In many cities throughout the country, real estate demand has outpaced supply. This has resulted not only in skyrocketing real estate prices and rents but construction projects as well. Investing in these projects typically requires accessing publicly traded real estate investment trusts (REITs). Or for the more adventurous, it might mean investing in one’s own rental properties. In both instances, investors face risks with which they may be uncomfortable. Their preference would be to invest in these projects in a more organic way using a real estate crowdfunding platform. But such platforms have been lacking… until recently.
Groundfloor is now recognized as the first real estate crowdfunding platform to gain regulatory approval. Its site offers investors the opportunity to invest in commercial real estate investments without the need for registration. Notably, it has several years for the company to navigate its way through Security and Exchange Commission (SEC) obstacles. But it now stands well-positioned to reap the benefits of its efforts. Groundfloor recently announced its second public capital-raising effort outside its own platform users. And based on the response, it’s clear many anticipate this type of commercial real estate investments will be a hit.
“We launched Groundfloor as a completely new concept and in a brand new category, opening up the idea of direct real estate investing to everyday people in a new way, without forcing them into a fund.” – Brian Dally, Cofounder and CEO of Groundfloor
The Appeal of Real Estate Crowdfunding
It’s no secret that crowdfunding has been a popular way for many startups to raise needed capital. But crowdfunding sites for startups involved in commercial real estate investments didn’t initially exist. Regulatory hurdles stood in the way. (Read more about startup crowdfunding in this Bold story.) This changed with the passage of the Jumpstart Our Business Startups (JOBS) Act. This legislation allows small businesses to raise up to $75 million from non-accredited investors. In essence, this paved the way for companies like Groundfloor to launch its real estate crowdfunding platform. Armed with knowledge about regulatory dos and don’ts, Groundfloor was able to excel where others could not.
Notably, Groundfloor’s real estate crowdfunding site is attractive for real estate startups. Not only can they attract non-accredited investors, but they also do not have to register funding. At the same time, Groundfloor’s commercial real estate investments are appealing to investors. For new investors, the platform provides opportunities for safer options other than REITs and rental property purchase. Likewise, experienced investors prefer the site because of its ease-of-use and its app-based approach. Both have resulted in increasing popularity for Groundfloor’s site. Currently, they boast over 160,000 investors on their platform.
“With the launch of the Stairs app, we’re taking another big swing to reimagine how anyone can start saving and investing better, getting the advantages of investing in alternatives with the security of real estate backed loans.” – Brian Dally
Unique Services to Startups and Investors
The basic services provided by Groundfloor naturally lures investors from all walks of life. But the site also provides a clear risk assessment of its commercial real estate investments. Using a 6-factor algorithm, each potential real estate investment receives a score, which helps investors make choices. Because track records and business experience is heavily weighted, investors gain a greater sense of transparency. At the same time, Groundfloor reports that the average investor on its real estate crowdfunding site earns around 10% in returns. This has notably helped Groundfloor grow in size over the last few years.
At the same time, Groundfloor has similarly expanded its products. In recent years, it launched Stairs, which is a savings and investment platform. Money placed in Stairs earns investors a steady 4-5% rate of return annually, and they also enjoy instant liquidity if needed. Groundfloor, interestingly, uses the savings assets in providing loans to real estate startups temporarily. Once a loan has been provided, Groundfloor’s position is released to investors for commercial real estate investment considerations. Stairs has thus been an innovative structure by which investors, startups and Groundfloor all leverage their situation.
“We’re getting ready to go from 160,000 investors to a million investors in the next couple years.” – Brian Dally
A Solid Foundation for Future Growth
Despite having to wait for regulatory changes, Groundfloor has been busy ensuring their financial footing. In addition to launching Stairs, Groundfloor also introduced SeedInvest a few years back. SeedInvest is essentially an equity crowdfunding platform that enables Groundfloor to raise its own capital from its users. Since 2018, it has held 4 public equity investment opportunities resulting in $30 million gained from users. As a result, 30% of the real estate crowdfunding company is owned by Groundfloor investors. This has effectively allowed the company to limit other public capital-raising pursuits.
While SeedInvest has been effective, Groundfloor held a Series B funding round recently, which raised $118 million. Leading the round was Medipower with $5.8 million provided in capital. But Medipower is more than a firm seeing opportunities in commercial real estate investments. Groundfloor is actually forming a strategic partnership with the Israeli company for the future. Medipower specializes in shopping centers and retail real estate, and it intends to offer loans to real estate startups. In 2022, Medipower expects over $100 million in such loans with $220 million in 2023. Groundfloor’s real estate crowdfunding platform provides an ideal site to achieve its objectives. And certainly, this will be quite advantageous for Groundfloor as well.
A Needed Expansion for Commercial Real Estate Investments
Without question, commercial real estate investments are hot currently. The mismatch between supply and demand over recent years has fueled a number of new real estate developments in the country. And given the need, it’s important to provide opportunities for startups to play a part in addressing the problem. Real estate crowdfunding sites like Groundfloor offer innovative solutions that align with advancing regulatory changes. And it allows investors of all types to provide capital for such startups in the process. Based on the current climate, it’s not surprising Groundfloor is seeing such growth. And it’s likely other such real estate crowdfunding companies will soon follow.