Image Source: Martin de Lusenet

Image Source: Martin de Lusenet

Crowdfunding Expanding

Real estate crowdfunding appears to be gaining serious momentum, as there are now more crowdfunding platforms than most people can name and data suggests that capital flowing through these brokers will more than double to close to 3 billion dollars in 2015. Both New York City and Palm Springs, California have their own crowdfunded real estate and its no secret that this crowdfunding trend is spreading in Canada as well.

As long as lenders have cash and people are buying and building real estate, this trend should keep growing. However, the third quarter of 2015 began to see new revelations of the truth about where debt and equity crowdfunding money is coming from, and going to, and not everyone is going to be happy about it.

The Game Changer, that Isn’t

In the US, President Obama heralded the JOBS Act, which paved the way to legalizing crowdfunding and breaking down the barriers of capital raising and investing. It was declared as the solution to make raising capital easier and more affordable, while allowing the average individual greater access to investment opportunities.

Unfortunately, numerous securities attorneys and crowdfunding experts have recently published commentary to the contrary, as experts are claiming that investors looking to raise capital will need to allocate a minimum of $100,000 on legal fees and marketing, while still using the protections of a broker or intermediary service.

This is far to expensive for most investors to take advantage of and investment opportunities appear to be almost exclusively available to wealthy accredited investors, via broker websites, again deflating hopes of change for the average investor.

The real news is where much of crowd funding is coming from, as new reports from Morgan Stanley, Bloomberg, and others reveal that institutional lenders are using real estate crowdfunding portals as the new mortgage brokers.

After throwing thousands of mortgage brokers under the bus when the American real estate market collapsed, these lenders have needed a new origination channel, which allows them more flexibility than direct origination offers under the law.

Summary

The bottom-line is that real estate crowdfunding is growing and is poised to become a major channel for commercial real estate investment projects and investment capital for years to come. This is especially true as more of these real estate transactions prove to be successful in the years ahead.