Crowdfunding could affect commercial real estate

Crowdfunding may soon have a big effect on commercial real estate.

The act of hitting the Internet and pitching in money with others to fund a bigger project or product – crowdfunding – has been gaining popularity. However, most of these ventures have been reserved for movies, music videos, small products or movements.

Now, crowdfunding may be entering a new arena: Commercial real estate. The movement has only recently started, so it is yet to be seen if it will gain steam and have much of an impact in the industry.

Several companies recently have come together to fund acquisitions and development projects, according to National Real Estate Investor. Some have even pushed into CRE investment and have raked in millions of dollars.

One such project, Realty Mogul, started just seven months ago and already has $8 million in assets, which it has invested in 25 projects, National Real Estate Investor reported. Jilliene Helman, CEO of the company, said the firm's focus is on buying cash-flowing assets for developments such as apartments, retail properties and self-storage facilities. The firm's average investment is $20,000, but some are $5,000 to $10,000, depending on the project.

While this may sound like a great way to fund projects and make money for investors, Helman warned that participants need to be cautious.

"I think investors need to be very cautious about who they are working with, understanding their backgrounds and waiting to invest before they are really, really comfortable," Helman said to the magazine.

Legislation stokes interest
The U.S. government has recently passed legislation that aims to accommodate crowdfunding. The U.S. Securities and Exchange Commission recently wrote new rules that would allow such companies to raise funds from all investors, not just qualified accredited investors, NREI said. The proposal is in a public comment period, and responses are expected back early in the new year.

In 2012, the government passed the Jumpstart Our Business Startups (JOBS) Act, which ended an 80-year-old ban on "general solicitation" advertising. The old law was put in place to protect investors from schemers marketing get-rich-quick scams.

The new moves by the government means crowdfunders can take to the Internet and ask for funds from investors, even via Twitter, Facebook or through more traditional advertisements, the Wall Street Journal reported. This has linked investors from around the world to fund a certain product or project, whereas in the past, startups or other ventures could only solicit money from friends, family members or investors introduced by "financial intermediaries," the source reported.

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