Real estate crowdfunding is an investment option that's seeing phenomenal growth. Crowdfunding platforms worldwide generated $10 billion in capital for 2014, funding everything from startups to major commercial real estate projects like 3 World Trade Center in New York. Real estate investment is the fastest-growing segment of crowdfunding, expected to generate $2.5 billion by the end of 2015.
This rapid growth has been spurred by changes in related SEC regulations, beginning with the 2012 JOBS Act. This opened the door to real estate crowdfunding to a wider pool of investors, including those who are considered "unaccredited." This group accounts for more than 100 million people in the U.S., who have up to now been effectively shut out of CRE investment.
Recent approval of the Act's Title III rules removed more barriers to smaller investors. These will be enacted in 2016, and this will likely generate a wave of new activity for real estate crowdfunding.
Door open for international investors
The increased activity will be influenced by a couple of trends in this area with regard to who is participating. First of all, real estate crowdfunding platforms are being opened up to international investors. Foreign investment in CRE in the U.S. has been surging over the last few years, so the investors are there. The transparency and speed offered by crowdfunding platforms are tremendously appealing to international investors, and now crowdfunding sites are beginning to offer their services globally. This has the potential to increase growth in this type of investing exponentially.
Millennials will fully participate
In addition to international investors, crowdfunding has a particular appeal for the nation's largest demographic group, the millennials. Many people in this group, born between 1980 and 1999, have been unable to participate in real estate because of high minimum investments. With these barriers lowered by the JOBS Act, millennials are likely to flock to the crowdfunding option. Their tendency to favor digital transactions and technology solutions makes this a natural fit for this age group, which now makes up 30% of the U.S. population.
May leave venture capital in the dust
Venture capital is, and will remain, a critical source of funding for CRE. It generated $48 billion in 2014. Still, crowdfunding could well surpass that mark in the coming years. The World Bank predicted that total global crowdfunding activity may hit $90 billion by 2020.
In short, growth is inevitable as crowdfunding takes a seat at the adult table of real estate investment this year. Investors will find a rapidly expanding menu of investment options, and the number of U.S. platforms dedicated to real estate investment will likely grow to more than 100 in 2016.