Investment Analysis

Game Changer

Crowdfunding disrupts traditional investment models.

The biggest companies in the world appear untouchable. However, ample evidence shows an extensive list of household names such as Kodak, Blockbuster Video, and Pan Am disappeared overnight after failing to adapt to a new era.

It's also easy to forget how behemoth billion-dollar companies such as Facebook, Netflix, Uber, and Airbnb are mere babies in business longevity. Likewise, real estate crowdfunding platforms were not available five years ago. Today, Bloomberg estimates more than 125 sites exist in the U.S. alone.

Rampant Disruption

Welcome to the age of disruption. The world of simplified and personalized experiences is delivered within a few swipes. Unsurprisingly, little room for archaic processes and meaningless red tape exists from the old way of doing things and the analogue past.

The use of advancements in technology is allowing young and agile start-ups to remove any pain points. By offering greater transparency, speed, and efficiency, as well as real-time data, the commercial real estate industry is embracing the digital transformation.

Crowdfunding is proving to be the new best friend of real estate. Tech-savvy investors have discovered that this relatively new model allows them to pool their resources. By reducing risk, ultimately, they are opening an affordable opportunity to invest in commercial real estate and boost returns.

This year's Crowd Invest Summit, Sept. 6-7 in Los Angeles, targeted the real estate marketplace lending sector. Once again, technology is changing the game for commercial real estate, and crowdfunding is navigating a new way forward.

Egalitarian Lending

The evolving world of real estate marketplace lending continued to grow at a phenomenal rate to $3.5 billion in 2016. The real estate crowdfunding sector is providing investors with both higher returns and lower fees, which makes it incredibly attractive.

The opportunity to partially fund loans without the risks associated will only help increase adoption and the speed of acceptance. The first rule of any investment is that a diverse portfolio will dilute the risk. The combination of lower risk and the ability to enter commercial real estate investment for as little as $1,000 to $5,000 offers many opportunities to unlock the potential for greater returns.

The World Bank crowdfunding report also revealed that this relatively new way of raising funding is rapidly becoming a disruptive global influence. Asia raised $3.4 billion in 2016, which shows 320 percent growth in the sector. By crowdfunding volume, Europe ranks No. 3, with $3.26 billion.  However, North America leads the charge by raising $9.46 billion annually.

If these current trends continue, the World Bank predicted that the crowdfunding industry could raise between $90 billion and $96 billion by 2025. For comparison, this would be 1.8 times the size of the global venture capital industry today.

Investing in commercial real estate typically has been out  of reach for the average person. However, even cash-strapped millennials are using crowdfunding to add property to a new portfolio that can build a path to property investments.

Minimizing any risk with a relatively low entry point and the lure of making bigger returns is an attractive proposition. These are among the reasons why marketplace lending is proving to be the next big thing for commercial real estate, and why investors of all ages from every corner of the globe are embracing the opportunities it offers.

Technology is a double-edged sword. In the case of crowdfunding, however, it's breaking down geographical barriers and expensive entry points to allow many more individuals a seat at the table. As marketplace lending continues to change the way business is conducted, traditional banking should wake up and take notice.

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