Commercial Real Estate Crowdfunding

Commercial real estate crowdfunding provides individuals a platform to make fractional investments in CRE projects.

Commercial real estate crowdfunding is a relatively new concept that provides a platform to connect accredited developers with investors seeking an alternative real estate investment where they can become partial owners in specific properties. Commercial real estate crowdfunding platforms, such as CrowdStreet and Fundrise, pool together investor’s money providing them participation in commercial real estate acquisition, redevelopment, and construction projects. This unique investment provides investors an alternative investment with a low barrier to entry, minimum investment (as low as $500), and high yield potentials.

Commercial Real Estate crowdfunding is broken into two general categories; equity crowdfunding and debt crowdfunding. In the equity crowdfunding model, investors are able to become fractional owners in a given project. In the debt crowdfunding model, investors money is packaged together by the crowdfunding platform to issue a loan to the borrower.

Each model has its own risk/return profile. The equity investment is typically riskier than the debt investment and requires a longer hold period. The increased risk and hold period associated with the equity investment is compensated with a higher return. Those who invest in the debt model are paid out before equity investors and have a shorter hold period but are compensated with a lower return. Regardless of the investment model, commercial real estate crowdfunding is likely to continue to increase as a strong alternative to traditional investments.