MANHATTAN — A crop of new real estate startups is turning to crowdfunding as a way to get buildings off the ground.
Instead of developers having to rely on banks or professional investors, these new platforms let them go directly to “the people” to finance projects — and individuals previously shut out of the world of real estate investing typically reserved only for the super-rich can now buy a slice of the pie for as little as $100.
But all are hoping to make the real estate investment process slightly more transparent. In addition, those with New York projects also hope to use crowdsourcing to create a buzz for their buildings.
“In the wealth management world there are only two big assets: bonds and stock, and this is the creation of a totally new asset class," said Rodrigo Niño, Prodigy Network’s founder and chief executive officer.
"People have the opportunity to invest in something that wasn’t available before."
Niño’s New York-based company turned to the “crowd” to raise more than $30 million — with starting shares of $100,000 — to convert an apartment building in the Financial District into a 23-story 191-unit luxury extended-stay business hotel.
Niño is hoping its “cotel” — as the project at 17 John St. is called — will spur a unique kind of “collaborative community” of likeminded guests. To get started designing its lounges, co-working spaces and other communal areas, Prodigy is launching a public competition at an event Thursday at Social Media Week.
“It’s transformative and disruptive,” Niño said of using crowdsourcing to fund commercial real estate projects. “It opens a $15 trillion industry.”
His goal is to build something big here with shares starting at $20,000, he said, noting that Prodigy is working on a massive 1.2 million-square-foot, 66-story skyscraper in Colombia that 6,200 investors helped fund with shares starting at that level.
Crowdfunding in real estate only became an option in the fall of 2013 when the Securities and Exchange Commission lifted a ban on private companies advertising investment opportunities on projects that weren't registered with them
Under the new rules — through the Jumpstart Our Business Startups, or JOBS, Act — the SEC is allowing firms to advertise projects on the condition they restrict the process to “accredited” investors — households headed by people with annual incomes of $200,000 or a net worth of at least $1 million.
However, the SEC is expected to soon lift its ban on unaccredited investors on campaigns seeking less than $1 million, experts said.
Still, these companies are making it easier to become mini moguls with many investors putting money in multiple projects, explained Nav Athwal, CEO of the California-based RealtyShares where investments average $12,000.
Athwal, whose company is planning to announce its first New York City-based crowdfunded project in the coming weeks, echoed that the process is good for those who always wanted to invest but never had the access before.
In the past, he said, “If you want[ed] to invest in real estate there’s only a limited way: Buy your own apartment and manage it ... Or you have to be part of a private syndicate [of investors], and it’s the country club model of who you know.”
Brothers Ben and Daniel Miller started Fundrise when they were working as real estate developers in Washington, D.C. and learned that their “money partners” wanted something different from what the community wanted. So they decided to cut out the middleman and go straight to the community for funding.
“We’re very focused on allowing everybody to invest in real estate,” Ben Miller said.
“When you walk around your neighborhood, who owns the buildings, who’s profiting from it? Not you — and that’s not how it should be.”
The brothers hope that if locals have a financial stake in their neighborhood buildings, they will become more invested in the political process governing them and, in turn, that local governments will be more responsive.
Fundrise’s first New York project — an apartment building at 151 Dupont St. in Greenpoint — raised its $225,000 of the $700,000 project only from accredited investors with a minimum investment of $5,000.
But its next project — a boutique hotel in Gowanus — plans to raise capital from unaccredited investors with shares expected to start at $100, Daniel Miller said. They are able to accept cash from unaccredited investors because they registered the project with the SEC, they said.
Because developers in New York often have access to capital more so than in other cities, crowdsourcing here takes on other meanings, the brothers said.
“Crowdfunding is a really a different use in New York than in Cleveland,” Daniel Miller noted. “In those cities the project’s not happening [without crowdfunding]. In New York, it’s about the projects that really want to engage the people locally. It’s about the brand.”