By Thomas Schneider on Monday 6 July 2015
In 2014, the real-estate ‘crowdfunding’ industry boomed to become a billion dollar industry and according to a recent report from Massolution, it will hit the $2.5 billion mark in 2015. However, it isn’t enough to refer to the growing number of firms in the real-estate investment space as crowdfunding platforms, it is essential to understand the differences between them.
For US-based firms such as Fundrise or RealtyMogul, their platforms act as online brokerage services, pairing real-estate developers with investors. This system is fine for the USA and its regulatory environment, but in Europe there is a greater demand for fully fledged investor services. For the European market, a successful online platform will focus on being different and offering a full range of investment management services to the crowds funding the real-estate development.
A closed network of financiers, legal teams and deal makers have long dominated the real-estate investment world. Access for the everyday investor has been blocked by the network’s financial clout used to maintain its exclusivity. However by merging online platforms with deep knowledge and understanding of real-estate investing, real-estate services can be delivered to investors typically outside of the network.
As many financial services industries have undergone transformations driven by technology, the process of real-estate investment remains anachronistic in the modern era. For investors in this space, the ability to target and diversify tailored portfolios to date has been rather limited.
To take the process from an ‘offline’ environment to a valuable ‘online’ one, there remains one key fundamental. By retaining the quality of a skill-intensive service and providing access to a direct investment, investors can receive all the benefits of fund management, but without the costs. At BrickVest, we envisage providing the full spectrum of premier fund management services delivered directly to the investor via a simple to use online portal. This allows for users to gain the benefits normally reserved for major real-estate investors such as global deal sourcing, ongoing risk management and asset rating amongst many other features.
Time to act
Although the demands of the North American brokerage style platform and the full service European one do differ, they are still connected by the role that technology plays in changing the way the sector operates. Venture capital in the USA and Europe is flowing in the direction of financial technology (fintech) firms, fully aware of the market potential. Accenture measured global fintech investments to the tune of $12.2 billion in 2014, tripling the 2013 level of $4.05 billion.
Much of this investment has gone to businesses seeking to change inefficient foreign exchange transactions, card payments or consumer loans. But there has been little provision towards firms that are offering investment services.
For the right idea, this is a remarkable opportunity. In the current marketplace, there are very few options for a comprehensive ‘buy-side’ platform. There has been rapid success for the likes of Nutmeg which has now raised $37m for its fund management service that cuts out the middleman. A massive amount of potential new investors have had fund management services opened to them through a user-friendly, technology based, transparent platform. For these new audiences, they can now operate as a crowd to fund real-estate developments. However unlike crowdfunding platforms, the investor actually receives a five star fund management service.
Those who want to invest in real-estate should be given every opportunity to do so across North America and Europe, without having to worry about regulation and security. The world of low-fee online investment services for real-estate means investors can build their own portfolios with a transparent, data-driven approach. In recent years there has been a large number of alternative investment platforms launched and they have all captured the imagination of investors. Yet clubbing together with tens or hundreds of other people to make an investment, ‘crowdfunding’, is still not particularly sophisticated. Customers should also benefit from the positive changes of going beyond a marketplace, and retaining high class client services.