Crowdfunding in Real Estate

March 2, 2015 by W. Nelson Lewis

Crowdfunding is on the Rise

Crowdfunding has received more attention than any other “big idea” in real estate during the beginning of 2015. A recent article from TheRealDeal.com describes the crowdfunding phenomenon as being the most successful advent to the New York City real estate network. “Crowdfunding allows investors to put their money directly into real estate projects of their own choosing, rather than investing blindly through a middleman such as a real estate investment trust or a pension fund,” writes Hiten Samtani.

Gary Richetelli Crowdfunding Real Estate

Crowdfunding is picking up in the real estate market

Take Fundrise.com for example, a innovative idea that allows building owners to create their own personal profile describing the project they are funding. Potential investors are then allowed to decide to put in as little as $5,000. According to therealdeal.com, the concept is getting a lot of financial backing. People enjoy having the ability to put their money where they would like to and to grant someone that opportunity, is a new concept for real estate!

“I think the concept of democratic investment in real estate has the opportunity to grow dramatically if managed and done well.” – Tal Kerret (President of Silverstein properties)

Moreover, companies that use crowdfunding rely on various business models to earn their money. Companies like Fundrise.com, Realty Mogul, Realty Shares, Crowd Street, Collaperty, Groundbreaker, CrowdBaron, iFunding and Prodigy Network are the top real estate crowdfunding platforms used to assist realtors and investors in their next crowdfunding endeavor.

Real Estate “Crowdinvesting”

According to the Crowdfunding Industry Report, there was $2.7 Billion dollars raised online as a result of crowdfunding in 2012. In 2013, an estimated $5.1 Billion dollars was raised online. Prior to now, a vast majority crowd funded dollars has come from rewards-based crowdfunding where people purchase products or experiences.

Crowdfunding investment or “crowdinvesting” is on the rise.

At first, real estate didnt seem like an obvious market for crowdfunding. Nevertheless, using crowdfunding in real estate seems to have caught on, though mostly for millionaire-accredited investors. Keep your eyes open for the several firms vying to become the Kickstarter of real estate!

Real Estate in the Digital Age

February 28, 2015 by W. Nelson Lewis

Technology in Real Estate

The first in the Dot Com and real estate industry to focus on real estate but primarily address the residential market are companies like Zillow, Trulia, Naked Apartments and StreetEasy. These companies continue to showcase the power that technology can have when applied to a market that is as large and lucrative as residential real estate.

Real Estate is moving into the web space

The commercial real estate market consists of office buildings, hotels, malls, retail stores, multi-family housing, industrial property, warehouses, medical centers and garages. Currently, innovation and technology on the commercial side of the market has been limited with the exception of CoStar and LoopNet.

While the economy is beginning to recover, money is also beginning to flow back into commercial development, which means the most tedious roadblock is being lifted and the market is, “ready for new entrants to build upon the work of the early pioneers in commercial real estate technology.’

How is technology changing the real estate industry?

Real Estate Industry in the Digital Age

New technology will continue to revolutionize the world we live in. During the process many industries will slowly become outdated. According to Brenton Hayden of entrepreneur.com, it is very likely that the real estate industry will be one of the next industries to respond with changes forced by the digital age. We’re already seeing the aforementioned websites having an impact on real estate, and with Air BnB listings that are available for long-term stays, we have yet to see the larger implication.

It’s time for a change. As commercial real estate becomes more and more prominent, technology like automated agent selection and virtual staging will become available for commercial real estate clients as well. Smart real estate agents will welcome these technology changes and use them to excel, while others will fail at adapting to a newer way of thinking and growing within the real estate industry.

Seattle Market Cooling Off?

December 10, 2014 by W. Nelson Lewis

Is Seattle’s scorching real estate market starting to cool?

For the last several years, Seattle has been near the top of the list of hottest real estate markets in the United States. While there’s no sign of a complete slowdown, Marc Stiles from the Puget Sound Business Journal reports that the perpetually rainy Washington metropolis is starting to slide down the ranks of most vibrant real estate markets.

With the industrial, office, and hotel markets booming, there’s only one major culprit in the market’s recent sputtering. Seattle’s residential housing has been dragging down the real estate market as a whole. Remove the residential market from the equation and Seattle is still amongst the nation’s strongest markets. Specifically, Seattle is #2 for the industrial market, #4 for office property, and #3 in the hotel space.

