Colorado Real Estate Journal -
O n April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act. This act made changes to securities law and helped to modernize the way startups were treated. One of the biggest changes was Title III of the JOBS Act, which allowed for the legalization of investment crowdfunding. In 2013, the Securities and Exchange Commission changed rule 506 of Regulation D to allow for the general solicitation of investors. Basically, before the change, mass marketing was not allowed. Brokers had to rely on pre-existing relationships. Since those changes, real estate investment crowdfunding opportunities started. However, to invest in these opportunities, investors must be certified as accredited investors. The SEC defines an accredited investor as someone who meets one of two requirements. He must either have a net worth of at least $1 million, not counting his primary residence, or have an income of $200,000 a year, for the past two years. Companies such as Fundrise and Realty Mogul are providing these investments to accredited investors. There are a number of changes for investors as well as the syndications as a result of crowdfunding. The first is lower minimum investments. Previously, commercial real estate syndications typically had a minimum investment of $25,000 due to the difficulty of securing a high number of investors. Most real estate crowdfunding investments have minimums of $5,000. This will change the way investors can diversify their funds. While real estate investment trusts provide a vast diversification, crowdfunding provides diversification while still investing in specific properties. With the current minimums, investors can choose up to five times more properties with the same investment than previous real estate syndications. The second change is the speed at which investment can occur. Before the ability to mass advertise, the time it took to raise capital was dramatically longer. Now it is much quicker. For example, the last two Fundrise investments that each raised a little over $1 million sold out in 49 minutes and two hours, respectively. The ability to raise money quickly makes the investment in property development more attractive. For instance, one of Fundrise’s completed investments is a ground-up, mixed-use Denver apartment development at 35th and Larimer streets. The final major change is that people can invest in income-producing properties that were previously out of their investment range. While there always have been real estate syndications and REITs, the addition of real estate crowdfunding will allow for more investment. The investment in commercial real estate is fairly cost-prohibitive even for accredited investors. Being able to pool money and gain investors who previously have not invested should only increase the value of commercial real estate.