With regard to the hotel industry specifically, crowdfunding is definitely gaining momentum. Many of the largest real estate crowdfunding sites (such as Realty Mogul, Fundriser, Real Crowd and Prodigy Networks) frequently have hotel private placements mixed in with offerings for other types of real estate. In addition, a few crowdfunding sites that specifically focus on hotel crowdfunding have been created. The first hotel crowdfunding website dedicated solely to the hospitality industry was Hotel Innvestor, although others sites have recently been created such as iCrowdHotels and Equity Roots.
There is little doubt that hotel crowdfunding presently makes up only a tiny fraction of the estimated $2.5 billion that will be raised from the crowd in 2015 for US real estate investment. According to Tim Edgar, Founder and President of Hotel Innvestor, in 2015 somewhere between $25 million to $30 million is likely to be raised through hotel crowdfunding. That amount may seem paltry, but hotels in general make up only a small percentage of total real estate in the US. Moreover, most hotels are fairly large assets, which can make them more difficult to crowdfund than small residential or retail developments.
Even still, there have been some notable successes. In April of 2014, Kittridge Hotels & Resorts LLC garnered national attention by using Realty Mogul to raise $1.5 million for a new night club at the 163-room Hard Rock Palm Springs Hotel in Southern California. As part of the offering, investors were offered such benefits as improved bookings, room-rate discounts and free use of poolside cabanas. According to Realty Mogul, the offering sold out that July. Since then, Realty Mogul has completed two other hotel offerings.
An even bigger success occurred in September 2015, when Korman Communities started accepting guests at the newly renovated AKA United Nations Hotel-Condo located at 234 East 46th Street, New York City. Of the $95 million needed to purchase, gut and renovate the extended-stay hotel-condo project, about $12 million came through a crowdfunding portal run by Prodigy Networks. Prodigy Network’s CEO and founder Rodrigo Nino is widely quoted (in sources including September’s Time Magazine and Bloomberg News) as calling the Manhattan hotel “the first ever crowdfunded building in New York coming to completion, from A to Z….”
Crowdfunding a hotel in Manhattan, which has traditionally been the top hotel market in the country, is no small feat. However, this milestone is only one of several signs that hotel crowdfunding is accelerating. Another is that hotel developers have recently started crowdfunding ground-up development projects, as evidenced by Hotel Innvestor’s $4 million offering for a 150-room Hyatt Place to be constructed at the Philadelphia Airport.
It is still early days for hotel crowdfunding, but the industry is growing up quickly. According to Tim Edgar, “The conversations that we are having with potential investors and issuers now are completely different from the conversations we were having eight months ago. People now know what crowdfunding is. They’ve heard about certain hotels that have been crowdfunded.”