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Crowdfunding in Commercial Real Estate

One of the strengths of the internet is its ability to enable anyone to reach out and connect with others with similar interests. If there’s a niche that you’re passionate about, you’ll be able to find a like-minded community somewhere on the web. Many have taken advantage of this trend and translated it into capital production. Crowdfunding sites such as Kickstarter and Patreon cater to inventors, entrepreneurs, and artists looking to find support for their niche project. However, what started as a way for startups to gain exposure has been picked up by the commercial development sector.

Federal regulations hamper the abilities of real estate developers to receive capital from financial companies. There is, however, still a high demand for commercial development projects, which has caused many firms to consider crowdfunding an alternative method to acquire the necessary funding. Peer-to-peer real estate funding was made possible with the Jumpstart Our Business Startups (JOBS) Act in 2012, which required the SEC to write rules regarding crowdfunding and other capital formation for startups, among other things. After its passage, an amendment to the act opened up crowdfunding for anyone over the age of 17, provided that they comply with investment limits. In this way, non-SEC accredited investors can make their mark on real estate.

Part of the peer-to-peer funding is the use of an intermediary to handle transactions. This is a requirement of the JOBS Act and sets a limit of $1 million per year for what companies can raise from non-accredited investors. This is a point of contention for many real estate firms, who will often require more capital, particularly for larger and more noteworthy projects. At the moment, they mostly provide supplementary capital for developers, but if intermediary crowdfunding portals are successful in the near future, it could mean a large scale alternative to traditional funding. For now, appeals to raise the limit have been rejected by Congress.

Still, investors have taken notice of the power of crowdfunding. Not only does it allow for anybody to become an investor, but it ignores several hurdles that have faced investors for years. Crowdfunding portals allow for investors to manage their investments much more easily, and transactions can occur in a matter of hours instead of days or weeks. Portals also ensure that fundraising efforts are SEC-compliant. All manner of real estate projects, ranging in price from the thousands to the multimillions, have been impacted by crowdfunding. In fact, in 2015 alone, peer-to-peer investment went up by 300%, with $468 million invested in the market. This is still a very small portion of the market, but the growth attests to the interest that crowdfunding has generated in recent years.

Additionally, the often low investments common in crowdfunding ease some of the burdens on investors, allowing those with somewhat limited funds to still contribute. Generally, the two options for anybody looking to invest in development through crowdfunding are debt, which is paid later with interest, and equity, in which an investor receives shares of rental income. The former is more predictable and reliable, but returns are limited by the interest rate. The latter has no cap on returns, and confers investors with tax benefits, but is riskier if the project has a poor ROI.

In any case, many developers are praising crowdfunding for circumventing the regulations that limit banks lending. It’s certainly more agile than private equity, as peer-to-peer fundraising lacks the central infrastructure of a bank that requires overhead. FundRise, RealtyMogul, and RealtyShares have all emerged as strong contenders in the race to innovate in real estate crowdfunding. In the future, we’ll likely see crowdfunding provide further opportunities for both smaller real estate companies and smaller investors. It may even eventually become competitive with larger financial institutions.

The commercial development industry has taken its first steps into the world of crowdfunding, making it less costly to adhere to compliance laws and easier to invest. The digital age has allowed it to carve its own niche in the industry, one that can leverage a vast pool of investors that have previously been unable to stake claims of their own.

Eros Adragna

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REAL ESTATE AS A GLOBAL INDUSTRY

The state of the global economy, in a state of constant flux, can nevertheless be a harbinger of change in the real estate industry. For five consecutive years, the industry had enjoyed good returns, a trend that experts worry will not be sustainable in the future. Add that to Britain’s departure from the EU, weakening the global currency, and many other changing trends, and you have a recipe for uncertainty in the near future.

A large part of the industry’s current success lies in the flow of cross-border capital. The United States has enjoyed a period of dominance in the market, between a strong dollar and a slew of property opportunities. However, the problem lies in the fact that weakening foreign economies will be less poised to invest in the US and therefore lead to a future decline. Despite this, investing in US real estate is still very appealing.

In the second quarter of 2016, Cushman & Wakefield estimated in its US Capital Markets Report that over $450 billion dollars worldwide are used to target commercial real estate, going on to predict that this number would fall in 2018. Still, with US interest rates low, many expect a continued influx of foreign capital. With stiff competition for investment opportunities, many are now seeking ways to invest in secondary markets. In this way, investors and lenders are paying attention to further developments in these markets, displaying a willingness to take risks to pioneer new opportunities.

