by David Drake
The realty market continues to advance and change rapidly, which is the reason why new methods of investing such as crowdfunding are slowly replacing conventional methods. Crowdfunding presents a perfect combination of an asset class and the convenience that comes with online investing – an element that alters the real estate financing sector completely. In yester years, only elite investors from family offices and institutions could access lucrative investments on adjusted risk-return basis. Today, a rising number of platforms are crowdfunding to raise equity and debt capital from an expanded pool of investors. This is pushing the growth of crowdfunding for real estate, making it one of the leading segments in the crowdfunding sector. Based on previous trends, and with the recent approval of the Equity Crowdfunding law, here is what we can expect to see in the real estate crowdfunding sector in 2016:
1. Crowdfunding for Real Estate will hit the US$ 3.5 billion mark in 2016
In 2014, crowdfunding for realty projects grew by more than 150 percent reaching the US$ 1 billion mark. Crowdfunding campaigns for real estate ranged from below US$100,000 to more than US$25 million in the same year. According to predictions made by Massolution, crowdfunding for real estate is expected to hit the US$2.57 billion mark by the end of 2015, representing a 150% increase from 2014. If this trend continues, financing for real estate through crowdfunding will hit the 3.5 billion dollar mark by the end of 2016.
2. Real Estate will remain a hot sector in the U.S. crowdfunding industry
In 2014, an estimated US$1 billion was raised through real estate crowdfunding platforms. Real estate was also among the top four sectors that raised high amounts of capital during the year accounting for about 6.25 percent of total global capital raised through crowdfunding. Realty crowdfunding is certainly the biggest sector in the crowdfunding industry within the United States. The 2015 TRN Real Estate Crowdfunding Report developed by Times Realty News shows that huge changes have happened in the real estate sector over a short period of time including launch of more crowdfunding sites and increased volumes of transactions in these platforms. These are indications that the dominance of real estate in crowdfunding is not about to come to an end. Instead, crowdfunding regulations will open up the space for more people to invest in real estate projects previously reserved for the ultra-wealthy. Whether equity or debt, crowdfunding offers a perfect meeting point for technology and real estate to meet thereby matching investors to ideal realty projects. In 2016, the real estate sector will remain at the top in the U.S. crowdfunding industry.
3. More Crowdfunding for Realty platforms will be set up in 2016
We have been tracking real estate crowdfunding platforms through our Times Realty News site. Globally, there are over 200 crowdfunding for realty platforms according to our global list of real estate crowdfunding platforms. This number is expected to grow with more real estate online portals being set up in 2016. This growth will be spurred, to a large extent, by the approval of Regulation A+, Title IV of the Jumpstart Our Business Startups (JOBS) Act by the Securities and Exchange Commission earlier this year, and Title III last Oct 30th. Regulation A+ now allows entrepreneurs to raise a maximum of US$50 million in public offerings in which both unaccredited and accredited investors are allowed to participate. The recently approved Equity Crowdfunding law allows participation of non accredited investors in the space; protects non-accredited investors with the $100,000 investment limit, so they do not go overboard with their online investments; and permits companies especially startups not to undergo full audit when using the ECF for the first time. However, as the number of realty crowdfunding platforms increase, users need to conduct due diligence before investing to ensure that the platforms are credible and their founders have the necessary experience to run the business well. Some crowdfunding portals for real estate will just be trying out untested business models while others might be concerned about their capacity to handle high demands.
4. Cross-border Real Estate deals will increase in 2016
With crowdfunding, investors now are more able to access markets both locally and internationally than in previous years. Cross-border real estate deals are growing and expanding to other places in the world such as Wealth Migrate and Fundrise. This is resulting in a rapid rise in crowdfunding for realty in regions with large markets and can potentially pass the US both in terms of available opportunities and investors. In 2016, we will see more crowdfunding for real estate turn their focus to the global market, thereby creating opportunities for investors across the world to capitalize on the opportunities that are available on every continent. The interaction between crowdfunding and real estate is shifting real estate financing from the conventional mode of syndication and causing a huge leap towards upcoming intermediate markets and further proliferation into the global market.
5. Investors who participate in crowdfunding will diversify more in 2016
A report released mid-year by DealIndex, Democratising Finance, shows a shift in investor behavior that is resulting in the rapid growth of crowdfunding and peer to peer lending. The demographics of investors are changing rapidly with the number of millennials being at least ten times more likely to use crowdfunding than baby boomers. Millennials are more tech savvy and prefer fast online solutions. With the entry of Regulation A+ that now qualifies unaccredited investors to take part in public offerings, more millennials will be into crowdfunding. More participation of unaccredited investors in the space are expected when the recently approved Equity Crowdfunding law takes effect. RealCrowd, a realty crowdfunding platform in the US, had 25 to 49 year olds constituting 74 percent of its investors in 2015. This is an indication of the diversification that we can expect in 2016.
Note: This article originally appeared on Investor Intel with this link http://investorintel.com/market-analysis-intel/top-5-real-estate-crowdfunding-predictions-what-to-expect-for-2016-and-beyond-by-david-drake/ on November 05, 2015
David Drake is the Chairman of LDJ Capital, a multi-family office; Victoria Partners, a 300 family office network; LDJ Real Estate Group and 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.