The most recent annual Emerging Trends report saw Seattle dip from #6 to #8, while Texas’s market continued to outperform the rest of the nation boasting Houston and Austin in the number 1 and 2 spots. San Francisco took the #3 slot, followed by Denver, Dallas, L.A. and Charlotte. East Coast cities didn’t crack the list until Boston and Raleigh Durham at spots 9 and 10.

The Emerging Trends report was compiled as a joint effort between Price Waterhouse Cooper and the Urban Land institute, a non-profit research firm. The rankings were determined using data from nearly 1,500 real estate industry experts across the nation.

“If any hesitation about investments in Seattle exists, it seems focused on the housing market,” the Emerging Trends report states. You don’t have to look far to see why the residential housing market is dragging down the rest of the region. The multi-family arena is one area of struggle with Seattle barely cracking the top 10. The single family market ranks #17 overall.

While those numbers might be cause for concern, there’s certainly no reason to panic at this stage. Experts on the region’s real estate market see Seattle as one of the most attractive locations outside of the top five blue chip markets. Seattle continues to see a regular stream of capital flowing in from outside investors and the local economy has been growing to meet investor demand.

For more information read the full article at Puget Sound Business Journal.

Walgreens Streamlines Real Estate Department

December 10, 2014 by W. Nelson Lewis

Walgreens has made significant cuts to its real estate department in an effort to cut costs.

Walgreens recently streamlined its in-house real estate department in a cost-cutting move. They also have brought in a Texas brokerage to handle key issues related to the company’s growing store portfolio.

The Deerfield-based pharmacy giant recently laid off about 16 in-house real estate managers and outsourced the work to SRS Real Estate Partners out of Dallas, a Walgreen spokesman confirmed in an email. SRS will develop on site selection and lease negotiations for new Walgreen stores, he also mentioned.

People who are familiar with the managers Walgreen fired, say many were company veterans who have worked for decades there. The move will contribute to the pharmacy chain’s plan to cut costs back by billions over the next few years.

The planned move, known as an inversion, might have saved the company over $4 billion over a five-year period.

“Our real estate managers can be proud of the work they did over many years to provide Walgreens with the best retail real estate footprint in the industry,” the company spokesman said in the email.

Founded in 1986 by football great Roger Staubach and one of his partners, SRS is now in the driver’s seat as Walgreen pursues an evolving retail-shop strategy that includes opening glitzy outlets with expanded merchandise selection and food in high-profile locations like the Magnificent Mile and across from the Art Institute of Chicago. Walgreen operated 8,309 retail store locations in the U.S. at the end of August, according to the firm’s latest annual report.

For more information read on at Chicago Business.

Will the FAA Let Drones Revolutionize Real Estate Photography?

September 4, 2014 by W. Nelson Lewis

Will the FAA allow drones to democratize aerial photography?

If you’ve kept up with the news over the past several years, chances are you’ve heard something about the controversies surrounding UAVs (Unmanned Aerial Vehicles) or drones. Ethical concerns over their use in military conflicts as well as safety concerns over Amazon’s proposed unmanned aerial delivery service have grabbed headlines of late. While drones certainly elicit passionate responses, there’s no denying their potential to revolutionize industries such as shipping.

One area that hasn’t been covered as heavily is the aerial photography industry. Construction companies and real estate firms pay a pretty penny to have beautiful aerial shots of building sites and properties. Shots from above can definitely help a real estate firm sell a property more easily but the cost is nothing to sneeze at. Professional aerial photography requires elaborate setup and thus high overhead which can make it cost prohibitive for independent contractors or real estate agents. UAVs have the ability to change all that.

Michigan Live recent profiled Taylor Blom, a Michigan based small business owner whose Front Door Photos does the majority of its business by taking high quality photos of properties on the market. Blom sees the potential in using UAVs for his business and for other kinds of photography. He feels drones allow for unique angles that give potential buyers a better sense of the overall scope of a property. He also feels that without the use of drones, these angles would be inaccessible to most small business owners. Sensing that UAVs will soon revolutionize photography, Blom is staying ahead of the curve. He’s been flying his recently purchased drone over his local golf course to hone his skills. So why hasn’t his aerial photography business taken off yet?

