Partner Harmen Bakker moderates a breakfast seminar on real estate crowdfunding. Read on for a summary of the event and listen to the podcast of the panel here.
What happens when you get the top players of the real estate crowdfunding arena into one room? A lively discussion on the ins and outs of one of the hottest investment opportunities around.
On February 19, Citrin Cooperman and iFunding, a real estate crowdfunding platform provider, hosted a breakfast seminar entitled “Real Estate Crowdfunding: Expanding Real Estate Development Financing and Diversifying Investors’ Portfolios with Attractive Returns” in Citrin Cooperman’s New York City office. The seminar explored the opportunities and challenges this new medium presents, as well as, how deals are structured, what sponsors look for before investing in a crowdfunding site, regulatory issues, and what’s next in terms of taking crowdfunding – as it pertains to real estate – to the next level.
The seminar consisted of a panel of industry experts including, Mark Mascia, president of Mascia Development; Mark Roderick, attorney at Flaster/Greenberg and crowdfunding regulatory expert; and William Skelley, chief executive of iFunding. Moderated by Harmen Bakker, a partner in Citrin Cooperman’s Real Estate Practice, the panel discussion focused on issues such as:
“Crowdfunding in its simplest form is just a different way to raise money,” said Roderick. “The reason it’s so exciting is that it's nothing more and nothing less than the Internet coming to the capital formation industry. The Internet directly connects buyers and sellers and, in this case, developers and investors. It sweeps away all the middle men. It’s disruptive, reduces cost, and increases efficiencies.”
On how platforms are structured: “The most common structure is when the crowd invests in a special purpose vehicle which itself invests in the operating vehicle,” Roderick said. “The limitation there is you can’t have more than 100 investors because then you become subject to the Investment Company Act of 1940. All of our securities laws are very old, and part of our challenge is we have this new investment paradigm and we still have Depression-era laws.”
How iFunding vets their deals: There is a stringent process that every deal must go through, according to Skelley, which includes an investment committee, legal due diligence, and underwriting before a final decision is made. Three to five percent of the deals that come in, pass, and are offered as potential opportunities to investors on his site. Their sweet spot? $500K to $2 million deals with a process that takes between three to seven days from first listing to funding, plus the preparation to perform due diligence and set up the legal relationship.
On what makes a crowdfunding site attractive: “I want to make sure I am getting a good deal or a better deal than what I can get from traditional financing,” said Mascia, who has used many crowdfunding platforms as a sponsor and investor. “To me what it comes down to is delivery. I’ll gladly pay more for something I can count on and deliver. There are platforms we won’t work with because they are skirting regulations. It’s more than just a real estate risk, you’re taking a platform risk.”
“The conversation seemed like it could go on for hours which is a testament to how interested people are in this topic,” said Bakker. “People really need to take notice of real estate crowdfunding as it has the potential to create great opportunity. Investors, after careful due diligence, can begin to use the platforms to diversify their portfolios. Sponsors will be able to tap into another source of capital. It is important, however, that investors and sponsors carefully review and understand the structure of the deal, the platform model, reporting provided, and the regulations to minimize their risk and increase the reward.”
For more on compensation models, the crowdfunding relationship to the broker-dealer world, and the various types of reporting information investors can receive, listen to the podcast of the event here.
For more information on Citrin Cooperman’s Real Estate Practice, contact Partner Harmen Bakker at 212-697-1000 or via email firstname.lastname@example.org.