summarizes

This article is part of a Property Report series looking at small investors and real

estate, from new ways for individuals to buy slices of office towers to how to buy a stake

in an investment home for as little as $50.

Dan Miller became a pioneer of real-estate crowdfunding about eight years ago by

selling stakes in mainstream property such as hotels, apartment buildings and offices

to small-time investors via the internet.

Today, he is focused on property with an environmental bent, backing urban farms in

Detroit and a grain and dairy farm in Pennsylvania’s Amish country.

His new approach reflects a broader midcourse correction for real estate and

crowdfunding, the practice of financing a project by raising small amounts of money

from a large number of people.

Several of the original crowdfunding firms in real estate have gone out of business, or

overhauled their strategies.

Some, like Mr. Miller, switched to focus on assets that appeal to socially and

environmentally conscious investors. After leaving Fundrise, the real-estate

crowdfunding company he co-founded in 2012, he recently launched Steward, which

invests in sustainable farms.

Others are tinkering with the way money is raised. Fundrise, run by Mr. Miller’s

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https://www.wsj.com/articles/crowdfunding-�irms-blow-up-the-model-to-survive-in-real-estate-11578398401

PROPERTY REPORT

Crowdfunding Firms Blow Up the Model to Survive in Real Estate An attempt at transforming real-estate investing the way Amazon changed retail is getting

another go

Jan. 7, 2020 7�00 am ET

By Konrad Putzier

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brother Ben Miller, today manages pooled investment funds that take advantage of

crowdfunding laws.

Companies such as AlphaFlow and PeerStreet run websites that match lenders with

investors, primarily institutions but also individuals, looking to buy their loans.

Jamestown LP launched a $50 million fund that is developing major projects in cities

such as Atlanta and marketing on Instagram and Facebook. Its minimum investment:

$2,500.

Some firms are targeting wealthier customers, who can write bigger checks, rather

than younger customers who have smaller bank accounts. New York-based Cadre, for

one, requires a minimum investment of $50,000.

Many of the firms focusing on larger investors increasingly resemble those that existed

long before crowdfunding, such as private real-estate funds, real-estate investment

trusts and old-school syndication.

Real-estate crowdfunding is “a revolution that ended up replacing the old guard with

the same thing, which unfortunately happens more often than you would think,” Dan

Miller said.

Crowdfunding grew through startups such as Kickstarter that gave tiny businesses,

struggling rock bands and others a way to appeal for funds in exchange for such things

as coffee mugs and T-shirts.

Starting in 2012, crowdfunding startups sold stakes as small as a few thousand dollars

in commercial property. New regulations paved the way for real-estate investment

firms to raise money across the country through Facebook ads and other social media.

Proponents thought a tactic that could raise large sums while lowering marketing costs

would transform real-estate investing the way Airbnb changed hospitality or Amazon

changed retail.

But as the economy rebounded, more money flooded into real estate and developers

suddenly had plenty of cheap funding choices. That often left crowdfunding firms with

riskier, less-appealing projects that couldn’t get money elsewhere—a tough sell to

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investors.

For regulatory reasons, most firms limited their fundraising to people with an income

of more than $200,000 or a net worth of more than $1 million, excluding their primary

residence. The hope was that enough of these people, known as accredited investors,

were itching to buy stakes in commercial real estate—hitherto an exclusive pastime of

the very rich.

But these people already

had ways to invest in real

estate, for example by

buying a rental apartment

or shares in a real-estate

investment trust, and

crowdfunding firms have

struggled to convince

them their model is

superior.

“Democratizing real estate

sounds great and it’s

inspiring, but it’s tough

when you go up against

the titans of Wall Street,”

said Ray Sturm, a co-

founder of the now-

defunct real-estate

crowdfunding company

RealtyShares and chief

executive of AlphaFlow.

IFunding, one of the first firms to offer real-estate crowdfunding, was also one of the

first to shut. RealtyShares, which raised about $60 million in venture capital, closed

shop in 2018.

Rodrigo Niño, chief executive of Prodigy Network, which says it has raised money for

five Manhattan real-estate projects, resigned in the fall amid lawsuits from an unhappy

investor and former employees. Mr. Niño and Prodigy didn’t respond to requests for

comment.

But other crowdfunding companies continue to grow, and observers are optimistic that

Dan Miller, founder and CEO of Steward

PHOTO: DARREN BRADE

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the model has a future, even if it takes time.

“I’m a believer, even if maybe the first wave didn’t turn out as planned,” Dan Miller

said.

Write to Konrad Putzier at [email protected]

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