by David Drake
In his annual letter to shareholders this year, JP Morgan’s Chairman and CEO, Jamie Dimon, warns those involved in traditional banking and #lending that “Silicon Valley is coming.”
According to Dimon in his message to JP Morgan shareholders, young financial technology (#fintech) startups offering an alternative to traditional banking are already disrupting the lending business through their innovative and efficient solutions. This phenomenon is now heating up the competitive landscape of the industry. He believes that by automating the lending process with solutions such as credit underwriting, these startups are making their services more competitive than those offered by traditional banking.
This trend is capable of causing a major industry shake up as Goldman Sachs predicts that the traditional banking industry could lose 7% of its annual #profits (or $11 billion) in the next 5 years as a result of the growing competition from young fintech startups.
Recognizing the challenges and prospects posed by this trend, banks are already acquiring or partnering with some of the innovative platforms as they seek to maintain their market dominance. The #investment community is also responding to this development as venture funding in fintech startups has been on the rise in recent years.
In the real estate industry which I follow closely, transactions and processes are increasingly becoming automated. Through #crowdfunding platforms, everything is becoming available online: developers and real estate entrepreneurs seeking debt or equity financing for their projects and businesses on the one hand, and investors looking to add real estate to their investment portfolio on the other.
Here is the list of the top 100 real estate crowdfunding platforms in the US today tracked by Times Realty News, an investment I’ve made to cover the development in the industry.
Before the advent of online syndication of deals, the real estate market used to be highly localized, with high transaction costs and information asymmetry. However, the advent of this latest market disruptor has brought local real estate into the reach of the global investment community, significantly reducing costs while providing access to institutional quality deals which were once only accessible to elite groups in country club deals.
Regulations as promulgated by the SEC have also made online solicitation of funds possible. Many platforms have been able to leverage the Reg D (Rule 506c) of the JOBS Act to power deals involving both accredited investors and institutional investors running into millions of dollars. However, the process of raising funds online has also suffered a setback due to restrictive regulations dating back to the 1930s. This is why the passing of the Reg A+ rule by the SEC, an improvement over the rarely used Reg A has opened up a new vista for online syndication of transactions.
As a result, institutional investors, family offices, venture capitalists, angel investors and retail investors can now participate in high yielding deals outside their local market and social network, at a lower cost. According to Scott Purcell, co-founder and CEO of FundAmerica, “crowdfunding encompasses so much. There is a wide range of securities-based investing that’s becoming possible online now.”
The high cost associated with closing a deal outside an investor’s market has discouraged many investors from venturing into other high yielding markets. However, with the increase in access to information through the automation of transactions, investors can now receive higher returns on their investment as middle men with their associated cost are bypassed, with greater transparency brought to play in the market.
The uniqueness of real estate as an asset class in today’s changing industry is that aside from making it possible for investors to invest in projects online, young fintech startups in the space (especially those involved in crowdfunding) also present vast investment opportunities waiting to be explored. Real estate tech startups offering both front and back end solutions are shaping the future of online investing. As a result, investors looking to benefit from the tech revolution in the industry need to pay closer attention to the developments in the industry.
Note: This article originally appeared on Investor Intel with this link http://investorintel.com/market-analysis-intel/silicon-valley-coming-top-100-us-real-estate-crowdfunding-sites/ on July 14, 2015.
David Drake is the Chairman of LDJ Capital, private equity advisory; Victoria Partners, a 110 family office network; Drake Hospitality Group; and The Soho Loft Media Group with divisions Victoria Global Communications, Times Impact Publications, and The Soho Loft Conferences. Reach him directly at David@LDJCapital.com.