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Crowdfunding picks up for real estate investments

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Growing interest in crowdfunding may prompt University of San Diego's Burnham-Moores Center for Real Estate to offer additional, in-depth programming.

Crowdfunding as a viable capital source for real estate was the topic of a panel at the center’s 19th annual real estate conference this month.

“Some of you are interested because of curiosity, and some of you are here because of fear,” said Norm Miller, the panel’s moderator and real estate professor at USD. “You’re wondering, ‘What if this becomes an important source of capital and I don’t know jack about it?'"

So far, real estate has seen little online investment, said Lewis Feldman, a partner in law firm Goodwin Procter's Real Estate Capital Markets Group.

However, crowdfunding has been growing swiftly. In 2012, $2.1 billion worth of investments were made through crowdfunding, followed by $5.1 billion in 2013. Last year, there was about $10.4 billion; the figure could double this year.

Crowdfunding is a type of disintermediation, or elimination of the middle man, Feldman said. The federal JOBS Act (Jumpstart Our Business Startups), which became law in April 2012, allows small businesses in all kinds of industries to advertise and raise funds from the investing public as long as they meet certain income limits — more than $200,000 per year for an individual.

Crowdfunding allows investors to find a more attractive deal than they may in traditional investment models, and it may also be beneficial for community buy-in for new developments.

Ian Formigle, vice president of investments at CrowdStreet Inc., recently had an investment fulfilled start-to-finish in three weeks after beginning the conversation, and typically sees money raised in 30 to 60 days once the opportunity is posted.

Crowdfunding is like retail circa 1997, Formigle said, and there are lots of questions about how to go about it and how to manage it.

“We’re excited about helping investors get access to deals that they couldn’t have any idea about unless they had certain relationship,” Formigle said.

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