Are IPOs the Next Frontier for Real Estate Crowdfunding?
Over the past few years, Real Estate Crowdfunding has evolved to become a truly powerful player in the real estate investing place. It’s an exciting time for the industry as we look to the future and upcoming trends. One area that is showing potential to emerge as real estate crowdfunding’s next frontier is IPOs.
Initial Public Offerings (IPOs) have been a component of REITs for several years. According to REIT Magazine:
REIT initial public offerings (IPOs) tend to ebb and flow with market conditions, and they’re now showing promise of continuing their respectable run.
Low long-term interest rates, constrained supply in many property sectors, decent valuations and low vacancy rates have all contributed to favorable conditions for well-managed companies to go public. After a great run for REIT stocks in 2014, with the FTSE NAREIT All REITs Index up 27 percent, the higher valuations could lure new entrants to the IPO market. [source]
“Public REITs have been money-making machines, raising $40B in equity and debt in the public capital markets in the first half of 2015, up from $35B in the first half of last year. $1.4B alone came from the six IPOs” stated Bisnow writer Catie Dixon in July of 2015. [source]
As real estate crowdfunding is considered by many to be the next evolution of REITs, it’s a fair assumption that the same rationale can be applied to IPOs in the space. The huge explosion of real estate crowdfunding platforms (including my company, Durise) over the past few years has many industry insiders predicting a shakeup that will see the many being whittled down to just a handful, likely to be purchased, bundled together, and rebranded by one of the larger financial institutions. It’s then likely that one or more of those new “mega platforms” will do an IPO.
How will we see this play out? Speculation is rampant. According to Bankless Times, in a recap article examining real estate crowdfunding in 2015:
A result of each RECF [real estate crowdfunding] platforms’ increasing niche-ification is their ability to complement each other — each innovating in often synergistic or overlapping ways, offering investors a large selection of real estate investments and creating a noticeably new and enticing means for sponsors to raise capital.
Who is funding these loans and equity participations? A debate that has heated up this year in real estate crowdfunding has been the consistent onboarding of institutional capital to platforms that have been operating on the ‘crowd’ financing model. This particular trend mirrors that of marketplace lending and could cause investors to be crowded out by institutions. From a platform perspective, institutions allow for the achievement of scale, which drives revenue and ultimately a more successful business that could be driven toward, dare we say, IPO? [source]
Additionally, the recent approvals of Title III and Reg A+ have opened the potential for seismic shifts in the industry even further. Bankless Times states that, “with the SEC’s approval of Regulation A+ in addition to Title III, it seems that 2016 will be remembered as the benchmark year from which we’ll track the participation of retail investors along with that of the accredited crowd.” [source]
2017 is likely to be an interesting time of growth, evolution, and pivoting throughout the real estate crowdfunding landscape. Predictions aside, the industry is on track to continue expanding its foothold among the real estate, investment, and fintech set. Time will tell if IPOs become RECF’s next frontier, but I’m putting my guesses in with the “yes” crowd.
