneur with $1 million to $5 million net worth seeking high-quality deals, and investment opportunities are available for as little as $5,000 across a broad range of property types, including multifamily, retail, office, and mixed-use. And as crowdfunding regulations begin to encompass more investors, we’ll see greater participation at even lower buy-ins.
3) Technology makes the process simple and efficient
In addition to tracking potential investors, technology utilized by crowdfunding companies takes care of a project’s promotion, subscription, due diligence, fund management, project documentation, investor communication, and financial reporting—allowing sponsors to instead focus on project quality and completion. The overall process is more streamlined, reduces sponsor and investment fees, and increases transparency into a project.
4) It’s a targeted approach
A digital platform allows investors access to carefully selected investments based on their preferences, from property type and location to risk profile and return profile. This ensures the right investors are matched to the right sponsors and projects.