Additionally, improvements in infrastructure and energy are both possible ways for the US to continue to grow its market. With infrastructure changes adds projects in the form of warehouses, offices, and multifamily housing to accommodate for the necessary labor. Expected government spending on infrastructure has a ripple effect, with more commercial construction occurring in tandem with public works projects.

So who are these investors who are likely to continue to buoy the US real estate industry? Canada accounts for the largest percentage of investment capital, though Chinese investors have consistently emerged as the largest in every real estate sector. However, a change might occur as a result of China cracking down on large foreign real estate purchases, though it remains to be seen how strictly these new policies will be enforced.

It is also expected for High Net Worth Individuals (HNWI) to continue to invest in real estate. As their wealth increases, HNWIs are a prime opportunity for sellers, as they often lack knowledge of real estate on a global scale, with billions of potential investments currently untapped. Currently, many of these individuals are concerned with preserving wealth, so time will tell if they will take more risks in the fairly stable real estate market.

As a result of these additional investment outlets as well as a lower level of risk compared to other cities across the globe, it’s likely that foreign investors will continue to stay abreast of US real estate. In the coming years, investment volume will likely be dependent on individual desire rather than lack of information, as the consistent strength of the US real estate market has become its draw.

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Utilizing Management Software In Construction

The construction industry has recently seen something of a technological renaissance. New technologies and applications are being implemented in almost every stage of the industry’s processes. Drones are being used to analyze and assess the construction of properties, 3D printers have now become smart and powerful enough to construct buildings, and big data and the “Internet of Things” have streamlined the process of collecting information. The industry is steadily adopting these new miracles of modern day technology.

One company in particular that is truly changing the face of how the industry communicates is Procore Technologies. The company, founded in 2000, was quickly faced with the task of producing software for construction contractors, a challenge when many worksites lacked the connectivity to use technology. Founder Tooey Courtemanche built his company on the belief that construction companies, despite comprising such a large portion of the economy.

Procore’s construction management software allows developers, contractors, workers, etc. on the field to communicate quickly and efficiently throughout the entire process of construction. What makes Procore even better is its combination of the cloud and construction. A cloud is a form of Internet-based computing that grants multiple users access to documents, files, etc. at any time and makes sharing information incredibly easy. If you’re familiar with construction, on any level, having technology like this is not only convenient, it is crucial. The number of moving parts in the process makes good coordination necessary for any project to be completed. In fact, the process is so risky and challenging that most, if not all, budgets for a project have a set amount of money set aside for any rework that must be done. There are multiple mistakes that can be made during construction, and most of them are the result of poor communication. Software like Procore aims to solve these issues.

Construction management applications give every person involved in a project the opportunity to work on the same page. Live updates in the field on any device is a godsend when logistics can change at any time.

Procore has also recently launched their Construction OS platform, which acts as an open-cloud platform for third-party developers to create applications that work with Procure. As a former developer myself, I believe that third party support is a great way to improve the software lifecycle and allow companies to pioneer applications that fit their needs. I had once developed my own workflow application during a large building renovation that helped to streamline certain aspects of the process. This was well before the days of Construction OS, but I can only imagine what a boom the suite could have been to the project, especially with the necessary framework already in place.

Personally having used and developed project specific applications in creating efficiencies in the construction process. I feel that the industry has adopted and accepted technology as a welcomed change. The construction industry is starting to adapt to the changes of the 21st century, and management applications and software are being noticed for their ability to streamline communications and logistics. Last year, Oracle purchased Textura, another construction management software company, showing its dedication to servicing the industry.

Textura's Latista is another piece of software intended to help manage construction projects.

With more technological advancements, more applications similar to Procore will arise. That isn’t to say that there aren’t already comparable workflow applications. Tools like BIM 360 or PlanGrid all include very similar features, such as document sharing across the team, 3D architecture software, and secure cloud backup. Other tools, such as SiteMax, include unique features like 24-hour weather information, inventory tracking, and even an Apple TV real-time project view. However, Procore’s Construction OS is a unique feature that sets it apart from its competition. Giving developers firsthand access to Procore’s tools and information in order to create applications set on boosting communication and eliminating mistakes really sets Procore apart from the competition and is a testament to their impact on the construction industry.