by David Drake
According to a report by the UCLA Ziman Center for Real Estate, #crowdfunding through online platforms, in general, has grown from $1.5 billion in 2011 to around $5 billion for the first half of 2014 and is projected to touch $10 billion by the end of 2014. These trends in the global market are getting the attention of VCs. This global growth is expected to accelerate in the future. By 2025 the market could be worth $90 billion or more which would make it almost twice the size of the entire global VC business today.
Early this year also, Massolution released a report on the global real estate crowdfunding industry. The report indicates that in 2014, real estate crowdfunding market has reached nearly $1 billion. This year 2015, the industry is predicted to reach the $2.5 billion mark. Talk about a billion dollar industry in less than 3 years since crowdfunding for real estate started. With these recent trends also comes the increased activities of VCs in this space.
VC activity in the real estate crowdfunding industry can be measured by their investments on real estate crowdfunding platforms. By far the biggest deal was with Fundrise, which raised $31 million. The money came mostly from a group of investors led by Chinese social networking company Renren and executives from New York-based Silverstein Properties Inc., which owns the World Trade Center. This Series A funding round and additional new investors including Guggenheim Partners and the president of Rockrose, Justin Elghanayan, have taken the total to $38 million. After surveying the real estate crowdfunding field, VC firm Renren liked Fundrise because of its focus on the community. Renren believes that real estate is the next frontier of crowd-based financing. Silverstein executives invested on Fundrise for they were also impressed on the firm’s vision and execution, noting that it has cracked the code to do real estate crowdfunding well.
Early in 2014 Realty Mogul (headquartered in Beverly Hills) raised $10.1 million in a funding round led by Canaan Partners which contributed $9 million. Realty Mogul has already invested more than $70 million in 226 different properties located in 19 different states. Hrach Simonian, partner at Canaan Partners, notes that VCs have poured their money into the platform because the public have become comfortable with participating in crowdfunding sites. Another reason for a VC such as Canaan Partners to like niche crowdfunding startups is because data builds up on these platforms, and the data can be used to predict better performance of assets.
AssetAvenue, which is a platform for borrowing and investing in commercial real estate, had raised $3 million in 2014 from investors led by Matrix Partners and NetEase. These were high caliber investors, with Matrix having backed powerhouses such as Apple and JustFab, while NetEase is one of the largest publicly traded companies in the internet and technology space in China. Josh Hannah of Matrix Partners notes that real estate crowdfunding platforms are addressing the needs of an underserved market not met by banking solutions. In addition, this year 2015 the platform has further raised an additional $11 million from DCM Ventures and from earlier investors, NetEase and Matrix Partners. DCM Ventures’ General Partner, David Chao, notes the reason why it has invested on the platform: it believes that AssetAvenue can change the commercial real estate landscape in terms of how lending is done.
Other notable recent fundraising exercises include RealtyShares and Patch of Land. RealtyShares has raised $10 million in a Series A round led by Menlo Ventures, which also incorporates participation from the previous investor General Catalyst. Patch of Land, a platform based in California, was able to raise $23.6 million in a Series A round. SF Capital Group led the Series A funding round. Prosper, with Ron Suber at its helm, also invested in this round. Patch of Land is considered to be one of the most well funded real estate crowdfunding platform in the United States.
This VC activity has not been confined to the US alone. UK-based Property Partner, which gives investors the opportunity to invest for as little as £50 in the flourishing UK buy-to-let housing market, has raised £1.25 million in seed capital. The round was led by Octopus Investments and included well-known European funds and investors such as Seedcamp and Better Capital founder and venture capitalist Jon Moulton. The business was founded by BSkyB’s former head of commercial development Daniel Gandesha to take advantage of residential property which is the largest asset class in the UK valued in excess of £5 trillion. Buy-to-let transactions are estimated to be in excess of £20 billion annually.
Along with other recent deals not mentioned, these successes clearly indicate that real estate crowdfunding is going to be a force to reckon with in the future.
Note: This article originally appeared on Investor Intel with this link http://investorintel.com/market-analysis-intel/why-15-venture-capital-firms-are-playing-the-real-estate-crowdfunding-game-2/ on June 12, 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.