An entrepreneur in Kansas might consider crowdfunding as a way to raise the funds needed to produce a product or develop a small business. However, the opportunity to pursue real estate interests with crowdfunding has begun to open doors for both those who are developing office buildings or similar projects and for those who would like to invest in this sector. Recent action by President Obama has paved the way for opportunities that were once restricted based on the assets and incomes of potential investors.
Prior to the passing of the JOBS Act in 2012, an individual wanting to invest in commercial real estate projects that were not publicly traded needed to have proof of at least $200,000 income annually for the preceding two-year period and assets of at least $1 million. The value of a potential investor’s home could not be included in this amount. As Title II and Title III of the JOBS Act have been initiated, the ability to move ahead via crowdfunding in a commercial real estate venture has reduced dependence on traditional financial institutions.
The crowdfunding approach to real estate investments allows potential backers of a project to make decisions based on a greater level of information than was often available in the past. The crowdfunding industry as a whole is expected to surpass $3.5 billion in funds raised by the end of 2016. Further, this approach to commercial real estate provides an affordable way for non-accredited investorsl to get involved in the industry as minimum investments can be as low as $100.
This comes at a good time for developers, as commercial real estate lending has slowed due to a variety of factors. Attorneys representing developers who want to use this type of financing vehicle will remind their clients that full disclosure is still required, however.