How Crowdfunding Could Change Commercial Real Estate

crowdfunding

I’m sure you’ve heard the term “crowdfunding” thrown around in recent months. Crowdfunding was built around the basic idea that there is strength in numbers; the concept is that a large group of informed people is much more likely to make accurate predictions about the future than a smaller group is, even if that small group is comprised entirely of experts. Websites like Kickstarter and Indigogo have made crowdfunding more popular than it’s ever been; these sites are often referred to as “donation-based” crowdfunding because project contributions come in the form of donations or are made in exchange for some kind of reward. A great example of this would be a band who goes on Kickstarter to try to raise money for studio space in order to record their first album; in return, donators would be sent a t-shirt with the band logo or a copy of the CD once it’s dropped.

The success of these crowdfunding sites raised a lot of eyebrows, including those of people in the commercial real estate industry. They felt that crowdfunding could be translated to commercial real estate, giving small business the ability to sell securities over the internet in a crowdfunding fashion. This was made illegal by the Securities Act of 1993, but the Jobs Act of 2012 made it these crowdfunding portals legal once again. There’s only one problem – regulators at the SEC aren’t as excited about these portals as investors are and have been dragging their feet when it comes to introducing ways to regulate this form of investment and commerce. While the new SEC chair Mary Jo White has told the public that passing these regulations will be a top priority, there is still no time frame as to when we can expect these regulations to be passed. And until they are passed, the commercial real estate industry is just going to have to wait to do business in this manner.

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