Midcourse Correction for Real Estate and Crowdfunding

Wall Street Journal writer Konrad Putzier reported this week that, “Dan Miller became a pioneer of real-estate crowdfunding about eight years ago by selling stakes in mainstream property such as hotels, apartment buildings and offices to small-time investors via the internet.

“Today, he is focused on property with an environmental bent, backing urban farms in Detroit and a grain and dairy farm in Pennsylvania’s Amish country.

His new approach reflects a broader midcourse correction for real estate and crowdfunding, the practice of financing a project by raising small amounts of money from a large number of people.”

The Journal article explained that, “Several of the original crowdfunding firms in real estate have gone out of business, or overhauled their strategies.

“Some, like Mr. Miller, switched to focus on assets that appeal to socially and environmentally conscious investors. After leaving Fundrise, the real-estate crowdfunding company he co-founded in 2012, he recently launched Steward, which invests in sustainable farms.

“Others are tinkering with the way money is raised. Fundrise, run by Mr. Miller’s brother Ben Miller, today manages pooled investment funds that take advantage of crowdfunding laws.”

Mr. Putzier stated that, “Starting in 2012, crowdfunding startups sold stakes as small as a few thousand dollars in commercial property. New regulations paved the way for real-estate investment firms to raise money across the country through Facebook ads and other social media. Proponents thought a tactic that could raise large sums while lowering marketing costs would transform real-estate investing the way Airbnb changed hospitality or Amazon changed retail.

But as the economy rebounded, more money flooded into real estate and developers suddenly had plenty of cheap funding choices. That often left crowdfunding firms with riskier, less-appealing projects that couldn’t get money elsewhere—a tough sell to investors.”

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