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Crowdfunding the skyscraper

Can a new model for real estate investment help spread the wealth?

The commercial real estate developer Rodrigo Niño has a problem with commercial real estate development. The immense amount of wealth it generates, he argues, falls into the hands of too few people. People like him.

Niño’s sitting in the corner office of the New York headquarters of Prodigy Network, his 50-person company with offices in Miami, Buenos Aires, and his native Bogotá, Colombia. He’s been developing real estate since the early 1990s, and by all appearances has made a successful go of it. But he’s also an unusually reflective real estate mogul. He sees that sometimes the success of one comes at the expense of others, and he wants that to change. “The idolization of capital has created greed and mistrust between people,” he says. “We need a revolution of unity, a revolution of oneness.”

The problem, he says, traces back to the passage of the Securities Act of 1933, a U.S. law that, among other provisions, drew a hard line between investment opportunities offered to the public and those offered to an accredited group of private investors. Private offerings were allowed to be significantly more valuable than public ones, and that select group of accredited investors was empowered to reap the rewards. Think of a startup: A venture capitalist could invest an unlimited amount in a company like Google, while an individual could buy far fewer shares on the regulated stock market, and only once Google went public. “That legalized and institutionalized exclusion, separation, and privilege,” Niño says.

Now, he’s trying to erase those divisions through crowdfunding—a relatively new model of real estate development that, thanks to a recent exemption to the Securities Act, allows anyone to be a potential investor. Developers like Niño are now able to mimic the Kickstarter approach by proposing a project and inviting the public to help fund it. But instead of receiving a thank you note or t-shirt as a reward, investors get a cut of the profits.

The rule changes are still new in the U.S.; restrictions were first loosened in 2012 to allow crowdfunded investment opportunities from accredited investors—those who earn more than $200,000 a year or have a net worth above $1 million—and the market fully opened to everyone last year. But Niño has been using crowdfunding to develop real estate since 2010. He started in Colombia, where crowdfunding has long been legal. In downtown Bogotá, his first crowdfunded venture is a two-tower skyscraper called BD Bacatá that’s set to open later this year. Peaking at 67 stories, it’s the tallest building in the country and the second tallest in South America.

Now, he’s using the crowdfunding approach to develop real estate in New York City, one of the most valuable markets in the world, where he’s been based for 20 years. Two projects are already open, and three more are under construction. All five have been financed through crowdfunding.

And he’s not alone. In recent years, dozens of real estate crowdfunding platforms have popped up, offering seasoned investors and rookies alike the opportunity to buy shares of real estate developments across the street or around the world. The projects these platforms help fund run the real estate gamut, from flipped houses to urban condo conversions to self-storage facilities to hotels to shopping centers to office towers. For some, it’s just another technology-enabled avenue to make investments. For Niño, it’s a way to undo the system of haves and have-nots that the Securities Act of 1933 put in place.

“Crowdfunding is a paradigm of inclusion and access for all,” he says. “I think that the best thing is that the illusion of separation between individuals is now gone.”

In the nascent field of real estate crowdfunding, Ian Ippolito is probably the most knowledgeable investor.

A self-described “serial entrepreneur,” he’s followed the build-sell-repeat model of entrepreneurship to the point where managing his money has become a full-time job.

He’d tried all the traditional stuff—stocks: “too risky”; bonds: “the yield is terrible”—but wanted to find something new. After he sold his last company in 2012, he came across LendingClub, an online platform that pools investors to make loans directly to individuals and businesses. By sidestepping the overhead and fees of traditional lenders, LendingClub was able to offer lower interest rates to borrowers and higher returns to investors. Other computer-enabled “fintech” financial services began to flourish around this time, and Ippolito dove in.

Real estate crowdfunding was still a new concept, but it exploded on the fintech scene as soon as the 2012 law change went into effect. “It went from pretty much nothing when the law started to about a hundred platforms really, really quickly,” Ippolito says. “I thought this could be huge, this might be a fantastic thing. But it’s so disorganized and you can’t figure out which site is which and which one to invest in, they’re all so different.”

So Ippolito started researching. He learned which crowdfunding sites focused on equity, where investors essentially become shareholders in a property, and which focused on debt, where investors are direct lenders to a property owner or mortgage holder. He compared the minimum investments that each site required and analyzed what kinds of returns they’d likely provide. He looked at what kinds of properties each site was offering, and how many projects they had to offer investors. After a few months, he felt confident enough to start investing. He also saw another business opportunity and launched The Real-Estate Crowdfunding Review, a website that compiles all his research and features rankings, and reviews all of the roughly 150 real estate crowdfunding websites now operating.


The current top ranking platform is PeerStreet, which primarily focuses on investments in existing private real estate loans. (Prodigy Network is ranked 19th.) Ippolito’s review highlights PeerStreet’s $1,000 minimum investment as far more appealing than the field’s $10,000 average. He also notes the site’s transparency, allowing users to review the performances of all its past investments. The company has garnered the interest of high-profile investors, including Dr. Michael Burry, who famously predicted the crash of the housing market in 2007. “PeerStreet’s investments have similar yields to LendingClub, but are backed by real estate and carry very attractive loan-to-value ratios,” Burry is quoted on PeerStreet’s site. He calls it “simply a smarter way to invest.”

