“2013 marked the inception of the real estate crowdfunding market, and 2014 saw its rise, and 2015 saw it soar. Early estimates projected our young industry would hit more than $2.5 billion in volume by the end of this past December – and given the booming activity we saw across the space all year, there’s no reason to think it didn’t.
“With a banner year in the books, it’s time for the real estate crowdfunding market to look forward. As with all things, what’s to come in the year ahead is hard to forecast… but that certainly won’t stop us from trying. Here are our top three predictions for real estate crowdfunding in 2016.”
See the predictions below.
1. A Front Line of the ‘Equity Crowdfunding Revolution’?
“Ever since the first JOBS Act regulations took effect in September 2013 (with the implementation of the Title II General Solicitation rules), real estate has been the proving ground for the investment crowdfunding industry at large. Especially with Title II, it made sense: Real estate was already an active area of private investing overall, and General Solicitation provided an online avenue for accredited investors to access the existing real estate private placement market.
“But the latest JOBS Act developments are a little different. 2015 saw the implementation, at long last, of two additional JOBS Act exemptions: Reg A+ and Title III, both of which enable non-accredited investors to participate in investment crowdfunding. That raises the question: Will real estate be the proving ground for true equity crowdfunding, in which anyone can invest?
“Our prediction: Yes… to some extent. Reg A+ and Title III come with unique stipulations that will make their application in real estate a bit tricky. (Title III, for example, only enables issuers of private securities to raise up to $1 million per year through the exemption – an amount that doesn’t go far in the world of commercial real estate). But given that prominent real estate crowdfunding platforms, like EarlyShares and others, have the experience and infrastructure to dive into the new regulations in unique or unexpected ways, we think it won’t be long before the non-accredited ‘equity crowdfunding revolution’ infiltrates real estate.”
2. The Number to Watch: $3.5 billion
“If real estate crowdfunding really did reach $2.57 billion in volume by the close of 2015, as Massolution projected it would, that represents a whopping 150% increase from 2014. That kind of growth is huge, especially for a market as young (and as rapidly evolving) as real estate crowdfunding.
“Should 2016 see real estate crowdfunding charge ahead at a similar pace, the market will hit the $3.5 billion mark by the end of 2016. And it may reach even higher heights, thanks to the incorporation of non-accredited investors to the playing field and the rise of new, growth-generating trends across the real estate investing market.
“What growth-generating trends? For one, increased diversification: Industry insiders expect existing real estate investors to diversify their holdings to a greater degree in 2016, potentially injecting more capital into the real estate crowdfunding market. One approach to doing that is Trend #2: More “cross-border” investments in other international locales (which often account for higher investment volume).”
3. Maturation Means Segmentation (and the Need for Aggregation)
“In articles and on conference panels across the real estate crowdfunding industry last year, we read and heard two divergent predictions regularly. Some insist that even though there are over 120 active or soon-to-be-launched real estate crowdfunding platforms in the market, that many more will debut in the near future. Others take the other line, believing platform numbers have likely peaked and 2016 will see the mergers and consolidations typical of a maturing market.
“Our prediction is more of a hybrid: more platforms and more mergers. That’s because we see the market segmenting in the year to come; the number of platforms may grow or may decrease, but the service offerings of each platform will become increasingly segmented to specific investor and capital-raiser preferences. Today, “real estate crowdfunding” encompasses a large umbrella of deal types (equity offerings; debt and ‘peer-to-peer lending’ opportunities; underwritten offerings; direct-to-investor private placements; capital raises for real estate portfolios and funds; and more). Each deal type appeals to a certain kind of real estate investor. Some appeal to more than one.
“As the market expands and platforms increasingly specialize in niche focus areas, their segmentation will breed the need for aggregation, since experienced real estate investors and rookies alike will need centralized entry points into the larger market. Aggregation, and enhanced data, will also add legitimacy and scale to the real estate crowdfunding industry – helping spur increased adoption of our promising (and rapidly growing) young sector.”