Commercial Real Estate Crowdfunding: A Media-Phenomenon in the Making
By: Josh Berkman
One of the great myths in business communications is that perception is reality. It may have been the case 20 years ago, but too many smart people were burned in the late-90s dot-com crash and the recent housing crash. They won’t get fooled again. These days, reality drives perception — and over the past few years, the perception of crowdfunding in commercial real estate has changed from something of a cute idea to a serious force in CRE finance.
Much of this has to do with the effective communications efforts of companies like Fundrise and RealtyMogul. For PR to stick, however, the proof points have to be salient, and it’s not “creative” marketing that has landed these companies in every major business media outlet over the past year. Rather, their aggressive and smart media outreach has been based on “validation” events such as transactions that are actually taking place.
It started with an interesting Fundrise deal in Washington D.C. that got some local and a little bit of national coverage. That was 2012. Over the next year, Fundrise continued to successfully leverage its D.C. project as a proof point that something transformational was in its early stages. The ability of individual investors to finance deals without having to go through REITs played into a narrative that journalists can’t resist: disintermediation.
The next major inflection point came in the spring of 2014, a little more than a year ago, when top-tier outlets reported that Fundrise and Realty Mogul had closed large Series A rounds. By that time, Fundrise already had $15 million in deals on its site and 1,000 participants. That first wave of coverage triggered increased interest among institutional and individual investors, and there was now some validation — but these companies then had to work incredibly hard to demonstrate growth and communicate their momentum to the media.
Over the summer, Fundrise got solid mainstream and business press by raising a cool million of equity from 60 individual investors for a deal in the Hamptons. In October, The Real Deal reported that real estate trailed only the energy sector in terms of crowdfunding’s critical mass. CNBC began to track the sector’s progress through its Real Estate Crowdfunding 50 Index.
Momentum is a beautiful thing. Press opportunities seem easier to come by, which leads to more growth. The cycle perpetuates until you have a full-fledged business phenomenon on your hands. This became clear in January when every major media outlet reported that accredited investors could now use Fundrise to invest in Three World Trade Center’s bond issuance. A few months later, Bloomberg reported that individuals could use Realty Mogul to invest in Palm Springs’ Hard Rock Hotel and Casino.
We are also seeing that larger players in real estate finance are on board. With this, one can expect to see more frequent examples where crowdfunding finds its way into nine-figure deals. There are still skeptics. We’ve spoken with editors who say they still need to see a lot more evidence. They won’t be waiting long. Research firm Massolution recently predicted that real estate crowdfunding will grow from $2.5 billion in 2015 to $250 billion by 2020. If this is even marginally correct, the evidence will soon be everywhere.
Josh Berkman | Director
A director with Beckerman’s Real Estate practice, Josh is an expert in identifying compelling hooks and packaging them into media placements and other content assets that drive business success. After beginning his career in the late 1990s at Ruder Finn, he has also managed teams at Middleberg & Associates (now Havas), Kwittken & Company and Rubenstein PR.
Some of Josh’s career highlights include the introduction of FreshDirect to the New York market, the re-branding of IBM’s digital business unit, the promotion of architect Philip Johnson’s final residential building, the launch of Britannica.com and the in-house management of North American media relations for The Jewish Agency for Israel, a $450 million quasi-governmental entity.
A graduate of Northwestern University and Columbia University’s journalism school, where he earned a master’s degree, Josh lives in Scotch Plains, N.J. with his wife and two children.
Follow Josh on Twitter @Josh_Berkman