(updated with correction)
Institutional investors might find within a year that their real estate funds are co-investing alongside crowdfunding capital.
While in its infancy — with estimated global real estate transactions of around $100 million to date — crowdfunding is growing as a source of capital for real estate, and money managers are taking notice.
The impact on institutional investors will depend on how big the crowdfunding market becomes.
Crowdfunding is “the biggest change since junk bonds in the 1980s,” said Lewis Feldman, partner and chair of Goodwin Procter LLP's Los Angeles office. “There's a $13 trillion real estate market, with over $1 trillion of debt and equity spent each year and $100 million (crowd)funded so far.”
By summer's end, Mr. Feldman expects the first deals to be announced that include crowdfunding investing alongside institutional capital. He declined to identify the transactions or the participants.
Real estate investment managers are attracted to crowdfunding — funding a venture by raising many small amounts of money from a large number of people, typically via the Internet — because it is a cheaper source of capital and less demanding than institutional money. A few family offices and small institutional investors are considering investing directly in properties on crowdfunding websites.
American Realty Capital, Boston, is preparing to start raising crowdfunded capital this year, said Nicholas Schorsch, founder, chairman and CEO of the real estate investment trust sponsor and manager.