Investments of the Future, Today – A Look at How Crowdfunding is Attracting New Investors to the Commercial Real Estate Market12.6.2016
By: Stephen Cassidy, President
Perhaps the largest challenge for any commercial real estate investment company is finding and accessing sources of capital. As we look forward to the future, we see trends where a large amount of wealth, thirty trillion dollars to be exact, is going to be shifting from Baby Boomers to Gen X and Millennials within the next two decades. With seventy-five million Baby Boomers approaching retirement and treasury yields at all-time lows, commercial real estate investments are becoming more and more attractive. This massive movement of capital provides sponsors and operators, like Denholtz Associates, with a unique opportunity.
I was recently honored to speak on a panel hosted by the Industrial and Office Real Estate Brokers Association (IOREBA) of the New York Metropolitan Area on the newest approach to commercial real estate fundraising, crowdfunding. I was joined by William Florent, Founder of the crowdfunding platform Selequity, Jason Bogart, Principal of Fairfield-based Accordia Realty Ventures, and Brian Esquivel, Director of Investments at Realty Shares. Greg Brown, Managing Director of NAI DiLeo-Bram & Co, moderated the discussion. Together we explored how firms can tap new sources of investors through crowdfunding. Here are some key takeaways from the event and how crowdfunding can be utilized in commercial real estate:
Crowdfunding is a strong addition to traditional methods of raising capital; it allows firms to move to a global 21st-century approach to finding capital and no longer be constrained to their usual circle of investors. These platforms are giving investors with no previous knowledge of companies, like Denholtz Associates, a chance to consider their offerings and make informed decisions to invest.
Beyond just tapping one-off investors for a specific project, investors who have an interest in one crowdfunded project often become repeat investors and continue to work with firms on these platforms. We have seen this happen with a number of our projects at Denholtz Associates and anticipate this allowing us to grow our network of investors with each project.
Like anything new, there continues to be a stigma around crowdfunding. When you are partnering large dollar amounts with something very unfamiliar to many, you will often receive some pushback from more traditional investors. Investment firms that can assuage their fears and offer concrete evidence of returns, will be the ones that successfully implement crowdfunding platforms into their investment strategy.
Based on the needs of the firm and their investments, it is important to choose the right crowdfunding model for projects. Some firms choose to use the Direct to Sponsor model, where the crowdfunding site acts as an intermediary between investors and firms and others choose the Special Purpose Vehicle model, where a crowdfunding site will create a special LLC to raise funds to cover their commitment of equity to a project. Aligning the right model with a project will ensure that capital fundraising is as seamless as possible. At Denholtz we utilize the Direct to Sponsor model because it aligns best with our current fundraising strategies. This has been one of the factors in our success with this platform.
It is very clear that crowdfunding is the future of commercial real estate investing. Firms not using crowdfunding will be at a tremendous disadvantage in their efforts to raise funds for projects as these platforms become more robust and well-used and more accepted as investment vehicles. Firms, like Denholtz Associates, that are utilizing crowdfunding and staying ahead of the curve will continue to deliver superior ROI to investors.