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Crowdsourcing becomes a popular real estate financing option

9/2/2016 | Real Estate Blog

Much has been written in recent months about a credit crunch that real estate buyers and investors in Pennsylvania and around the country may soon be forced to contend with. However, there is one part of the commercial real estate financing sector that has been growing rapidly. Crowdsourcing has grown from a cottage industry to a multi-billion dollar economic powerhouse in just a few short years.

The Portland-based crowdfunding company CrowdStreet has taken the concept and applied it to commercial property deals with considerable success. Since it began offering its crowdsourcing service in 2014, CrowdStreet has generated more than $1.7 billion in financing for 60 commercial projects. This summer has been particularly high-yielding for the firm. CrowdStreet execs say that they expect the success to continue well into the future.

Most commercial real estate lending portals merely provide online access to the offerings of institutional lenders. However, CrowdStreet carved out a niche for itself by offering a broader range of options catering to the needs of high-net worth individuals. The company also offers back-end software that its 47 sponsors use to manage $400 million in funds.

The information age has yielded many innovative solutions to centuries-old problems, but the success of services like crowdfunding ultimately rely on individuals reaching agreements and then living up to their commitments. When disputes over real estate financing arise, they are generally resolved by either negotiation or litigation. While attorneys may recommend that a compromise solution be sought, they could also argue in court on behalf of real estate investors who have suffered financial damages due to misrepresentation.