But in January, Ippolito reported that PeerStreet had seen the first foreclosure on one of its investments. Though Ippolito sees it as only a minor setback compared to other platforms that have already folded, it does highlight the risks of this type of investing. Due diligence is crucial for investors, as many of the offerings posted on these platforms are scattered throughout the country in places that may be unfamiliar. And for the platforms themselves, Ippolito says they need to be very careful about what debt they take on or which developer’s project they put before their investors. But that doesn’t always happen.

“The platform’s job should be, theoretically, to read through those proposals, pick only the good ones, and then present those to the investors,” Ippolito says. “But the problem is there’s kind of a conflict of interest there, because if they’re too picky, they’re not going to have enough offerings, and that’s a problem on most of the sites. So there’s a temptation to, I don’t want to say cut corners, but to not be as thorough as they should be.”

With so many different platforms in a field that’s still new, quality varies wildly, and so do operational standards. Most offerings are still only available to accredited investors. “No one has really quite figured it out, like what’s the magic formula, what’s the best way,” Ippolito says. “So I think the industry kind of has to mature, and once it gets that going then I think you’ll see a whole bunch of people rushing to invest.”

You have to stand at least a few blocks away from BD Bacatá to really see the whole thing. Its two towers, 56 and 67 stories tall, rise like steep staircases of glass and steel. They’re a sharp contrast to the rest of Bogotá, Colombia, where, despite a population of around 10 million people, the city’s core is mostly a low-rise jumble. There are some tall buildings in Bogotá, but they’ve become a rare species. The last tower of any vertical significance was built more than 30 years ago. So the opening of BD Bacatá later this year will be something of a statement.

But it’s not just about the size. “Nobody wanted to do a skyscraper of this magnitude,” Niño says. Concerns about currency devaluation and Colombia’s shaky commodities-based economy have scared many developers off from seeking financing from banks. “Traditional institutional equity doesn’t make sense because of the country risk and because of the devaluation,” he says. If the economy got too volatile, “senior lenders most likely would take over the equity and wipe out the developers.”

To do a project of this size, crowdfunding was the best option. So the developer, BD Promotores, partnered with Prodigy Network to build up a pool of people to fund the project. They fitted out a showroom to lure investors and advertised in magazines and on television. More than 3,000 individuals invested, raising roughly $145 million.

María Nurth Macías and her family were some of the first new residents to receive an apartment in the building. “We looked at the project on Saturday and Sunday we made the decision to buy it,” she said in an interview conducted by the developer and provided to Curbed. (The developer would not connect Curbed with an investor directly.) She’s worked downtown for more than 25 years, and she says BD Bacatá was a clear opportunity to invest in a project that would attract tenants and businesses. “What excites me most is to know that I am part of one of the most important projects in the country.”

“And that’s why the project is very relevant,” Niño says. “It is not that it’s the tallest building in Colombia. It is that the tallest building in Colombia was funded all cash by its own people.”

When it opens, the project will feature 457 apartments, 382 hotel rooms, 117 offices, and a three-story shopping center accessible from the street. Rents from these spaces will trickle down to the investors in the form of quarterly dividends.

It’s an attractive investment for a growing number of Colombians, and Prodigy Network has built two other projects in the city that tap into that demand. One is an upscale hotel in the posh neighborhood of El Chicó. Carolina Leon, a project manager in Prodigy Network’s Bogotá office, explains that it’s popular among businesspeople. Its interior design is inspired by an indigenous ethnic group called the Kogi and a rooftop pool looks out on mountains that hug the city’s edge.

The other project is a $25 million office building a few miles from the airport. Accented with bold yellow columns, its six floors are clad in smooth brown panels and jut out at haphazard angles to create a decidedly modern feel in an area dominated by workaday metal warehouses and brick two- stories. Leon is especially proud of the roof, which is covered in artificial turf and ringed by a walking track. Planes taking off from the airport’s runways fly directly overhead.

Inside, the office spaces will be leased unfinished, aside from themed common areas on each floor. One is outfitted with cave-like cubby holes for informal meetings. Another will have video game consoles and padded seats in the shape of Pac-Man. Another will have a pool table. Each can be accessed via tube slide from the floor above. “Like Facebook,” Leon says.

This kind of “creative” office space is relatively rare in Colombia, and that’s part of its selling point—both to future tenants and to the roughly 480 individuals who’ve invested in the building at $17,000 a share. That’s the minimum investment, which varies by project and by crowdfunding platform. Leon and her husband even bought in.


The relatively low entry point and the comparative stability of physical real estate has made crowdfunding a successful development strategy in Colombia for Prodigy Network. It’s been a good way for more people to benefit financially from commercial real estate, Niño says, but it’s also a viable way for a real estate developer like Niño to get more projects built.

So when the laws changed in the U.S., Niño was quick to shift his focus to the significantly larger market of New York. “I think it has potential everywhere,” he says. “Because it’s all about access.”

