Crowdfunding carves out legitimate niche
REPORT FROM THE U.S.—Changes in regulations by the United States Securities and Exchange Commission and the power of the Internet have opened up the possibility of crowdfunding as a financing source for all kinds of commercial real estate, including hotels. While few hotel owners have yet to use this platform, sources said it could become a significant piece of hotel financing.
The term crowdfunding might be a little misleading, said Tim Edgar, president of Hotel Innvestor, a California-based hotel investment banking firm.
“We’re not actually crowdfunding because you have to be what’s called an accredited investor to put money in one of these offerings,” he said. “An accredited investor is an SEC designation that essentially equates to being a millionaire. (The investor) either needs to have $1-million net worth, exclusive of their primary residence, or have made $200,000 as an individual or $300,000 as a couple for the last two years with a reasonable expectation to continue to make that level of revenue.”
The SEC is slated to issue additional rules this year that will lower the net-worth threshold for potential crowdfunding investors.
While the SEC was the catalyst for mass-market real estate crowdfunding in the U.S., global investors can participate in the platform.
“Crowdfunders can’t take money directly from outside the U.S., and funds must come through a U.S. bank,” Edgar said. “However, someone outside of the country can move money into a U.S. bank and into a (crowdfunding) investment. They don’t need to be a U.S. citizen, but they can only invest U.S. dollars.”
The health of the hotel industry and relative low returns from other investment vehicles also are driving investors to crowdfunding.