As alternative finance platforms such as P2P lending and equity crowdfunding are growing and maturing, one result has been an increase in cross-border demand to participate in the investments. Last week, Finance Magnates covered Bondora’s growing to allow US investors to invest on their P2P lending platform. Also announcing an expansion, but moving in the other direction, is real estate crowdfunding platform, Fundrise, which has begun to allow investors from Australia, Canada and the UK to invest.
Speaking to Dan Miller, Co-Founder and President at Fundrise, he explained that the firm’s most frequently asked question has been when it would be opening to non-US investors. The demand occurs as real estate investing has become more accessible as an investment class due to crowdfunding platforms that cut down minimum funding sizes. Due to the overall low interest rate environment for fixed income securities around the world, demand for higher yielding real estate investments has been driven up. In addition, real estate deals on crowdfunding platforms will typically be priced with lower fees than those offered in traditional lead investor driven transactions. As a result of the benefits, demand for crowdfunding based real estate investing both in the US and around the world has risen.
Urban Real Estate
Launched in 2012 as a platform to assist Miller and his brother in funding their own deals, Fundrise has carved a specialization in urban rehab real estate. These deals are typically for the development of apartment buildings in top 25 metro locations in the US. According to Miller, while initially driven by deals sourced by Fundrise, the platform has grown to a point where currently about 50% of investments are submitted by third party developers and investors.
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For external parties, the allure for transacting real estate deals on Fundrise is the efficient access of capital from the firm’s 65,000 members. This has led to over 900 real estate companies becoming connected to the platform. As a result, according to Fundrise, the firm has been able to grow their business by 1500% since May 2014 when they raised their Series A funding round. So far in 2015, 75 deals have been funded on Fundrise, with the firm expecting to put out another $100 million by the end of the year.
While demand from non-US investors has been existent from Fundrise’s early days, Miller explained that every country has different security laws related to raising money from investors, stating that “you can’t properly raise money from foreign investors without following correct compliance”. As such, even after the decision was made by Fundrise to expand internationally, they required an additional period to comply with local regulation before launching in the UK, Canada and Australia. With regards to why they chose those three countries, Miller explained that they were the most natural due to the similar language.
For Fundrise, expanding internationally also provides the firm with a wider net of potential investors. As this leads to a larger investment pool and more transactions, it also provides Fundrise another benefit- more data. Regarding this, Miller described that deals are priced by analyzing the type of transaction and fitting it with what Fundrise believes are the best terms for both investors and the developers to complete the deal. Miller explained that as the firm handles more volume, they are collecting more transaction data that can be used to fine tune the terms of individual deals.