Crowdfunding in the lodging sector is gaining momentum.
“There has been an exponential increase in crowdfunding in the last 18 months, but that’s partly because the new exemption to the Securities Act of 1933 created by Title II of the JOBS Act has only been in existence since the end of 2013, so it literally started at zero… As more capital is raised through crowdfunding and more issuers and investors gain knowledge and acceptance of crowdfunding as a viable alternative to raise capital, it will only continue to expand,” said Tim L. Edgar, founder and president, Hotel Innvestor, a Newport, CA-based company featuring a web-based banking platform utilizing an equity crowdfunding model to raise capital for hotel projects nationwide.
Edgar elaborated on the types of projects that make the most sense. “The biggest drawback to crowdfunding a project is the amount of time it takes to raise the capital, which varies based on amount, investor returns, etc., but can take 90 to 120 days. That means crowdfunding an acquisition is very difficult unless it’s an off-market transaction with a flexible seller. As such, crowdfunding currently lends itself more to recapitalizing existing assets and new-development projects, which tend to have more time available,” he said.
While there seems to be a consensus on the type of projects that work best, the amount that’s invested by crowdfunders can certainly vary.
“Some platforms will let you invest for as little as $10,000 but, because we focus exclusively on hotels which tend to have larger capital needs Hotel Innvestor has set a $25,000 minimum and, sometimes, it’s a $50,000 or $100,000 minimum for larger raises,” said Edgar.