What’s the deal with real estate crowdfunding? Where did it come from? WHO did it come from? WHY did it come from?
Let’s get into the shits.
Let's rewind to 2012.
Real estate crowdfunding wasn't even a blip on most people's radars until the JOBS Act crashed the party, changing the game for good. This piece of legislation was like giving the middle finger to the exclusive club of real estate investing, suddenly allowing everyone with a bit of cash to get in on the action.
Before this, getting into real estate deals was like trying to crash a VIP party — nearly impossible unless you were rolling in it. The JOBS Act cracked this wide open, spawning a bunch of platforms eager to get everyday investors on board. The moment was ripe for innovation. Venture capital for startups in the U.S. jumped from $11B in 2020 to $17B by 2013 to $26B by 2015. People had already forgetten about the Great Financial Crisis and investors were getting randy.
In the early days, you had companies like Fundrise and RealtyMogul stepping into the unknown, navigating through a maze of new rules to bring real estate crowdfunding to the masses.
It was the Wild West (and yea a number of the early entrants were based on the West Coast, with its loose morals and easy money.) These platforms explored the boundaries of the rules in uncharted territory. It wasn't all gun smoke, however. In Washington DC, the brothers Ben and Dan Miller (scions of a real estate family) founded Fundrise in 2010, before the JOBS Act, and were already lobbying congress.
Investors were curious, throwing money at various projects with varying success. It was all trial and error, with plenty of learning curves and whispered failures along the way.But people were skeptical! Most people think real estate investors are assholes, including assholes. A lot of real estate crowdfunding platforms never even made it out the gate because, well, the whole thing sounds a little ponzi-ish. “When grandma hears about crowdfunding, they put their last $1000 into this”
Tycoon guy was right! But Cuban was also right… it’s a ripoff name.
Early platforms didn't all suffer the fate of the Tycoon guy. Some pursued more believable angles on the idea.
— PeerStreet focused on single-family flips
— EquityMultiple was backed by serious sounding commercial real estate guys
— Fundrise moved quickly into more diversified stuff, making sure they could never be accused of stealing grandma's nest egg.
By the mid-2010s, real estate crowdfunding had hit its stride, becoming a legit way to invest your dough. New platforms were popping up left and right, each trying to outdo the others with unique angles on the same idea. From swanky city apartments to suburban fixer-uppers, everything was up for grabs.
The introduction of Regulation A+ threw gasoline on the fire, letting companies raise serious money and bringing even more investors into the fold. The market got hotter, messier, and a hell of a lot more interesting.
It wasn't all good! RealtyShares rivaled Fundrise as the biggest company in the space by 2017. They got over their skis and had sold off for parts by 2018. A bunch of other platforms went bust, including Prodigy Network, whose founder tragically passed away.
For those that remained, the space rode the longest bull market in U.S. history to legitimacy. By 2022, CrowdStreet claimed to have raised over $2.8B.
2022 was a really bad year for real estate! Interest rates went up, real estate values went down, and investors weren't so rosy on new(ish) ideas. From what we can tell, real estate crowdfunding suffered too. A few of the highlights:
— CrowdStreet sent a bunch of money to a sponsor who Madoff with all the money. Investors want heads to roll.
— PeerStreet filed for chapter 11. Whoops!
— Yieldstreet bought Cadre.
The real estate crowdfunding industry is going to survive. What it looks like in the future is anyone's guess. We can expect to see more platforms consolidate, especially if the VC community isn't so gung ho on the space anymore. Hopefully we see the space continue to grow up and provide real value for investors.
Stay tuned here. When we know more, you will too.