Once upon a time, investing in riskier, high-stake projects was generally the domain of the wealthy. However, changes initiated by the 2012 JOBS Act are starting to democratize these opportunities. Next year, equity crowdfunding platforms will open their doors, enabling anyone to become a venture capitalist by investing in startups. One such startup aims to allow individuals a taste of another asset class that was previously accessible only to the affluent: commercial real estate.
Founded in 2010, Fundrise has primarily connected accredited investors—individuals with a net worth exceeding $1 million—with commercial real estate projects seeking funding. Essentially, it has facilitated millionaire crowdfunding specifically for real estate ventures. Today, the company is broadening its scope by launching a new real estate investment trust, making it easier for anyone in the US to invest in a portfolio curated by Fundrise’s team.
“We’re aiming to take the quality of private real estate transactions and make it accessible to all,” explains Fundrise chief operating officer Brandon Jenkins.
The concept is straightforward: Fundrise seeks to provide even novice investors a platform to invest in the real estate market. Concurrently, the company plans to use these investments to finance real estate projects that struggle to secure funding through traditional channels. This initiative has been made possible largely due to Title IV of the JOBS Act, commonly known as Regulation A+, which became effective this past June. This regulation enables small companies like Fundrise to raise capital from non-accredited investors who can obtain an ownership stake, provided they adhere to necessary reporting guidelines.
Fundrise’s new fund isn’t entirely groundbreaking. Investors have historically been able to place their money in both private and publicly traded real estate investment trusts. Wealthy investors have long utilized private equity firms to find lucrative real estate opportunities.
However, Fundrise stands out with a minimum investment requirement of just $1,000. Non-accredited investors can invest up to a maximum determined by federal regulations, which depends on their income and assets. Prospective investors can peruse Fundrise’s offerings on its website, which includes strategies and performance records of the team responsible for selecting investment projects. If they wish to proceed, they can invest directly on the site. “It’s as straightforward as buying a book,” Jenkins states.
Real estate firms will be able to present project proposals for funding through a separate portal on Fundrise’s platform. Jenkins notes that the company’s team of underwriters and experts evaluates the submissions before approving which projects to finance. He claims that their in-house technology allows them to assess a larger number of projects than other firms that do not specialize in real estate.
At its core, Fundrise asserts that the appeal of investing in its funds mirrors the reasons novice investors might engage with new robo-investment advisors like Betterment or Wealthfront. Jenkins points out that publicly traded real estate investment trusts often involve intermediaries, such as brokerage firms, that take their share. He believes they also lack the level of transparency that Fundrise aims to offer and can be subject to fluctuations tied to the stock market.
Still, Joseph Pagliari, a professor at the University of Chicago Booth whose expertise is in real estate portfolio management, warns that publicly traded real estate funds already provide many of the benefits that Fundrise markets. These funds routinely file disclosures and report to Wall Street analysts without significant broker fees. It remains uncertain how Fundrise can avoid the influences of the stock market, similar to other funds.
Jenkins argues that Fundrise’s strategy will differentiate itself by focusing on projects that private equity firms might dismiss as too small. By linking smaller projects with smaller investors, he believes Fundrise can achieve better returns for both parties. What remains clear is the uncertainty surrounding the outcomes when the general public is given the opportunity to step into the shoes of real estate investors.