NUTS & BOLTS THE BIG PICTURE
STRATEGIES: REITs STRAT I : CROWDFUNDING
An Intriguing Alternative INVESTING IN ALTERNATIVE FINANCIAL OPPORTUNITIES HAS BEEN MADE INFINITELY SIMPLER BECAUSE OF THE INTERNET.
rumors that a correction is expect- ed in the not-too-distant future.
Real estate crowdfunding (RECF) has been gaining worldwide attention due to its ability to connect both serious investors and real estate developers on one online platform, excluding the middleman. Real estate crowdfunding has brought investors online using the latest automation technol- ogy to diversify investment portfolios of accredited investors worldwide. Real estate lends itself especially well to this alternative style of investment. Tradi- tionally, real estate investments required great sums of money and a significant period of time for the project to develop a revenue stream. Each of these aspects kept smaller investors out of the market because they could not afford to put that much capital and time into one asset. With RECF, online platforms can post numerous real estate projects, with a set funding goal stated. Investors can con- tribute as little as $1,000 and can track the progress of the funding—and later the project—on their laptops or mobile devices. The process doesn’t require the intense oversight typical to most real estate investments, and investors gener- ally receive monthly distributions based on their percentage of ownership. Crowdfunding is on the desk of the U.S. Securities and Exchange Commis- sion (SEC) as well. The 2012 Jumpstart Our Business Startups Act (JOBS) estab- lished the foundation for a regulatory structure for small businesses and start- ups to access capital through a crowd- funding source. The rules also eliminate the necessity for internet-based invest- ment platforms that sell these securities to register with the SEC as brokers. LOWER INVESTMENT THRESHOLDS
crowdfunding is here to stay. Venture capitalist Charles Moldow predicts that marketplace lending platforms will generate $1 trillion in loans by 2025. Now that real estate has gained its own Global Industry Classification Standard (GICS) sector, inves- tors are again looking toward real estate as a serious way to diversify their portfolios. RECF platforms typically vet and ap- prove real estate loans for ground-up con- struction, value-add and stabilized prop- erties. Once those projects are approved, they are placed on the platform for investors to view and invest in. This use of transparency and technology completely reinvents the way that investors invest in real estate. At the touch of a fingertip, investors can view properties, public loan documents, appraisals and renovation plans to perform their own due diligence prior to investing. The software behind RECF platforms is also responsible for distributing returns to investors. Considering the concerns with tradi- tional investments, RECF is now recog- nized as a legitimate portal for millions of investors to harness the power of their discretionary income. Real estate has always offered reliable investment stability. Together, online crowdfunding and real estate offer in- credible investment potential. • marketplace and enables property owners and developers (aka sponsors) to gain access to capital quickly and at a competitive rate. Shayanfekr’s legal expertise (currently admitted to practice law in New York and Connecticut) in securities law is paramount to Sharestates’ ability to promote and produce public and private offerings in a highly regulated space. He interacts regularly with the Securities and Exchange Commission, in addition to spearheading daily operations at Sharestates. Shayanfekr received his J.D. Magna Cum Laude from Touro Law Center, where he graduated in the top 6 percent of his class, and his B.A. in Political Science from New York University. Allen Shayanfekr, Esq., is the CEO and Founder of Sharestates, which offers investors direct access to real estate investments through an online
2 The fixed income market has been suffering from a low yield for quite a while. 3 Another possible factor: corporate management fees sometimes erode ROI to a nominal amount. Inves- tors are seeking alternative assets that offer stability, a high yield and low—if any—fees.
by Allen Shayanfekr
M
any factors have been driving the evolution of the world’s finan- cial infrastructure since the economic debacle of 2007-2009. Traditional investment vehicles have been demon- strably unstable. Some of the financial giants that managed (and mismanaged) billions of dollars of investments were deemed “too big to fail”; they required U.S. federal government bailout money to maintain their businesses. The idea that a business has become
“too big to fail”—so large and ingrained in the economy that a government will provide assistance to prevent its failure— accepts the notion that tolerance for corruption and even criminal activity is preferable to suffering through the con- sequences of actually righting the wrongs that caused the failures in the first place. No wonder investors are moving away from “traditional” investment ideology. Investing in alternative financial opportunities has been made infinitely
simpler because of the internet and its capacity to connect all levels of in- vestors with all levels of opportunity. According to a McKinsey report, fi- nancial institutions with assets of more than $10 billion have extended their portfolio by as much as 30 percent into “alternative investments.” There are three possible reasons for this:
INTRIGUING OPTIONS FOR ALTERNATIVE INVESTMENT VEHICLES
So how to decide what to do? Asking the right questions is key. Alternative investments are typically newer on the market and don’t have extensive public recognition. Investors investigating these options should forgo the “How’s it doing this year?” question, and instead ask, “Why is it where it is today, as com- pared to last year? The year before that?” Another helpful note might be inquiring about the potential for liquidity of the asset. Many investors have suffered losses because they couldn’t access resources held in nonliquid financial tools. Before, entrepreneurs would approach personal resources or banks to secure cap- italization for new ideas and businesses. With real estate crowdfunding, entrepre- neurs can raise capital from a group of investors online. When the funding goal is reached, the funding is released and commencement of the project can begin. Crowdfunding can raise money more quickly in many cases because the project need only appeal to the individual inves- tors, and not be required to go through the rigors of a financial institution feasi- bility study. Another reason these projects commence and fund so quickly is because the entire process is automated using the platform’s online software.
1 The public equity market has been having a great run, but there are
ONE PLATFORMWITH MULTIPLE BENEFITS The facts are undeniable—real estate
30 | think realty magazine january :: february 2017
thinkrealty . com / mag | 31
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