Can the Liquidity Issue Associated with Real Estate Be Solved?
A couple of weeks ago I published a post entitled “It’s Crowded In Here,” which was a deep dive investment thesis on the early stage investment opportunities within the growing real estate crowdfunding market. In that piece, I presented the regulatory (JOBS Act), banking, and technological factors that have contributed to the growth of the $2.5 Billion market that consists of hundreds of players. These factors are contributing to a fragmented market that enables both accredited and non-accredited investors to participate in residential lending (through platforms such as Lending Home and Patch of Land) or commercial real estate development (through platforms such as Asset Avenue, Fundrise, CrowdStreet, RealtyMogul and CityFunders).
As real estate crowdfunding continues to become more popular for developers seeking alternative capital and investors seeking new investment vehicles, an issue that has hurt the non-traded REIT market and other private investments will arise — lack of liquidity. Although some startups such as Fundrise are offering quarterly redemption plans through their eREIT, this option provides only limited liquidity on a quarterly basis. Fundrise’s offer of an early redemption schedule is considerate but has not been wildly accepted throughout the industry — and I don’t think it should be. As I stated in a previous post, the real estate crowdfunding startups should focus on their deal pipelines and acquiring as much demand (accredited and non-accredited investors) as possible.
What is needed are secondary marketplaces that allow investors to trade current positions from various real estate crowdfunding platforms to other investors. This is an unmet market need that would also provide valuable lessons learned that could be applied to go-to-market strategies of tertiary markets such as other types of crowdfunding platforms. Trading systems for the private markets could also provide banks an opportunity sell ownership of buildings that are currently on their balance sheets.
Real Liquidity is a startup that venture capital firms should look into if they are interested in investing in solutions to address the liquidity problem created by the rise of crowdfunding. The company is striving to create a transparent and effective trading system that facilities the trading of syndicated and crowdfunded real estate shares. It is still early days for the founding team but after speaking with the CEO, Kevin Guy, (last year) and their CMO, Stephen Hopkins, I really believe the team is on to something that could quickly solve this inevitable issue of liquidity.
Earnest Sweat is a Startup Adviser and Business Ops professional for various accelerators. Sweat specializes in sourcing, managing and mentoring startups within the fin tech, ed tech, and real estate tech sectors. If you have any questions, comments or requests please connect with Earnest through LinkedIn,Twitter, or AngelList.
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