Many real estate professionals by now have heard of crowdfunding and know of funders and developers who have used the method to finance a project.
Before using crowdfunding to finance all or part of a deal, there are a host of factors to consider, Darren Powderly explained. Mr. Powderly is the co-founder and Vice President of Business Development for CrowdStreet, a software and services company helping real estate operators and developers effectively participate in online capital formation.
Mr. Powderly was a featured panelist at IMN’s Winter Forum on Real Estate Opportunity and Private Fund Investing. He gave advice to fund operators and developers on how best to use crowdfunding in real estate.
One popular discussion at such events is what deal sizes are best served by crowdfunding. The short answer is it depends on how the deal is structured, Mr. Powderly explained. For equity raises, crowdfunding platforms have most consistently proven themselves in the $1 to $3 million range. That has been the case for a few years now.
“Debt is different,” Mr. Powderly said. “At CrowdStreet we view ourselves as contributory sources to issues. For example, if a developer wants to raise $10 million, CrowdStreet may contribute $2 or $3 million.”
This omnichannel concept, long popular in retailing, will become increasingly popular in investing and fundraising, Mr. Powderly predicted.
Marketing to non-accredited investors has become easier thanks to Regulation A+, Mr. Powderly explained. Now they can undertake raises with either $20 million or $50 million caps.
But that event on its own is not a guarantee of success, he cautioned.
“We are seeing some issuers wanting to do a Regulation A+ raise, which cannot be properly done without great technology. That is what CrowdStreet delivers.”
CrowdStreet also delivers choice. Their website is a direct-to-investor marketplace where investors can browse commercial real estate opportunities and directly invest with sponsors.
They also offer a private-label service where issuers can create their own site powered by CrowdStreet technology.
People considering investing with a real estate crowdfunding platform should be aware they come in two distinct formats, Mr. Powderly said.
The first is the direct-to-investor model which CrowdStreet employs. They connect investors and platforms.
“If you want to learn how to fish, CrowdStreet will show you,” Mr. Powderly said.
The second method is where the platform serves as an investment manager, sheltering the investor from the sponsor.
“If you just want the fish, those are probably better,” he added.
CrowdStreet’s website includes a statement that they believe the economy is stronger when real estate developers and operators are less dependent on traditional capital markets, where there is greater access to capital and both investment opportunities and risk are spread across a larger pool of investors.
“We do not want society to repeat the mistakes which led to the recession,” Mr. Powderly said. “That is why it is important to open access to a wider variety of investment offerings.”
“We are seeing the Uberization of finance,” Mr. Powderly explained. “The individual investor can come online, review information, make the call and invest on their own.”
That strengthens the overall economy and leaves investors less prone to stock market fluctuations.
“Before CrowdStreet, you couldn’t invest in commercial real estate unless you had $250,000 to invest on every deal, and that was if you knew the right people,” Mr. Powderly said.
“Now investors are less reliant on trusting the Lehman Brothers of the world and hoping they make good decisions for the fees they are collecting.”
“With CrowdStreet they pay no fees and have direct contact.”