Crowdfunding in real estate? Industry experts make their case
As Steve Cassidy tells it, being in business for 60 years means that Denholtz Associates has “capitalized real estate projects pretty much every way you can for a private company.”
So it’s no surprise that it would consider crowdfunding as a potential source of capital.
“We’ve spent a good deal of time observing and seeing where we might fit into this role,” said Cassidy, president of the Matawan-based firm. “And we looked for an opportunity to give it a test and see if it had any real legs.”
That opportunity came last year when Denholtz used an online portal known as CrowdStreet, raising some $800,000 in equity to help it acquire and reposition an office building in downtown Orlando, he said. That sum was double what the firm was anticipating, so it left little doubt as to whether Cassidy would take another shot at crowdfunding.
In fact, Denholtz is now preparing to launch its third crowdfunding investment.
“I think it’s going to be a requirement moving forward,” Cassidy said. “And our company looks at it as, for us, we need to be in this marketplace and do it again so that we can have a consistent track record and experience doing this — and be an out-in-front company.”
Cassidy spoke earlier this week at an event hosted by the Industrial and Office Real Estate Brokers Association of the New York Metropolitan Area. He was joined by a panel of other crowdfunding advocates and experts in the commercial real estate sector, who touted the platform as a 21st-century tool for raising capital and attracting new would-be investors.
Moderator Greg Brown opened the panel by noting that, under decades-old federal regulations, businesses seeking to raise funds had been limited to people they knew or could be introduced to. But those restrictions were loosened under the 2012 Jumpstart Our Business Startups Act, or JOBS Act, which was largely geared toward helping small businesses.
That now means the internet has the potential to transform how equity is collected for real estate opportunities, Brown said, as it did for sectors such as the brokerage industry.
“There’s no reason, because of technology and the JOBS Act, that that can’t happen for commercial real estate,” Brown, managing director of NAI DiLeo-Bram & Co., said during the event at the Renaissance Woodbridge Hotel.
Monday’s panel was charged with defining crowdfunding in the context of commercial real estate, identifying who is using it as a funding source and touting how it’s changing traditional capital-raising channels. The speakers were quick to draw a distinction between real estate crowdfunding outlets and platforms such as Kickstarter and Indiegogo, which revolve around products rather than equity in a cash-flow asset.
William Florent, founder of the platform known as Selequity, also noted that real estate investors are putting in hundreds of thousands of dollars — a far cry from those who are using Kickstarter. As such, Selequity only deals with investors who are accredited by the federal regulators, and the platform is simply applying technology to “what was a manual, paper-intensive private equity-raising process.”
“We’ve put together a platform on the internet where we can help you market your equity raise,” Florent said. “We take your same documents, the same books and the same things that you’ve been doing for a long time and put it on the internet.”
All told, the platform is opening up investment opportunities “to people who haven’t had access before.”
For organizations such as Denholtz and Accordia Realty Ventures, both value-add real estate investment firms, crowdfunding is emerging as a as a new option beyond the “friends and family” model and or finding institutional partners for larger deals.
“(It) gives us another avenue of finding investment equity to do transactions,” said Jason Bogart, principal of Fairfield-based Accordia Realty Ventures. “And the process is getting smoother and the industry has moved quite a bit in the last year and a half alone — if you just Google ‘crowdfunding real estate,’ there are pages upon pages of companies.
“So the competition is out there for these types of transactions.”
And according to Brian Esquivel, director of investments at Realty Shares, the pool of investors involved in crowdfunding is on the rise. His San Francisco-based firm currently has about 25,000 high net worth individuals registered in its network, and that number is growing by about 1,500 a month.
As that pool grows, so do the opportunities for sponsors.
“They may raise for one project today — when they go to raise for the next project three months down the road, we potentially will have 5,000 more accredited investors on our platform,” Esquivel said. “That means new eyeballs and more capital available to them to feed your projects.”
While the panelists all expected crowdfunding in real estate to take off in the coming years, they said there still are headwinds. For one thing, there are those in the real estate industry who are skeptical of doing business online or who view it as a last resort.
And Cassidy noted that it can require patience by sponsors. For one thing, “crowdfunding groups are really slow to decide.”
“If you have the ability to reverse syndicate, you’re going to fare much better as a developer or sponsor,” he said. “They don’t typically invest in real estate or they may be getting their feet wet, so they’re very slow to go forward.”
But Cassidy said the benefits far outweigh any shortcomings. Aside from simply improving his firm’s ability to raise capital, the platforms have helped bring technology directly to its investors.
Specifically, he said Denholtz has set up online portals for anyone who has equity in the project, allowing them quick access to information regardless of whether they’re investing through a crowdfunding platform.
“For real estate companies now of any size, I think going forward, if you don’t use technology like that, you’re going to be at a real disadvantage,” Cassidy said. “So from our perspective, it has some challenges, but all around it’s been a very positive experience.”