CROWDFUNDING REAL ESTATE Susanne Ethridge Cannon Chairman,
Department of Real Estate and Douglas and Cynthia Crocker Endowed
Director The Real Estate Center DePaul University September 17,
2014
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History of Crowdfunding Source: Fundable.com
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Statue of Liberty Granite base needed $250,000 ( $6.3 million
today) but fell short by $100,000 Joseph Pulitzer and The New York
World 160,000 donors, $101,000, 5 months, names in the paper Source
BBC News 24 April 2013
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Crowdsourcing and funding Obtaining labor, products or content
outside the company; morphed into crowdfunding in Wired magazine
Passion and belief (social causes, arts, environment) Donation
based gofundme Reward based kickstarter indiegogo Financial Return
Lending based- lending club, on deck capital, dealstruck, zopa,
kiva Equity based-circle up, hyperfund, fundrise, realty mogul
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Disintermediation and reward Reaching beyond institutions to
fund charity and artistic endeavor Fund a specific cause or person
directly Reward, not investment
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GoFundMe
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Kickstarter
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indiegogo
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Research and grants
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The context of disruption and disintermediation over the past
20 years
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Online transactions Disruption Less than 20 years, each started
in a garage Ebay 2013 general merchandise $67 Billion Amazon 2013
$74 billion Democratization of Information CONSUMER POWER from
feedback, knowledge (price discovery on bluenile.com) The changing
role of real estate brokers
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ebay
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High ticket items
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Amazon
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Blue Nile
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Real Estate Information and facilitation Valuation Market
comparison Transactions that by pass brokers, newspapers and
signs
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Zillow, trulia, redfin
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Redfin
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trulia
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Peer to peer lending Not for profit For profit
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Lending Club Its about that spread: Renauld LaPlanche and his
18% credit card rate, 1.5% CD rate Disintermediation could be the
answer $3.7 Billion today, up from $750 million in 2012 Google
takes a stake Larry Summers, John Mack, Mary Meeker, Peter Thompson
Banks are actually investing
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Which leaves us where? EQUITY FINANCE is the missing piece
Regulatory Impediments Securities Act 1933 Securities Exchange Act
1934 Registration except for Rules 504, 505, 506 of Regulation D
Constraints on marketing and securing investors Accredited
investors Even so, $1 trillion a year, nearly the size of the
public debt market
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Answer: Jumpstart Our Business Startups Act Emerging companies
and community businesses Lift the restrictions on marketing, open
up to the internet Accredited investors with one set of rules,
non-accredited with another Called crowdfunding, even though we
dont have the rules yet to raise from the crowd, we do have the
ability to use the web, and other media to reach accredited
investors
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Crowdfunding Background $1.5 billion in 2011, 1 million
campaigns globally, 450 CFPs $2.7 billion in 2012 $5.1 billion in
2013 Who knows in 2014 Source: massolutions research form 582,
crowdsourcing.org
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Source: crowdnetics.com
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A few definitions Crowdfund investing: small investments, less
than $1million, non accredited investors; JOBS act modified Sec
4(6) of US Securities Act of 1933; requires brokers or Crowdfunding
Portal Less than $100,000 issuer provides tax returns; $100,000 to
$500,000 financial statements, over $500,000 audited statements
Rule 506 Regulation D Exemption: permits broad solicitation but
still accredited investors, no longer need to have pre- existing
relationship, but must take reasonable steps to determine
accredited Regulation A permits raising $5,000,000 Regulation A+
permits companies to raise $50,000,000
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Accredited Investor In order for an individual to qualify as an
accredited investor, he or she must accomplish at least one of the
following: 1) earn an individual income of more than $200,000 per
year, or a joint income of $300,000, in each of the last two years
and expect to reasonably maintain the same level of income. 2) have
a net worth exceeding $1 million, either individually or jointly
with his or her spouse.
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Rules for the crowd? Source:fundable.com
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Waiting for the regs for actual crowdfunding Expected 2014
Broker dealer required Funding Portals possible Brain damage
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Source: Forbes.com
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Reg D Revised Internet and other ways to reach accredited
investors Platforms for owners and developers to reach new
investors
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Source: crowdnetics.com
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Players and where they play
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Will it work? Is it the disruptive force some of us think it
is, or is it just another 1031/TIC play that will vanish after the
deals blow up? Will it democratize real estate investment and lead
to a more efficient, transparent market? Is there a
social/community investment component that will change the
development product? (Atlantic Monthly story) Will the regulators
kill it with kindness? Will it entice scam artists and the bad boys
of real estate?