Crowdfunding for real estate seen topping US$2.5b this year

[LOS ANGELES] Crowdfunding for real estate is likely to jump to US$2.57 billion worldwide this year, two and a half times the total in 2014, as more people become comfortable with the investing model, research company Massolution said.

Property crowdfunding, in which large amounts of money are raised through small contributions, is probably going to climb from US$1.01 billion last year and US$396.4 million in 2013, Los Angeles-based Massolution said in a report released on Tuesday. Individual fundraising campaigns ranged from less than US$100,000 to more than US$20 million last year, according to the crowdfunding research and advisory firm.

The real estate industry has about 85 active crowdfunding platforms, including companies such as Realty Mogul and Fundrise LLC that collect small contributions from investors, Massolution said. Low interest rates have made investments such as bonds relatively less attractive, driving those searching for yield to real estate and making it one of the fastest-growing segments in crowdfunding, according to the study.

"Real estate, in a rebound over the last five years, has become a much-sought-after asset class, largely due to the search for higher current income, shadowing a growing weariness of high-valued stocks and anemic fixed-income offerings," Massolution said in the report.

Crowdfunding gained traction after the Jumpstart Our Business Startups Act went into effect in April 2012. Once final rules related to the JOBS Act are in place, restrictions will be eased on investments in closely held companies, including those set up to own commercial property, by people making less than US$200,000 a year or with a net worth of less than US$1 million.

The owner of Southern California's Hard Rock Hotel Palm Springs last year raised more than US$1.5 million by selling stakes in the 163-room luxury resort through Realty Mogul. Investors received such benefits as improved bookings, room-rate discounts and free use of a poolside cabana set aside for hotel owners.

Other projects raising money through crowdfunding include the 3 World Trade Center tower in New York. Fundrise is inviting individual investors to put as little as US$5,000 into bonds backing the 80-story skyscraper, the company said in January.

North America is the largest region for crowdfunding, with investments likely to climb 151 per cent to US$1.42 billion this year, Massolution said. Worldwide, total real estate crowdfunding investments are expected to grow to more than US$250 billion by the end of 2020, according to the study.

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