Crowd-funding finds wayto real estate financing

Written By Unknown on Sabtu, 17 November 2012 | 18.38

Crowd-funding has transformed the startup landscape, but can the insular world of real estate benefit from this model as well?

It's being tried in different forms, mostly centered on commercial real estate.

The Boston startup Collaperty, for instance, hopes to connect proven investors with real estate deals. But whether this is the future of property dealing or a dead-end dot-com fantasy is anyone's guess.

The ability for crowdfunding — or democratizing, crowd-sourced investment — was expanded by the federal Jumpstart Our Business Startups Act passed in the spring.

Even before that, sites such as Kickstarter and IndieGogo were replacing rich uncles everywhere.

Now, the real estate industry is an increasing focus.

Some sites operate like Fundrise, which allows investors in Washington, D.C., and Virginia to invest nominal sums of money in real estate projects. For instance, 175 investors contributed a total of $325,000 to fund an urban revitalization project in D.C. in exchange for 30 percent of the profits.

These sites tap into hostility against Wall Street, the egalitarian sense that the Internet can open up opportunities previously reserved for tycoons. Also, the model tends to work well for high-risk, bordering on charitable projects.

Yet that is not the premise of locally grown Collaperty.

Rishi Palriwala, 28, wants his site to cater to proven investors. He's aiming to employ a system of vetting that will weed out the inexperienced.

An amateur real estate investor and corporate finance analyst by day, Palriwala envisions a site with many revenue streams: posting fees for sellers and sponsors who organize the deals, along with subscription fees for providing commercial real estate analytics and third-party escrow services.

"It's this whole idea of collaborating with qualified investors," he said. "Real estate's a pretty private investment vehicle. We're trying to add a little transparency to how that's done."

Commercial real estate is naturally collaborative, with most deals involving some type of joint venture and a variety of equity arrangements. Yet the commercial real estate establishment hasn't warmed to the idea of crowd-funding entering its sphere of influence.

David Begelfer, head of the commercial real estate association NAIOP, said the risks are too complex.

"There are so many elements involved in making this type of investment," he said. "There may be a place for it, but there also might be an element of risk and potential for loss that ultimately might lead to a crackdown on it."


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