LLoyd Jones | Crowdfunding, Senior Housing Optimism & Billionaires’ Race to the Sky

Curious about crowdfunding? You are not alone. There were 6,455,080 worldwide crowdfunding campaigns last year (fundera.com). Over the past 10+ years, crowdfunding sites have proliferated, providing an excellent source of investment opportunities in a variety of asset classes.

But crowdfunding is not new. Back in 1885, the Statue of Liberty arrived in pieces in New York Harbor, but New York did not have the funds to install the statue, and U.S. Congress was unwilling. But Philadelphia, San Francisco, and Baltimore would have been happy to have it. That’s when Joseph Pulitzer, the publisher of the New York World, asked the newspaper’s readers to contribute – i.e., to crowdfund – the assembly and installation of Lady Liberty. Within five months the publication raised enough to install the statute. Three- quarters of the donations were less than one dollar. So, Lady Liberty ended up in New York Harbor thanks to the many small investors.

And what about Jeff Bezos and Amazon? Another “crowdfunding” effort. In the beginning, Bezos raised $1 million dollars through 22 individual investors, each contributing $50,000. In exchange, he gave away 20% of the company. A company that is now worth over ONE TRILLION DOLLARS. Now that was a good investment!

Today, global crowdfunding is a $10.8 billion industry, growing at approximately 45% between 2022-2030, according to Custom Market Insights (CMI.) Here in the U.S. one of the largest real estate crowdfunding firms has seen as much as $4 billion invested capital in the past ten years and over 300,000 investors.

Real estate investing through crowdfunding has become a very viable opportunity both for the “accredited investor“ and for smaller family offices. Investment units are smaller, giving non-institutional investors access to opportunities that most would not even hear about. The assets are typically institutional-quality, and investors can even participate in funds containing several such assets, thus spreading their risk.

The key to crowdfunding investment is the sponsor/operator. Real estate is a big business, so you should know who is running that business. The sponsor identifies and underwrites the investment, then creates a business plan based on the financial analysis. This analysis determines the projected returns, so the sponsor must be experienced underwriting the specific asset class, but also in operating the investment to achieve the projected outcomes.

Experience is critical, especially during up-and-down markets. Sponsors must evaluate risk – and underwrite for it. That skill comes with experience over many economic cycles. Remember, your investment is probably a five-year commitment, and the economic environment will change – sometimes drastically and abruptly – during those years. Be sure your sponsor has met those challenges previously.

Operational experience is also paramount. Management (of any asset) is not a “seat of your pants” job. It requires proven programs and procedures. We have often said that management is the most important element of an investment. The operator must have the skill to implement the business plan and meet performance expectations, again, even if the economic environment should change.

The track record is a good indicator of the sponsor expertise. Every sponsor will have a few disappointments, but the track record average should align with its projected outcomes. All investments have risks. Responsible sponsors will share that risk with their investors by putting their own capital into the investment.

These sponsor attributes are equally appliable to institutional investors and individuals participating in crowdfunding. With crowdfunding, you will find numerous platforms that offer investments submitted by individual sponsors. In other cases, sponsors will maintain their own exclusive platform with their own acquisitions. In any case, the sponsor’s reputation and experience are paramount. You are entrusting your funds to them; you want to know who will be running your business.