Real estate crowdfunding is enabling people to invest in urban infill and other projects for as little as $100. Crowdfunding sites such as Fundrise, Realty Mogul, CrowdStreet and RealtyShares enable both individual and accredited investors to take equity positions in projects.
“For most real estate players it's kind of like E-commerce in the early 90s,” Dan Miller, co-founder of Fundrise, told Markets Media. “It's a very interesting new concept but it's very early on and so they kind of are slowly checking it out, slowly doing smaller projects. It's gaining a lot of momentum.”
Crowdfunding enables investors to build a real estate portfolio and access diverse, high-yield real estate opportunities through a streamlined online experience. Fundrise has allowed lenders to invest in specific properties for as little as $100 per share, and as much as $10 million, and earn favorable returns (historically 12 to 14 percent).
Fundrise also gives residents the tools to build the cities they want to live in through investment in local real estate projects, opening up new possibilities for economic growth and urban development.
Since its founding in 2010, Fundrise has given more than 30,000 investors an opportunity to own real estate, according to Miller, whose family has been a longtime developer of urban real estate projects, based primarily in the Washington, D.C. area.
Fundrise began by investing in smaller-scale real estate projects in what it viewed as emerging neighborhoods in D.C., such as H Street Northeast, similar to Brooklyn’s Bushwick neighborhood. “There's a lot of growth, a lot of creative development but institutional capital wasn't there yet,” said Miller. “We started raising capital for our deals.”
Fundrise was initially a syndication platform to manage friends and family investors. “As we took a few of the deals, traditional private equity funds our family had worked with, we felt they just didn't understand the deal,” Miller said. “They had never been in the neighborhood, they only wanted to write $20 million dollar plus equity checks, and there were all these constraints that really made them not necessarily the best investors for the deal.”
He continued, “We decided to let people locally invest alongside us in the deals given that they know the neighborhood. They would know the tenants. They would have kind of intuitive understanding to be able to assess the real estate and invest alongside us.”
After two years of regulatory filings, Fundrise launched its first deal where any resident of D.C. or Virginia could invest for as little as $100. It raised $350,000 from 175 investors. “It was only about 25% of the equity for the deal, but it really was the first example in the country of true crowdfunding for real estate,” Miller said.
The platform has seen growing interest from local investors as well as seasoned real estate developers that are keen on crowdfunding technology. A number of new investors have joined the company’s first-round Series A including Guggenheim Partners, Rockrose President Justin Elghanayan and James Ratner, chairman and CEO of Forest City Commercial Group, bringing its total raise to $38 million.
“It started out as kind of a small scale, small investor, smaller project but it's quickly moving to the point where the large established real estate companies are taking a look,” Miller said.
In addition to D.C, the company is funding urban infill projects in Philadelphia, Baltimore, Boston, San Francisco, L.A., Seattle, Portland, and Atlanta.
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