Architecture, real estate waiting for equity crowdfunding

Crowdfunding

BIZMOLOGY — As we approach the one-year anniversary of the signing of the JOBS Act, many people still are eagerly awaiting the arrival of one key component of the law — equity crowdfunding.

The JOBS Act introduced new rules that will allow individuals to invest directly in closely held ventures. Traditionally, the US has only allowed “accredited investors” with more than $1 million in assets to buy equity in private firms. Equity crowdfunding would allow anyone to invest money into companies and projects. But before regular smaller investors can jump into the game, the Securities and Exchange Commission must first sort out the details of the new rules.

Supporters of equity crowdfunding are touting it as a way to quickly and easily raise money for smaller projects that might not get attention from big backers. Others are suggesting that crowdfunding could support things such as clean energy projects, local civic projects, or DNA sequencing research.

So far, US businesses have been able to use donation or perks-based crowdfunding and many projects such as movies, albums, and even bakeries, and research projects have been fully funded on sites such as Kickstarter and Indiegogo. Through equity crowdfunding, backers would receive stock instead of rewards for cash.

The US architecture and real estate industries are among those that are exploring new ways to finance innovative projects, and crowdfunding has been identified as a potential source. The increasingly popular method of raising capital through web-based fundraising has the potential to attract investors to real estate projects and structures, according to a report by the American Institute of Architects (AIA). Successful buildings and projects in other countries have already been completed with the help of crowdfunding. The AIA recently urged the Securities and Exchange Commission to finalize rules for the use of equity-based crowdfunding in the US. It argues that crowdfunding has the potential to increase architects’ role in the funding phase of projects and help develop close relationships and promote their design services directly to project investors. The AIA also points out that crowdfunding projects build community support for projects and open the lines of communication between designers and the public.

Real estate developers also see the potential in crowdfunding. One New-York-based company, Prodigy Network, already crowdfunded a 66-story skyscraper in Colombia and has plans to fund a US building through numerous investors paying up to $2,000, or 5 percent of their net worth, in exchange for a share in rents and property appreciation. Prodigy and others anticipate that crowdfunding platforms are poised to change the face of real estate financing as it will ease restrictions on investments and allow more individuals to invest.

Many people criticize this type of capital raising and argue that it will only perpetuate fraud. The SEC is definitely taking its time to outline the rules for equity crowdfunding. Meanwhile, at least one notable economist predicts that the global crowdfunding industry could double its annual revenue and reach $6 billion this year with or without equity crowdfunding in the US.

Laura Huchzermeyer

Laura Huchzermeyer is an industry editor for First Research at Hoover's. She keeps a watchful eye on the financial services, construction, and real estate industries. Follow her on Twitter.

Read more articles by Laura Huchzermeyer.

Comments

  1. Fundarealty says:

    How is real estate crowdfunding coming along in the US? Fundarealty is based out of Asia and we hope to get plenty of evangelists and users on the bandwagon. Hope it all goes well over on the other side and cheers to future partnerships!

    Sincerely,

    Fundarealty.com

    @fundarealty

  2. Laura Huchzermeyer Laura Huchzermeyer says:

    Equity crowdfunding for real estate and other projects has yet to be implemented in the US. Although the JOBS Act, which was passed last year, allows it, the Securities and Exchange Commission must first set rules before it can truly take off.

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