The FAA classifies UAVs as recreational vehicles which means they can be used for sport but not for commercial purposes. Legal experts have warned drone owners not to use their shots for marketing until the FAA releases its new set of rules in Fall of 2015. Blom and others in similar situations will have to spend the next year practicing their flying photography until the FAA decides how and when their images can be used.
Check out the entire Michigan Live story here.

Legal Anomaly Makes Trulia-Zillow Deal One to Watch

August 6, 2014 by W. Nelson Lewis

A recent New York Times article discusses the proposed deal between Zillow and Trulia.

Zillow is in the process of inking a $3.5 billion deal to bring their main competitor, Trulia into the fold, but the finish line is still a ways away. You can read more about the deal in this recent New York Times piece.

Zillow and Trulia are the Coke and Pepsi of the online real estate listing game and they may be on the verge of merging. The two internet giants aggregate real estate listings for both buyers and renters and represent the leaders in an industry that has been slow to adopt the internet as its Lingua Franca. The face-to-face comfort that an expert real estate agent can provide has most likely played a major role in the lack of online innovation in the industry. Buyers, especially in the home market are more likely to want to deal with a real person that they trust and who has a proven track record of putting families into quality homes.

While real estate is behind most other major industries as far as adopting technology as a primary selling method, both Zillow and Trulia have been able to differentiate themselves as the two major players. The potential merger of these two online real estate giants is news in and of itself, but the anomalous nature of the agreement makes it interesting from a legal standpoint as well.

Because they are the leaders in their field, Zillow’s legal team is rightly concerned that the deal could attract attention from US government antitrust regulators. It will be up to Zillow to show regulators they will not be obliterating competition in the online real estate listing industry. They will likely point to other smaller competitors such as Homes.com and Realtor.com to make their case that competition in the arena will remain robust.

Where the deal gets interesting is the clause that allows Zillow to walk away from the table should government regulators start to meddle. This alone is not a rarity with these types of deals and in the case is handled by Delaware law. The way the Delaware legislation, which controls many mergers and acquisitions due to favorable tax laws, is written states that the government would have to impose regulation that was of “material adverse effect.” For a bit of context, material adverse effect has never been found in the state of Delaware.

Because of this, Zillow isn’t taking any chances. There is additional language in the contract that provides that Zillow can walk away from the deal if the government imposes any regulation whatsoever, not only one that causes material adverse effect.

The reason the deal will be interesting to watch is it could end up being all or nothing depending on what government regulators choose to do.

Crowdsourced Real Estate: Recap

August 6, 2014 by W. Nelson Lewis

The Property Itself

Once you’ve fulfilled all of these requirements, then you can feel free to embark on a crowdsourced social media venture.

Be sure to do some research into the condition of the actual property. Major unforeseen repairs or renovations can eat into the bottom line of a project quickly. Sometimes sellers will intentionally omit issues with the property and other times they simply may not be aware of them. In either case it is the onus of the buyer to discover potential problems. Of course not all real estate investors, especially amateur ones, are qualified to inspect a home. That’s why you need to hire good people to do this for you. Having a property thoroughly inspected is one place where you shouldn’t skimp. The cash you save here will pale in comparison to the cash you will lose if the property turns out to be a white elephant.

Finally, Manshoory encourages all investors interested in online crowdfunded real estate investments to investigate the platform on which they are investing. Every platform has different terms of service, and proprietors with different levels of expertise. The unregulated nature of crowdfunding is part of the reason it can be an exciting venture, but it also means there isn’t a great barrier to entry for charlatans looking to make a quick buck.

Be sure to check out the full article here.

Investigating Your Investment: Crowdfunded Real Estate

August 4, 2014 by W. Nelson Lewis

Joining the crowd for your next real estate investment may make sense, as long as you do your due diligence.

Zoning and Other Legal Concerns

Oftentimes a vision for a real estate project will involve converting the property into something it is not. Turning a warehouse into a paintball facility is all well and good as long as you’ve delved into the zoning laws and other legal concerns. If you aren’t researching what the local zoning laws actually allow you to do with your new property, the vision can turn to ash pretty quickly.

