Until recently, investors interested in commercial real estate were primarily regulated to investing through private equity firms or real estate investment trusts (REITs). For most individuals, access to individual commercial real estate investments was out of reach. However, it became much easier after April of 2012, with Congress’ bipartisan passage of the Jumpstart Our Business Startup (JOBS) Act. The JOBS Act was endorsed as a measure to support entrepreneurship and foster economic growth for small businesses by easing burdensome federal securities regulations.
It’s starting to work. In fact, according to a recent article by The Wall Street Journal, crowdfunding for real estate has been responsible for raising over $135 million in investments in equity and debt since 2012. It seems crowdfunding and commercial real estate are a natural fit.
The process is simple. An investor is given access to individual or pooled commercial real estate projects, including self-storage facilities, retail properties, office buildings and multifamily housing units, through an online platform like FullCapitalStack.com. Money from each investor is pooled together for one specific investment until the crowdfunding raise target is met. Typically, individuals can invest as little as $5,000 in a real estate project but may invest more if they wish.
That said, there are a few factors investors should consider before engaging in commercial real estate crowdfunding.
1) Currently, only Accredited Investors can participate. An Accredited Investor is an individual who has earned more than $200,000 or more a year ($300,000 with spouse) for the past two years and has a reasonable expectation of such income in the current year or who has a net worth exceeding $1 million excluding such person’s primary residence. The U.S. Securities and Exchange Commission are working on regulations to make commercial real estate crowdfunding available to non-accredited investors in the very near future. However, there is mounting frustration in the crowdfunding community that the regulations are taking longer than expected to promulgate.
2) Real estate crowdfunding investments are available for multiple investment strategies. FullCapitalStack offers investments in commercial real estate in the form of common equity, preferred equity, mezzanine debt and senior debt. Investors should consider which investment strategy best suits their needs, as each type has its own risks and rewards. See our blogs for comparisons of the different investment vehicles.
3) Crowdfunding offers advantages over traditional investment methods. Traditional commercial real estate investment strategies include operating the property, investing through private equity firms or purchasing shares in a REIT. Though these strategies can prove to be lucrative, the expertise and capital involved in operating your own property, and the fees and lack of transparency involved in private equity and REIT investments often make traditional commercial real estate investing less attractive and less accessible to individual investors.
In comparison, FullCapitalStack’s crowdfunding platform gives Accredited Investors access and transparency at more affordable minimum investment levels. Through a user-friendly, web-based platform, investors can view a professional, detailed investment information package to evaluate properties and sponsors. As a result, investors have direct access to a diverse portfolio of commercial real estate without paying extra fees to go through a private equity firm or REIT.
One thing is certain, commercial real estate crowdfunding continues to evolve, and investors are excited about the new and creative ways to participate. As the number of investment opportunities increases, it is important that individuals look to reputable sites that offer comprehensive due diligence and transparency.
FullCapitalStack and its affiliates offer full transparency and the most in-depth analysis in commercial real estate crowdfunding.