Crowdfunding: A Developer’s Perspective

Jonathan Genton

Since the implementation of the Jumpstart Our Business Startups (JOBS) Act, crowdfunding has shifted how commercial real estate investments have taken place over the past few years.

The emergence of crowdfunding has had two major impacts on investing:

• It has allowed both the user of capital—in this case, the developer—and the provider of that capital—in this case, individuals—to provide a new entry into markets that would otherwise be significantly underutilized and untapped.
• The regulations now require greater transparency between dvelopers and their potential investor base, allowing for a more diverse array of channels to complete funding for a project. Allowing investors to make smaller contributions, and relatively modest sums, significantly diversifies a developer’s network of potential investors. Traditionally, a broker would act as an intermediary and raise money from individuals while charging hefty fees between 10 to 12 percent. Now, with the use of crowdfunding, there is no intermediary. Instead, an investor and developer are able to develop a direct relationship, which provides a greater sense of transparency for both, in addition to any other parties involved.

To access a much larger population of investors who are interested in investing in real estate projects, developers can provide a general guideline of the types of investors they are seeking and their expectations regarding the scope of their project. Consequently, individuals looking to contribute money towards a project can do so if their guidelines match those of the developer. Instead of developers personally selling their project to a select and well-heeled few, more individuals can utilize crowdfunding sites to pick and choose the investments that make sense for them. An added benefit is the lower risk and greater opportunity for both parties involved throughout any crowdfunding process.

Crowdfunding websites such as CrowdStreet and Realty Mogul are dominating this space because they are run by people with highly esteemed real estate backgrounds. These owners have credible ties to the investment community and their sites are exclusively created for the raising of real estate funds. Additionally, these websites have a wide array of asset classes and are very intuitive and user-friendly, which makes for a safer and more reliable investor platform. When a developer becomes ingrained in these new types of partnerships, there are a series of hoops through which they must jump. These include becoming accredited and registered; however, once this has been achieved, developers can host seminars and webinars with potential investors as often as they would like. As with any other crowdfunding platform, there is a time frame in which a developer is able to raise money.

Ultimately, crowdfunding allows developers access to potential investors across the nation that would not normally be in their investor database. As a developer constantly looking to build the next best project, it is imperative to remain at the forefront of every market trend that surfaces. Crowdfunding is still in its infancy, but with the right guidance, it has the potential to change the face of commercial real estate—a change that is already taking effect.

Jonathan Genton is founder & CEO of Genton Property Group, a Los Angeles-based privately held real estate investment and development company. Genton is responsible for all aspects of the firm’s operations, including acquisitions, development, financing and asset management.