This weeks guest blog on Reasons to Crowdfund Commercial Real Estate is something close to my heart. I love investing in commercial property, but for a lot of investors it’s very daunting! But, Doug Hardman at Pevam is changing that, by offering you the chance to get into commercial real estate through crowd funding. So read on to find out more and why you should be getting involved!
Guest Blog Written by Doug Hardman of Pevam – doug@pevam.co.uk
Follow Doug on Twitter – @PevamCrowd
Equity crowdfunding of commercial real estate is still considered novel. However, the actual concept of crowdfunding has been around for a long time. Though it has taken many different forms, in practice it is the funding of a project by receiving financial contributions from a large number of individual supporters. In 1885 the erection of New York’s Statue of Liberty was “crowdfunded” with 160,000 donations, many early crowdfunding campaigns have been focused on charitable causes. (Source: BBC Magazine, 25 April 2013)
Historically private individuals faced stiff barriers to enter direct commercial real estate investments due to the investment volume involved and technical nature of the assets, this is all changing.
Crowdfunding enters the internet era
Today we are acutely aware of the influence of technology on our lives and the disrupting impact it has on the old ways we did things. Old school thinking, with vested interests in sustaining perceived towering barriers, are simply being circumvented. Now a growing number of private investors and professional investors are connected directly with real estate deals online via crowdfunding, side stepping obstacles that have traditionally been associated with institutional real estate investing.
10 Commercial Real Estate Crowdfunding pros
Crowdfunding is not going to magic away all sector investment risk. But Private investors can expect to take control of key investment decisions and build a personalised investment portfolio. Here are ten advantages of commercial real estate crowdfunding;
- Low cost market entry; rather than having to commit large sums of capital to financing a single acquisition, investors can enter the market with as little as £100.
- Asset Diversification; crowdfunding allows relatively small amounts of investment in each asset, which spreads the risk across a number of transactions and could include assets a cross a number of commercial sectors.
- Geographic Diversification; the internet is the driving force behind our modern global economy and private investors can now easily tap into regional growth markets and foreign real estate markets via crowdfunding.
- Access to talent; the old system effectively had large corporations standing between private investors and talented professionals, charging fees for facilitating their interaction. Now investors have the possibility and responsibility for choosing the talented professionals they want to work with directly.
- Triple Net Leases; Buy-to-Let investor are invariably dismayed by the number of additional and unexpected costs that they did not factor into their initial investment analysis. By comparison commercial real estate can offer Full Repairing and Insuring (FRI) Leases, which mean that the tenant is responsible for all repairs, maintenance and insurance during the term of the lease as well as returning the property in the same condition at the end of the lease term. This provides commercial real estate investors very dependable and predictable income over the length of the lease term.
- Long leases; compared to the normal residential tenant turnover that a normal Buy-to-Let investor can expect, new commercial leases can range from 5, 10 or 15 years and more.
- Non-recourse Investment; it might sound like a negative thing to say, but with crowdfunding you can only loose 100% of your investment. Private investors who take Buy-to-Let mortgages have the entire burden of this additional debt against themselves personally.
- Equity & Debt Investments; The UK Peer to Peer Crowdlending market at over £600 million is larger than equity crowdfunding, which amounted to just under £90 million in 2015. The attraction of debt funding is that the collateral on offer is much higher, meaning capital invested more secure. However the downside is that returns are lower. Returns are fixed to interest payments only and investment periods are typically short, often less than one year.
- Attractive debt terms; at a time when many banks are tightening credit availability and are requiring higher debt coverage ratios for Buy-to-Let mortgages. Commercial real estate senior debt terms are non-recourse and very attractive at sub 3% interest rates for solid assets.
- Defensive Investment; Commercial real estate investment with a medium to long term secure income can be a very secure investment.
Last word for the careful investor?
It is vitally important for investors to remember that real estate is am illiquid asset class and not tradable like stocks. Investors should assume that their capital is locked into the investment for the time period of the proposed business plan for the asset.
Investors will be one of many crowd investors. As such they will have limited direct influence on the management and business plan once invested.
If you want to find out more then head over to Pevam now!
Are you as excited about this as I am? Will this get you investing in commercial property? Comment below and let me know your thoughts. If you want to get in contact with Doug all of his details are above.
NC
