Commercial real estate and crowdfunding
Real estate developers in Florida have enjoyed a new potential capital source through crowdfunding in the last few years. General advertising for certain types of investments has been allowed since 2012 when some of the restrictions forbidding the practice were removed.
In 2012, the JOBS Act was signed into law by President Obama. The act removed prohibitions against advertising for investments that had been in place since the 1933 Securities Act. With the explosion of the Internet, sophisticated online platforms where those who need funding can pitch their projects to potential investors have proliferated. Small businesses have taken advantage of crowdfunding, and it has also entered into the commercial real estate market as well.
In 2014 alone, crowdfunding investors invested $1 billion in the real estate sector. The amount from crowdfunding is expected to reach $3.5 billion in 2016. Crowdfunding platforms allow much greater access to the commercial real estate market as people can spend small amounts of money as investments. The websites vet the proposed projects and details are included so investors also enjoy the greater transparency afforded by crowdfunding.
Commercial real estate developers who need to raise capital for their planned projects may want to consider crowdfunding as a possible alternative. This can be helpful, as the lending market for commercial real estate has been shrinking for a variety of reasons. Some of them include strict capital reserve requirements for certain financial institutions as well as a downturn in the market for commercial mortgage backed securities. Real estate attorneys representing developers may suggest that their clients look into this potential source of financing. Of course, there are still some disclosure and other requirements that will continue to apply.