Myth 5: You can only crowdfund through established online providers.
Part of the JOBS Act gives a company the ability to market directly to accredited investors. That could allow apartment operators to crowdfund directly from investors instead of relying on an intermediary like Realty Mogul.
“To me, the immediate opportunity for larger private groups is for them to utilize a white-label platform but generally solicit on their own and spend their own money to create a sustainable network of investors,” Cress Capital’s Parkin says.
While Parkin admits that a sponsor creating its own platform would have to absorb some up-front costs—such as marketing, buying lists of accredited investors, and hiring investor relations (IR) professionals—the rewards could be great.
“By utilizing a third-party inbound center and an IR follow-up, you can get money directly without being exposed to third-party bad-actor and fraud risks,” Parkin says. “It streamlines compliance and administration.
“Though it will be more expensive initially, a company will have access to capital that will eventually snowball, and they won’t have to pay fees to anybody.”
In fact, Parkin could see it advancing beyond that. “As long as there aren’t too many bad actors causing the SEC to clamp down, the long-term opportunity is that a traditional money manager gets in the game, like Fidelity or Franklin Templeton,” he says. “They have enormous lists of investors.”
Eventually, Helman could see this happening as well. “You’re always going to have people that will want to do it on their own. I think that’s to be expected,” she says.
But an analyst at one established multifamily firm that is considering crowdfunding says there are a things a sponsor needs to consider if it goes this route. "If an operator/sponsor chooses to bypass the online intermediaries, then I think a big question for them is which form of media will bring in the best leads," he says. "You will see a lot of wasteful spending in the beginning stages as operators/sponsors search for the most effective media strategy to raise capital."
Myth 1:
Crowdfunding is an entirely different way to finance real estate.
Myth 2:
Crowdfunding brings together thousands of investors.
Myth 4:
Crowdfunding will provide an immediate jolt across all asset types of apartments.
Myth 5:
You can only crowdfund through established online providers.
Myth 6:
The crowdfunding mechanism matters more than the underlying fundamentals.
