When it comes to crowdfunding, Dan Fasulo, managing director at New York-based commercial research firm Real Capital Analytics has a number of questions.

But after the problems that Tenant-In-Common (TIC) structures had in the last cycle, one particular question seems most relevant.

“What happens if something goes wrong and equity has to contribute more?,” Fasulo asks. “Are they going to go back to the folks who provided the original equity [through crowdfunding]?”

The crowdfunding firms out there acknowledge this is a concern.

“One of the problems with TICs was that they didn’t have anybody who was making decisions on behalf of all of the desperate investors,” says Jilliene Helman, CEO of Los Angeles-based Realty Mogul. “On equity transactions, we’re pooling all investors into a single purpose LLC. We have the ability to make decisions and move quickly in the best interest of collective investors.”

But, with capital calls remaining a potential hurdle under the structure, crowdfunding providers say they are being disciplined in vetting the apartment operators they chose to work with.

Rodrigo Niño, CEO of Prodigy Network, a New York-based crowdfunding provider, wants to eliminate capital-call risk by only working with only strong sponsors and assets.

“It’s about the underlying asset,” he says. “If you don’t have a strong sponsor, you may require the crowd to come up with additional capital.”

J. Antonio Marquez, a principal at Comunidad Realty Partners, a San Diego-based apartment owner with 3,000 units in Texas, recently funded a project through Realty Mogul. Though he has never needed to make a capital call, he has been mapping out a plan for what he would do after receiving $500,000 in equity from Realty Mogul.

“Even if it came down to recapitalizing the asset in its entirety, we’re evaluating some other alternatives so that we could get around it,” he says.

Background Check
Though crowdfunding is relatively new, the providers seem to vet sponsors just as much as traditional capital sources.

“We went through due diligence and a vetting process on us as principals that was pretty standard,” Marquez says.

Jake Seid, of Auction.com, an online real estate auction place based in Irvine, Calif., says the cowdfunding provider needs to have certainty in the operator to sell the asset to investors.

“The more transparency that you have on the operator’s track record is a powerful thing for a lot of people,” he says. “It helps share alignments between operator and crowdfunding investor.”

Niño also emphasizes the importance of the operator.

“I think its operator dependent, not just real estate dependent,” he says. “Crowdfunding is not about buying that apartment building. It’s about partnering with an operator who is going to run that apartment building.”

Niño is aware that any single crowdfunding failure could reflect poorly on the entire model. But ultimately success or failure depends on more than just the structure of the deal.

“A big misconception is that the model itself can generate good return,” he says. “The model is nothing. The underlying assets have to get a good yield.”