Not very long ago there were no real estate crowdfunding platforms. Today there are at least a dozen and that number will grow rapidly. The efficiencies generated by crowdfunding to an industry which has traditionally been driven by large institutional investors and commercial developers will be enormous.
Towards the end of 2013 I had the opportunity to speak with the CEO and co-founder of RealCrowd, an accredited investor platform for Real Estate crowdfunded offerings, and I came away with the epiphany that real estate crowdfunding is going to be beyond huge. And RealCrowd is one of the first platforms out of the gate.
RealCrowd considers their platform a “Full Stack” operation. Their real estate technology powers the application which connects the investors to the real estate projects. Their goal is to remove all existing inefficiencies encumbering the traditional approach of pairing the money with the project, while building networks and allocating time and resources in a more productive fashion. With the commercial real estate market measured in the $100s of billions the opportunity is profound.
The founders of RealCrowd, Adam Hooper, Andy Norborg, JD Conley and Roman Rosario, claim a collective $3 billion of institutional real estate transactions captured over 20 years of deep involvement in the industry. CEO Adam Hooper has spent over a decade working in the various aspects of real estate investing – including participating in the founding of two other national operations. With the advent of the JOBS Act, Hooper saw an opportunity to play a role in transforming the industry and to be one of the companies leading the charge.
After launching the platform towards the end of the 2013, RealCrowd quickly facilitated around $50 million on their platform as the year came to a close. The real estate assets transacted on their site have included a downtown office building in San Francisco to multi-family property in Arizona to a mixed use facility in Washington, DC. All institutional quality, top notch offerings according to Hooper;
“We want to find the best real estate operators that bring quality deals to the platform. That is our focus… We want to provide access to great deals that people would not have access to otherwise.”
The traditional process of raising capital and syndicating a deal in the commercial real estate world is presently very arcane. The methods have not changed too much over the past several decades. RealCrowd is bringing the entire process into the digital age facilitating access to capital for the operators and new opportunities for the investors. They intend on engendering a massive amount of efficiency for the entire process.
“Real estate operator’s business and core focus should be finding and creating value in the real estate, not going through this investor management process… giving back to them (operators) the 20 to 30% of their time to focus on the real estate is a huge benefit for everybody.. our platform will allow the operators to focus and execute their job better as well.”
Hooper firmly believes the real estate crowdfunding market is going to be gigantic. It will become a multi-billion dollar business in the next 3 to 5 years. He states there is no reason why an investor in Florida should not be able to read about an investment opportunity in Texas and then be able to take advantage of the deal by hopping onto a web site and invest their money.
Hooper says, “This is where the industry is going. A lot of the operators we are working with get that and they are embracing the fact that this is how it is going to be.”
Doing deals with institutions is a rigorous affair. The company putting the deal together is constantly working to accommodate the capital partner and what their specific requirements may be. Crowdfunding real estate allows operators to get back to the fundamentals of creating the best capital structure for the investment. “Underwrite it and then go fund it as opposed to playing the with numbers so my institutional partner will check off on it”. Traditionally if you are doing an institutional deal you may only be working with one capital partner. For the middle market deals you need to have a network of individuals to raise a few million dollars. Institutions typically will not get involved for less than $10 million. The gap in the space between $2 to $10 (in equity) has created an opportunity for RealCrowd. That section of the real estate market is very inefficient.
“There are a lot of really good deals in that middle market space that we are attacking first,” stated Hooper.
Within the same amount of time you have called an investor and gone through the details of the investment you can post that information on our site and thousands of people can review the offer and make a decision.
RealCrowd has a very rigorous set of qualifications for operators to list deals on their platform. The good thing is their years of experience means they have pretty strong relationships with a lot of the best operators around the country. They feel this gives them a leg up versus the competition.
They have approximately 2000 accredited investors on the site now. People are allowed to sign up on the site but only go through the accreditation process once they are interested in a deal. They are handling the accreditation process internally today.
In 12 to 18 months many companies will be moving towards this space but RealCrowd is of the opinion they will benefit because they are early and they promise high quality deal flow commented Hooper.
“At this stage of the game its deal flow. Proving opportunities which will get investors engaged to get them to keep coming back to see the next deal. It will be interesting to see how some of these other platforms find their sweet spot. If it breaks down by product type, if it breaks down by geography, or by deal size – it will be interesting to see how it segments.”
Because RealCrowd has created the technology they do not see any reason why their technology may be used to power their competitors but right now they are focusing on their core product. It is Hooper’s belief that crowdfunding and real estate are a perfect marriage;
“Real estate is one of the most natural verticals for this type of access for this type of funding. A lot of attention has gone to startups which are very risky investments. With real estate there is some inherent tangible value to the asset.”
RealCrowd is doing both 506c and 5o6b offerings today but they are uncertain about retail crowdfunding. They would like to be in the space but they are still waiting to see how the regulations shake out. Right now there are just too many unknowns but they would like to allow the broadest base possible allowing opportunities to be available for the non-accredited crowd.