Most people are familiar with crowdfunding platforms like Kickstarter and Indiegogo: Backers donate money and help a project or company fulfill its goals, and in turn receive a reward.
But a newer form of crowdfunding, made possible under the federal JOBS Act, lets people invest directly in real estate development projects. And a move is underway to get more Pittsburghers involved in the process during the RealCap conference next month.
“The rules that the JOBS Act produced provided a new and disruptive way to raise capital for projects,” says Eve Picker, president of real estate investment firm Small Change, which is sponsoring the RealCap conference. “There are some interesting variations emerging which show that you can make a great return financially while doing some good at the same time. Our goal is simple: To open the door and get more people involved as developers and investors.”
She pointed to the recently-opened Ace Hotel in East Liberty as an example. That project raised $2.3 million of its equity from crowdfunding platform Fundrise.
“It gives people the opportunity to raise funds in a way they haven’t been able to previously,” she says. “For certain types of real estate projects it can be hard to find capital.”
There are several varieties of real estate equity funding possible under the JOBS Act. Previously, investors had to meet income requirements to be considered by a real estate equity crowdfunder like Fundrise, and could invest directly in properties. Newer regulations allow more people to invest, but instead of a specific property, they invest in a fund or portfolio, which can include several properties. It can be used as a way to offer assistance to homeowners in distressed or foreclosed properties.
Picker’s latest venture, the tiny house in Garfield, was an example of the kind of project that proved challenging for traditional bank funding programs. It was partially funded with grants from the Urban Redevelopment Authority, the Bloomfield-Garfield Corp. and Neighborhood Allies, with the remaining amount of the construction loan crowdfunded through the Small Change platform.
Chicago-based company American Homeowner Preservation is partnering with Small Change to bring the RealCap conference to Pittsburgh. The daylong forum will offer education about the different kinds of real estate crowdfunding, and include sessions like “The Evolution of Real Estate Crowdfunding” and “Legal Ins and Outs of Crowfunding” on the schedule.
“This industry was at zero dollars in 2012, and was at $3.5 billion last year,” Picker says. “It’s emerged more rapidly in larger markets like LA and Chicago, but there’s no reason why it can’t be helpful developing in Pittsburgh.”
The RealCap conference will be held March 24 at Repair the World in East Liberty. For more information visit the RealCap Pittsburgh website.