Millennials, those born between 1982 and 2004, entered the job market during one of the most difficult times that the nation experienced – the Great Recession. Loaded with student debt, no savings, big dreams, and skills learned while taking unpaid internships, millennials were trying to navigate the jobs market when large businesses were letting seasoned staff go. However, with their unwavering nature and technological savviness, this generation has made meaningful growth to an otherwise difficult market – the commercial real estate market.
Created by millennials for millennials, crowdfunding allows for comparatively small monetary investments to be made in commercial real estate, something that was previously off-limits for those that didn’t have sufficient liquidity readily available.
Real estate crowdfunding is the act of raising money from multiple investors via an internet platform to fund projects that are then collateralized by real, physical property. Generally, this can be the acquisition, construction, or stabilization, with the ultimate goal of selling the property at a profit after a set period of time. Currently, this method of raising funds serves a very specific niche in the real estate funding marketplace, filling the gaps where institutional investors would usually pass because of traditional underwriting standards.
There are currently more than 100 crowdfunding websites that have been established, though sticking to the more well-known brands tend to be safer. Usually, crowdfunding sites take one of three forms:
- Direct investments – The crowdfunder is the organizer, providing a platform for investors to invest directly with real estate owners. Real estate sponsors tend to post projects on a platform’s website for a fee, then investors can choose to invest if they find it appealing. One of the most well-known crowdfunding websites for this structure is CrowdStreet.
- Indirect (SPV) investments – The crowdfunder screens, underwrites, and approves real estate sponsor and their projects before they are listed on the website. A special purpose vehicle (SPV) is then created for the purpose of investing in the project, then selling interests in the project to investors in the form of equity or debt.
- Software-as-a-Service (SaaS) – The crowdfunder creates a fundraising software that real estate sponsors can use on their own website for their own projects. The format is very similar to direct investing, except that the projects are offered on the real estate’s sponsor website as opposed to the crowdfunding platform website.
These are just a few ways in which millennials are changing the commercial real estate landscape. At Fidelity Mortgage Lenders, we’re here to help. Contact Peter directly on PSteigleder@FidelityCA.com or give him a call on 818.422.8879. At Fidelity, we are committed to providing loans to borrowers that larger lending institutions are unable or unwilling to fund. Our constant growth is a direct relation to our response to the changing real estate marketplace while serving a growing community of property owners and investors. We look forward to working with you.