In New York—the city of Trump Tower, barely used foreign-owned luxury suites, and buildings named after their starchitect designers—there’s much less democratic symbolism in gathering a crowd to develop a piece of real estate. Niño didn’t go to New York for that.

Rather, he’s there precisely because New York is a city where real estate is understood as a good investment, and where those who want to develop something ambitious can find a way to pull it off.

Though his projects still rely mainly on a crowd of individual investors and eschew formal loans from banks, Niño is not shy about tapping large institutional investors to help leverage the funding of his crowd.

“That’s why I have this office,” Niño says from his 16th floor perch on Wall Street (in another notorious Trump building, it’s probably worth noting), “to look out these windows to remind me that these are the best assets in the world.”

Those famous Financial District assets have helped enable Prodigy Network’s two completed New York projects, buildings featuring furnished apartments for short- and long-term stays that Niño calls “legal Airbnbs.”

Wall Street funds have also played a role in its three other New York projects, slated to open later this year. They’re part of what Prodigy Network is calling “The Assemblage,” coworking and co-living facilities geared toward what slick marketing materials refer to as “a community of individuals who believe the world is at the verge of a collective conscious evolution, transitioning from a society defined by individualism and separation into one of mutual interconnectedness.” The buildings will have short-term apartments, private offices, shared work areas, and lounges. A “plant-based juice and elixir bar” will also be accessible at each location.

For the crowd, the minimum investment for these projects ranges from $10,000 to $50,000; the three projects are expected to cost about $150 million. Roughly 1,200 investors from seven different countries will be co-owners, and the annual rate of return is projected to be between 12 percent and 16 percent. By focusing on coworking and co-living spaces, Niño is hoping to materialize his crowd-centric ethos into buildings, while also making a profit. “It’s the best of both worlds,” Niño says. “It’s the best of capitalism and the best of socialism.”

Whether the Assemblage turns out to be the community of mutual interconnectedness that Niño envisions remains to be seen. But some say projects like these can show the potential power of crowdfunding that allows like-minded people to come together to help create something that wouldn’t otherwise exist.

Ethan Mollick is an assistant professor at the University of Pennsylvania’s Wharton School of Business who’s studied crowdfunding extensively. He argues that seemingly odd projects like the virtual reality headset Oculus Rift were only made possible because a group of passionate supporters coalesced to create a pot of initial seed funding that larger companies or venture capitalists or traditional funders wouldn’t.

“People forget the ‘crowd’ part about crowdfunding,” Mollick says. “Crowdfunding’s ultimately about activating communities to make things happen.”

And, as with projects like the Oculus Rift, it’s the most passionate and interested people who can see why a project makes sense. Mollick says that principle can easily apply to real estate crowdfunding.

“Getting local people that know something or have specialized expertise to invest acts as a signal that the market is wrong about something. Who would know best what part of a neighborhood is going to gentrify next? Who would know best if there would be demand in an area for a new kind of commercial venture? People who live in the area,” Mollick says. “Real estate funding is at its best when it’s actually incorporating people who know something about why this is a good investment.”

That’s how Fundrise, another prominent crowdfunding platform, started out. By focusing on projects in Washington D.C. neighborhoods that other developers and investors were ignoring, the company was able to build up local support for projects in the form of investments. “It’s really potentially a radical transformation of urban planning, of development, of investment, of local government,” Fundrise CEO Ben Miller told CityLab back in 2012, shortly after the laws changed to allow crowdfunding.

Mollick says this kind of local connection does have a potential to transform how development happens and how neighborhoods evolve. He’s hoping to conduct new research looking into whether projects that receive crowdfunding get less neighborhood opposition than projects that aren’t crowdfunded. “I suspect that the answer would probably be yes,” he says.

For the most part, though, real estate crowdfunding is used as an investment tool. The projects put before investors are often distant buildings that have questionable merit in terms of community and neighborhood development. Many are suburban shopping centers or single family homes. And sometimes, the money coming into these projects can have negative impacts on their surrounding neighborhoods. Crowdfunding has been criticized for allowing outside money to fuel gentrification in some places.

Ippolito of the Real-Estate Crowdfunding Review says the field is still young and will continue to evolve. More project types—and potentially more ambitious efforts—will likely begin to emerge as the process becomes more standardized. “I think what’s going to happen is a lot of the weaker platforms are just going to disappear, unfortunately,” he says. “Because there are just too many of them right now.”

Mollick says the field will start to mature, but it still faces some big questions, particularly in what happens when an investor in a crowdfunded project wants to sell or get out. “The secondary market worry is a big one across all of equity crowdfunding,” he says. “The issue is it’s early days.”

From Niño’s view, these issues will sort themselves out. He sees his own crowdfunding business continuing to grow in the U.S. and beyond, and perhaps even branching out to other areas, like renewable energy production.

Ultimately, it’s about changing a system that concentrates the proceeds of development. By getting more people involved and sharing in those proceeds, he says the projects that get developed will fall closer in line with people’s shared interests. “It’s collective mutual caretaking to make money,” he says. “That is crowdfunding.”

Editor: Sara Polsky


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