September 14th, 2010 marked the 50th?anniversary of Real Estate Investment Trusts in the U.S.? For the first time, REITs brought the benefits of commercial real estate to the average investor. Since then, investors have risen to the opportunity and today U.S. REITs constitute a more than $300 billion equity market, with an average daily trading volume of about $4 billion. Globally, REITs and listed property companies constitute a more than $700 billion industry, making listed REITs and the real estate investment universe collectively a more than $1 trillion market.
However, with crowdfunding now on the scene, many are wondering if crowdfunding could actually be the new REIT. Some industry experts think it could be as crowdfunding is a powerful means of accessing social capital for businesses, philanthropy and personal projects, and that can certainly involve real estate.? ?Where REITs gave the average investor the opportunity to invest remotely in real estate as an amorphous asset class, crowdfunding brings the opportunity to invest in local assets and enterprises directly to the people who are most interested in their long term success ? stakeholders in the surrounding community.
Crowdfunding allows social and business entrepreneurs to access funding online directly from donors and investors. Currently, donations, rewards, and lending based crowdfunding are legal in the U.S. for virtually any kind of project; with no upwards cap on what can be crowdfunded.? The JOBS Act legalizes equity based crowdfunding but the SEC is still currently defining rules.? As of now, equity fundraisers will have raise ceilings of $1-2m/year/entity, while investors can be accredited and non-accredited, according to their income and net worth over a prior 12 month period.
Interestingly, crowdfunding is unique in that it gives a voice to a new set of stakeholders who desire more than just financial returns.? With crowdfunding, investors and donors not only consider traditional return models of sale, refinancing and distribution, but they are also driven by the desire to be part of a greater cause.? The feeling of participating in crowdfunding a community building, a new hospital for children, a local farmer?s market facility, or, just being involved in supporting local enterprises are some of the new reasons the crowd will invest in business ideas and innovative real estate projects.? Moreover, crowdfunding is already taking hold as a means of financing startups in the real estate supply chain, including alternative energy and solar, green buildings, materials and technology and service companies.
While crowdfunding may not be for all real estate endeavors, it certainly seems to be a match for certain kinds of real estate, especially public, neighborhood and pre-institutional projects.? Consider four primarily real estate driven scenarios:? a) community development, b) leasehold, c) development projects, and, d) acquisitions.
For communities, crowdfunding is a serious win using donation-rewards.
Non-profit organizations can crowdfund donations-rewards with no upward cap for any kind of project. This is an amazing opportunity for people who live in a community to participate in making it come to life. ?Government projects that benefit the community are a match as well.? Consider building a playground funded by the people who will use it, and their friends, and so on.? Take crowdfunding a step further to include infrastructure.? Donation-rewards is an opportunity to contribute to the development of important public spaces.
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