By their very nature, Real Estate Investment Trusts (REITs) are not exactly the most exciting sector for investors.
They are typically companies set up to hold mature, income-producing assets with a view to delivering a stable source of yield and potential capital gains over time. It’s not heart-thumping stuff, the share price charts aren’t as vertigo-inducing as tech companies (see below), and it’s hard to find anyone who believes that REITs will change the world as we know it.
But the quiet launch of Civitas Social Housing (CSH) in November 2016 was, in many ways, an exciting development with possible applications and wider implications for the major issues our society faces today.
By working closely with housing associations across the UK to buy their existing stock, CSH is accomplishing two very important things:
1) Providing these associations with a much needed source of funding, in light of ever-reducing government grants, which will enable them to build new ‘affordable housing’ stock
2) Securitising desirable but previously inaccessible real estate assets, which will help meet demand from yield-hungry savers and investors, such as UK pensioners.
The fast-growing real estate crowdfunding sector is arguably exerting a similar effect on other problem sectors, with Property Crowd having offered participation in property-backed debt and equity deals involving student accommodation and private rented sector assets: areas where there are also significant shortages and imbalances.
I believe there are a number of key differences between a REIT and real estate crowdfunding which make the latter a superior investment method for the professional, sophisticated investor.
While online platform-based crowdfunding is a relatively new development in the centuries-old real estate sector, the concept really isn’t as radical as it sounds because it is simply a more inclusive form of deal syndication, enabled by the proliferation of technology and a change in social attitudes.
Call me an optimist, but I envision a world where crowdfunding platforms help to fund not just the endeavours of independent artists and the prototypes of quirky inventors, but also the social and economic infrastructure of our communities.
Looking back at the example of CSH, while they represent a step in the right direction of reform, the layers of intermediaries that still sit between the underlying asset and the end investor mean that there is substantial room for improvement. Among the issues that could be better addressed by a real estate crowdfunding model are a lack of competition, ongoing fee leakage and a loss of portfolio discretion/granularity.
So could crowdfunding really solve the UK’s housing problem? Absolutely, yes. But why stop there? With more time, greater institutional involvement and a maturing regulatory environment, real estate crowdfunding will move beyond residential buy-to-lets and begin financing everything from hospitals to highways, and from schools to solar farms, providing a more efficient market-based solution to the most pressing issues of our generation.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.