A Student of the Real Estate Game


My Latest Thoughts on Real Estate Crowdfunding Part III

May 31, 2014 | Innovation, Passive Investing, Technology

Fresh off the announcement that Fundrise has closed on $31M of funding (giving them $500M in funding capacity!), I figured it was about time I shared a few updated thoughts on real estate crowdfunding. See parts I and II here. It’s been exciting to be in the trenches and watch the space evolve over the past 24 months.

Angel and VC Money is Hot for Real Estate Crowdfunding

While everyone’s talking about Fundrise’s massive raise, don’t forgot that Realty Mogul completed a $9M raise, and multiple other companies have $1M+ in funding with more money coming their way. This is just the start, get ready to see some big bets on real estate crowdfunding.

Companies Have Money and Resources, Now What?

Now that companies are equipped with resources, it’s time to figure out how to scale the model and create a viable business. I’m seeing a few different revenue streams emerge:

  • Flat technology fee or % of equity raised. I think this fee should cover upfront costs, rather than be a profit center. The crowdfunding model is great because it cuts out the middle men, resulting in lower fees to operators and investors.
  • Fixed asset management fee for utilizing their online investor management platform. While the fee is marginal (~$250/mo.), at scale it can be a significant revenue generator.
  • White label the technology for a monthly fee, allowing operators to move the capital raising and asset management process online. Even operators who choose not to publicly crowdfund equity or debt should benefit from the efficiencies created by technology.

Each of these revenue sources is predicated on the ability to scale. With that in mind, I think a few sites will emerge as leaders in the space and successfully scale their models.

Real Estate Crowdfunding will Disrupt the Real Estate Private Equity Model

That’s a bold statement, I know. However, after announcing their equity raise, I popped over to Fundrise and saw something really interesting:

Institutional Real Estate Crowdfunding

Fundrise is offering a new product to institutional investors that will compete directly with private equity funds. However, the Fundrise product is superior to traditional REPE funds for a few reasons:

  • Superior deal flow (at scale)
  • Lower fees
  • Rolling liquidity
  • Lower cost of capital
  • Better technology
  • Greater transparency

It’s still very early, but the real estate private equity model will be disrupted by crowdfunding.

Institutional Operators and Developers are Crowdfunding Deals

Crowdfunding isn’t just for the single-family fix & flip, institutional developers including Silverstein Properties and Rockrose are dipping their toes into the space. Just think, in all likelihood you are going to be able to personally buy shares in the rebuilt World Trade Center because of this!

What Others are Saying

I’m not the only one taking notice. Here’s what others are saying:

While it’s still incredibly early in the space, watch out, real estate crowdfunding is coming!

What do you think?