Tenants

The LA Times piece also encourages potential investors to research current and future tenants. In real estate investment, your tenant is your customer and their ability to pay and pay reliably is the most important factor in whether or not your investment becomes profitable. If the area of the building you are investing in has a history of tenants being evicted, paying rent late, poor credit reports, or lack of references you should think long and hard before putting any money on the table. In any business, you need to find qualified leads and if the area in which your property is located can’t attract them, your investment may be in trouble. It’s easy to run a marketing campaign to attract customers to your pizza place in a so so area, it will prove much more difficult to attract high quality tenants to spend half of their lives there.

The Market

This might seem like a simple one, but you should do some serious into the market in which you are planning to invest. There are hundreds of factors which can affect whether or not a real estate investment is successful but there are two you need to consider before even thinking about moving forward. The first is the condition of the property itself. The second? The market, of course. Put simply and eloquently by the Lew Sichelman of the LA Times, a bad property in a good market is almost always a better investment than a good property in a bad market. Why? Because you have direct control over the quality of your property. You can renovate and market the property and the neighborhood. In short, there are a lot of ways you can turn a bad property in a good market into a good property in a good market. If you’re trying to turn a good property in a bad market into a good property in a good market, you might want to save your energy.

There is a lot to know about a particular real estate market but there are a few simple things you should pay attention to when it comes to analyzing a market’s strength or weakness. Manshoory encourages investors doing research to look into the demographics of the area, population growth, employment/unemployment rate.

If you have the luxury, you should visit the neighborhood yourself to get a feel for the vibe there. Talk to the locals residents and see what kind of properties have been popping up of late. If you’re investing in a strip mall in an area that values its mom and pop shops and boutiques, that might give you pause.

Ways to Vet Your Crowdfunded Real Estate Deals

August 1, 2014 by W. Nelson Lewis

There are some easy ways to spot crowdfunded real estate deals that don’t seem quite right.

A recent LA Times article interviewed Manshoory and he’s laid down some helpful ground rules that anyone looking to dive into crowdfunded real estate should know.

Do Your Homework

In investment terms, this means doing your due-diligence. Many crowdfunded projects rely on flash and pizazz to get investors in the door rather than a sound business plan. Make sure you dive deep into the leaders of the project and their specific game plan to see if it passes the smell test. Manshoory says one of the common pitfalls is over excitement about the investment leading to lack of research. So what are some specific red flags that potential investors should keep their eyes out for?

Fuzzy Math

The term made infamous in the 2000 presidential election also applies to real estate investment financials. To quote Homer Simpson, “You can come up with statistics to prove anything.” You should keep this tongue-in-cheek quip in mind when pouring over the numbers surrounding a potential investment. Always remember that even math can be massaged and it’s the job of the project leaders to convince investors to fork over their money. That’s not to say they’re feeding you bold faced lies, but they could be highlighting positive yet unimportant figures while downplaying negative, yet material numbers.

Common mistakes/ways of spinning include underestimating expenses or feeding investors “projected” revenue numbers that are based on the developers vision for the property, not on the actual revenue stream of that property in its current state.

Crowdfunded Real Estate: Part II

July 27, 2014 by W. Nelson Lewis

How can small time investors avoid getting swindled by crowdfunded real estate deals?

It probably would have happened faster if it hadn’t been for federal SEC regulation which forbid non-accredited investors from contributing capital to large scale projects such as real estate investment. The idea behind the regulations was to protect average people from being swindled by scam artists looking to take a quick buck from an unsuspecting small time investor. “Accredited Investors” are generally required to make $200,000 or more per year, the thinking being that the damage won’t be as detrimental for them if the deal does go south.

While well intentioned, the SEC regulations didn’t account for crowdfunding or microfinancing and have actually slowed down entry into real estate and other small scale microfinancing projects. In 2012, the JOBS Act modified some of the rules regarding the methods capital firms can use to acquire investment. Enter real estate crowdfunding.

It’s an exciting time for micro-investors who want to try their hand at real estate investment, but just because SEC regulation has been rolled back does not mean the risks have. David Manshoory, the founder of a high profile real estate crowdfunding platform known as AssetAvenue warns that potential investors are not off the hook for doing their homework just because the project is crowdfunded.

So how can the average person make sure the real estate project they’re contributing to is the real deal?