From $19 million in 2012 to an estimated $3.5 billion in 2016, the real estate crowdfunding sector is amongst the most active of the global alternative finance industry. Some even expect it to represent more than $300 billion by 2025. Impressive as this figure might seem, it is well within reach as real estate crowdfunding only represents a fraction of the global real estate market.
In 2015 for instance, the $1.5 billion of the US digital real estate market accounted for 60% of the activity globally, and this while representing only 0.3% of all real estate transactions in the country. The predominance of the US can be partly explained by the housing crash of 2007 that drove property prices down, followed by the JOBS act that paved the way for the emergence of alternative financing mechanisms to ward off the credit crunch. Naturally, leading real estate crowdfunding platforms are well-placed to benefit from this situation, but upstart firms also have room to grow and many niche segments have yet to be impacted by this shift.
Several trends are expected to drive the growth of the global real estate crowdfunding industry in 2017:
Institutional involvement
Similar to the involvement of institutional investors in online lending platforms, real estate crowdfunding is becoming increasingly appealing to established investors as leading actors are now able to provide them with a sufficient amount of data for them to make an informed investing decision. As they build their respective track-records, online real estate marketplaces are becoming a viable option for risk-averse investors. Indeed, with hundreds of millions raised and average returns in the 10% to 16% range, real estate crowdfunding platforms provide risk-adjusted returns that are more than attractive when long-term treasuries remain below 3%. And given the amplitude of this spread, even an expected increase in interest rates would have to be far exceeding the current expectations to have a significant impact on potential investors.
Consolidation / Diversification
With several real estate crowdfunding platforms already out there, a consolidation of the industry is bound to take place in the near future. And by all accounts, this phenomenon will result in a more mature industry. Indeed, size does matter when it comes to building a solid-deal flow to satisfy an ever-growing investor-base. However, smaller platforms also have the opportunity to focus on niche segments (either geographically or by offering more specific financial products). Here again, this situation is comparable to the online lending marketplace sector where the biggest actors diversify their offerings while others specialize in smaller unexplored segments.
Lower entry tickets
Since the adoption of Title IV of the JOBS Act, real estate crowdfunding platforms are now able to provide non-accredited investors with an opportunity to invest in real estate, either directly or through eREITs (electronic Real Estate Investment Trusts) that can be used to easily diversify a given investor’s portfolio from potential risks. In that spirit, Fundrise (one of the leading platforms) recently launched five ‘eREITs’, expecting to raise an additional $250 million by doing so. However, only time will tell if this type of initiative will become the norm: compared to traditional REITs there is no daily mark-to-market and shares can only be redeemed on a quarterly basis, which lowers the liquidity and exposes the platform to simultaneous withdrawals in case of unexpected turmoil.
Global uncertainty
Macro-economic shifts underway with economic policy shifts and the consequent lack of visibility, and the consequent lack of visibility, the real estate sector appears as an attractive space to invest in with relatively low volatility and the solid value of its underlying assets. As a result, individual investors (accredited or not) and financial institutions are inclined to enter the market or reinforce their positions. Which is in turn expected to further fuel the growth of real estate crowdfunding platforms across the globe.
At Crowd Valley, we have been actively following the global emergence and expansion of real estate crowdfunding. We’ve also assisted many clients in the creation of their own platforms, in all the major markets and across many types of asset classes. Any interested party shouldn’t hesitate to get in touch with us to benefit from our expertise in this growing industry.
Several trends are expected to drive the growth of the global real estate crowdfunding industry in 2017:
Institutional involvement
Similar to the involvement of institutional investors in online lending platforms, real estate crowdfunding is becoming increasingly appealing to established investors as leading actors are now able to provide them with a sufficient amount of data for them to make an informed investing decision. As they build their respective track-records, online real estate marketplaces are becoming a viable option for risk-averse investors. Indeed, with hundreds of millions raised and average returns in the 10% to 16% range, real estate crowdfunding platforms provide risk-adjusted returns that are more than attractive when long-term treasuries remain below 3%. And given the amplitude of this spread, even an expected increase in interest rates would have to be far exceeding the current expectations to have a significant impact on potential investors.
Consolidation / Diversification
With several real estate crowdfunding platforms already out there, a consolidation of the industry is bound to take place in the near future. And by all accounts, this phenomenon will result in a more mature industry. Indeed, size does matter when it comes to building a solid-deal flow to satisfy an ever-growing investor-base. However, smaller platforms also have the opportunity to focus on niche segments (either geographically or by offering more specific financial products). Here again, this situation is comparable to the online lending marketplace sector where the biggest actors diversify their offerings while others specialize in smaller unexplored segments.
Lower entry tickets
Since the adoption of Title IV of the JOBS Act, real estate crowdfunding platforms are now able to provide non-accredited investors with an opportunity to invest in real estate, either directly or through eREITs (electronic Real Estate Investment Trusts) that can be used to easily diversify a given investor’s portfolio from potential risks. In that spirit, Fundrise (one of the leading platforms) recently launched five ‘eREITs’, expecting to raise an additional $250 million by doing so. However, only time will tell if this type of initiative will become the norm: compared to traditional REITs there is no daily mark-to-market and shares can only be redeemed on a quarterly basis, which lowers the liquidity and exposes the platform to simultaneous withdrawals in case of unexpected turmoil.
Global uncertainty
Macro-economic shifts underway with economic policy shifts and the consequent lack of visibility, and the consequent lack of visibility, the real estate sector appears as an attractive space to invest in with relatively low volatility and the solid value of its underlying assets. As a result, individual investors (accredited or not) and financial institutions are inclined to enter the market or reinforce their positions. Which is in turn expected to further fuel the growth of real estate crowdfunding platforms across the globe.
At Crowd Valley, we have been actively following the global emergence and expansion of real estate crowdfunding. We’ve also assisted many clients in the creation of their own platforms, in all the major markets and across many types of asset classes. Any interested party shouldn’t hesitate to get in touch with us to benefit from our expertise in this growing industry.
About the author - Enzo Ramos
Born and raised in France, Enzo began working within Fintech in 2014, covering the regulatory changes that enabled the creation of French equity crowdfunding platforms for Lyon Place Financière, an association that regroups all actors of Auvergne-Rhône-Alpes’ financial place. There, he also worked on an exhaustive analysis of the regional stock market among other duties. Enzo has lived and studied in different countries, including the United States (Philadelphia & Monroe, MI) and France (Paris & Lyon).
Born and raised in France, Enzo began working within Fintech in 2014, covering the regulatory changes that enabled the creation of French equity crowdfunding platforms for Lyon Place Financière, an association that regroups all actors of Auvergne-Rhône-Alpes’ financial place. There, he also worked on an exhaustive analysis of the regional stock market among other duties. Enzo has lived and studied in different countries, including the United States (Philadelphia & Monroe, MI) and France (Paris & Lyon).
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