Crowdfunding continues on a roll, capturing an increasing share of the capital stack. This shouldn’t be a surprise as the sector is rapidly maturing and attracting an expanded set of investors to the asset class, say RealCrowd co-founders Adam Hooper and Roman Rosario. Prior to its launch, the Palo Alto, Calif.–based RealCrowd completed more than $5 billion in aggregate volume of office, industrial, retail and multifamily investment transactions. Hooper and Rosario named the following five drivers for the real estate crowdfunding sector in 2015:
- The average net worth of investors participating in CRE crowdfunding will continue to rise. Well-heeled investors, some of whom have previously participated in real estate syndications and some of whom have not, continue to migrate to online real estate investing. As an example, the current average net worth of investors on the RealCrowd.com platform is just under $9 million. By this time next year, the firm expects the figure to top $10 million.
- The average capitalized value of properties utilizing crowdfunding will increase further. The sector is attracting operators and sponsors intent on financing or refinancing higher-value properties, and online investors appear to be keenly interested in higher-value properties, which often are perceived to be of better quality with lower risk. In 2015, the industry will see several properties valued at $100 million or more successfully tap the online market of crowd-investors.
- The pool of investors participating in online syndication will continue to diversify. Crowdfunding and online syndication platforms are allowing new members—particularly the young and tech savvy—to diversify their portfolios by joining the real estate investment club for private placements. At RealCrowd, 74 percent of investors are between the ages of 25 and 49, with a substantial number of women participating.
- Crowdfunding’s share of the capital stack will continue to rise. Given the relatively low cost of raising capital and the ease of conducting investor relations online, crowdfunding’s share of the capital stack is increasing. Now even large funds, private REITs and other national operators are onboard. One of RealCrowd’s recent operators, for example, used a broker-dealer to raise money at a 13 percent load (fee or commission based on total capital raised). Crowdfunding can cut capital raising costs to a fraction of what they are for traditional real estate syndications and allow operators to reach even more prospective investors.
- The aggregate amount of money raised through crowdfunding will triple in 2015. For all of these reasons, the aggregate volume of commercial real estate capital raised through crowdfunding will triple in 2015, from under $100 million in 2014 to north of $250 million in 2015.