In applying a loose definition of the term “crowdfunding,” Rodrigo Nino stands as the undisputed king of the emerging fundraising methodology. He and his team at Prodigy Network crowdfunded a building in Colombia to the tune of over $175 million from investors both in Colombia and the United States. If you asked me what the largest crowdfunding project was to date, I’d offer this example.
Prodigy Network makes use of exemptions under both Regulation D and Regulation S, which is available for “offers and sales of securities outside of the United States.” Among other functional benefits, Regulation S allows overseas issuers to offer debt and equity securities to US investors.
The $175 million building in Colombia, called BD Bacatá, will be the tallest building in Colombia when complete at 66 stories high. The 1.2 million square foot building will include office and retail space, apartments, and a 364-room hotel. It was funded thanks to contributions from over 3,000 investors in both the United States and Colombia.
“The disconnect was that the price tag of these assets was so high that it precluded investors with less than $100 million, for argument’s sake. What we do is we syndicate everything in smaller pieces and we enable the smaller investors to participate in these large commercial real estate assets.”Rodrigo Nino, Prodigy Network
It was Rodrigo Nino’s grand introduction to the world of crowdfunding. When Nino saw crowdfunding emerging as a means of accessing capital, he saw an opportunity to use crowdfunding as a way of matching smaller investors with large, commercial real estate assets.
“I’ve been doing real estate for my entire career, and I realized how a lot of investors in the residential market were looking to buy with the idea of renting and betting on the future appreciation,” he told Crowdfund Insider. “The asset class wasn’t really appropriate for that investment. It is time consuming, it is management intensive and the yields were low.
“On the other hand, we saw that the (US commercial real estate industry) is $16 trillion, and only 5% is held by REITs and private equity funds in real estate. the remainder – 95% – is held by large institutional investors and real estate families. So, we saw how those assets – hotels, extended stays, shopping malls, rentals – yielded very stable and predictable cash flows.
“The disconnect was that the price tag of these assets was so high that it precluded investors with less than $100 million, for argument’s sake. What we do is we syndicate everything in smaller pieces and we enable the smaller investors to participate in these large commercial real estate assets.”
Nino sought to match the returns and predictability of commercial real estate with the best aspects of crowdfunding, namely the type of transparency common in this space and facilitated by online technologies. He partnered with a third-party fiduciary company in an effort to achieve that goal. Prodigy Network does not manage the assets once they’re finished with the crowdfunding process. The goal is to avoid fraud and mitigate risk. He believes in their approach so much that he believes this type of partnership with a third-party fiduciary company should be mandatory in asset classes such as this.
He is now expanding into New York, one of the most robust real estate markets in the world. With the recent launch of projects at 17 John and 84 William Street, Prodigy Network is becoming increasingly active in this real estate hotbed.
Nino thinks commercial real estate is perfectly suited for crowdfunding. “I think that crowdfunding in commercial real estate works best because the larger the asset, normally the better the returns in terms of safety and future appreciation,” Nino continued. “If you pick the best 10% of (the $16 trillion commercial real estate industry), it is going to be located in large metropolitan areas such as New York, Boston, San Francisco and Chicago, for example. Those metropolitan areas enjoy the benefit of huge traffic. In New York, you have 52 million people coming every year… they spend much more money here than (Orlando or Las Vegas). So, it is a very healthy market. Getting access to a project like that is virtually impossible for anybody that first is not local, and second that can’t write a check for $100 million.”
in Colombia where we raised over $175 million for a skyscraper, all cash… many of them were not necessarily accredited investors, and eventually we will get there here in the United States. I have no question about that
This lies at the core of what Nino hopes to accomplish, and his hopes for the greater crowdfunding industry. In the end, it’s all about access.
“After the crisis that we just went through in the world, many people have taken the step to control their own investment position as opposed to dealing directly with a portfolio manager, let’s say, without knowing where your money is,” he said. “They’re loving the fact that this is a much more transparent investment.”
“If you think about it, every wealthy family or institution invests in New York real estate specifically. If you think about large commercial real estate assets here in the city, they’re all owned by these big institutions and they have been owned by them for a long time. Now, having access to these types of investments for the first time in three generations is a huge, huge change.”
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Unfortunately, non-accredited investors are still largely blocked out from investing in the types of assets Prodigy Network has taken on. Nino does believe this will change in the future as part of a larger organic process taking place within the SEC, FINRA and Congress. Although access to commercial real estate deals won’t come overnight, Nino believes it is only a matter of time.
“I believe that, for example, in Colombia where we raised over $175 million for a skyscraper, all cash… many of them were not necessarily accredited investors, and eventually we will get there here in the United States. I have no question about that, because why would somebody with a net worth of a million dollars – namely an accredited investor – have access to a deal of this magnitude and this safety and these predictable returns, and not a gentleman with $20,000. It doesn’t make sense. Why is it that we’re precluding that guy from participating in this great investment? I’m sure that Title III, when implemented, will evolve to give access to smaller investors.”
In the future, Nino wants to expand the Prodigy Network model to other emerging worldwide markets. He told Crowdfund Insider that they’re watching Mexico and Spain closely. Europe is almost certainly a market that Prodigy Network will enter in the future in some way. Wherever there is opportunity for return on investment in commercial real estate, Prodigy Network doesn’t plan to be far behind. Nino also nods to ongoing discussions with various other industry players interested in the model Prodigy Network is honing at this time.
As for the future of Prodigy Network, Nino plans to keep pushing the needle when it comes to crowdfunding and real estate. “I would like us to keep spearheading change and being a point of reference when it comes to how crowdfunding in commercial real estate might be done in terms of transparency and safety for investors,” he said.