Build Magazine August 2015

Build Magazine 20 There’s a revolution happening in US Real Estate financing that is changing forever how devel- opments are funded, and it’s all down to Crowdfunding. For those not familiar with the term, Crowd- funding started as a way for social and char- itable projects to raise funds from everyday people using web based technology platforms. This then evolved to enable start-ups and small businesses to raise funds by offering equity in return for small investments from hundreds of people. It didn’t take long for someone to realised that there was an oppor- tunity to use this model to fund real estate. Whilst it’s still relatively new, the growth has been astronomical with over 80 platforms launching in the US in the last three years and the top 3 platforms alone completing more than $3bn of transactions. Things are happening a lot slower here in the UK, but there are signs that both investors and developers are beginning to see the opportu- nity. Whilst alternative finance in the form of Peer-to-Peer loans, initially bridging finance and now longer-term debt fi- nance, has been available from players like LendInvest and Wellesley & Co for a couple of years, there were no equity based options available. Which is why we launched CrowdLords. Private sources of finance have always played an important role in the funding of smaller developments, with develop- ers nurturing and protecting their own networks of individuals willing to fund JVs in return for a share of the profits. Equity crowdfunding simply replac- es or supplements those personal networks with a crowd of investors enabling both sides to spread their risks. If the same happens here as has happened in the US, it will dramatically increase the funds available for devel- opments, with institutional investors as well as smaller savers clubbing togeth- er to fund everything from residential refurbishments to blocks of flats or commercial developments. This is a big opportunity for develop- ers. Banks are, by their very nature, fixed in their ways and slow to innovate. The crowd, on the other hand, has proven to be quick to spot an opportu- nity and willing to share risks - as long as they also share the rewards. This means that for forward thinking developers there’s tremendous scope to rethink their business models to accommodate these new sources of funds. Platforms like CrowdLords currently work with residential developers in three main ways. The first is the most obvious. Simply by supplementing, or replacing ‘private equity’ with ‘crowd equity’ we can provide the initial capital Crowdfunding and Development Finance Richard Bush, Co-founder of CrowdLords.com, discusses how crowdfunding is changing the face of funding in the US property market. T