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Thoughts and Opinions on Real Estate, Crowdfunding and Investment

A rebuttal to John McNellis's comments about real estate crowdfunding

The 2017 Urban Land Institute (ULI) Fall Meeting was held from October 23rd to 26th at the Los Angeles Convention Center.  Over 6,000 stakeholders in the real estate industry came together to network and listen to discussions from thought leaders on an array of diverse topics. 

National Real Estate Investor shared a list of the top ten takeaways from the event.  Number Eight mentioned the real estate crowdfunding industry:

Touching on the recent boom in real estate crowdfunding firms, John McNellis, co-founder of Palo Alto, Calif.-based development firm McNellis Partners, divided the crowdfunding sector into two groups: firms that simply connect investors with developers and firms that invest in projects themselves. The first concept should work in the long term, he noted. But when it comes to crowdfunding firms underwriting real estate deals, McNellis pointed out that it takes at least a decade in the business to become a reliable underwriter. “To expect these 20-year-olds who are good at tech to be good at underwriting” is unrealistic, he said. McNellis added that established developers normally already have financial partners that they prefer to work with. The developers most in need of crowdfunding dollars would be either those just starting out in the business or developers with a spotty track record.

With all due respect to Mr. McNellis, he is grossly misinformed about the real estate crowdfunding industry.  He dismisses leaders of the platforms that co-invest (and, implicitly, all real estate crowdfunding leaders) as “20-year-olds who are good at tech,” yet he ignores the extensive real estate and finance experience of pioneers such as Nav Athwal, Jilliene Helman, Adam Hooper, Ben Miller, Tore Steen, Ray Sturm, and many others.

He is also misinformed about the quality of developers who chose to use crowdfunding as a capital source.  Established developers are increasingly turning to crowdfunding as a way to complement their existing capital sources and expand their investor bases.

Real estate crowdfunding is still a young industry; many real estate professionals lack awareness or have inaccurate beliefs about it.  As awareness continues to spread, acceptance will continue to grow.

 

 

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