MIPIM Special Series – Part Three: Crowdsourcing, and the Power of the Crowd
- Apr 16, 2015
Associate editor Balazs Szekely presents a three-part series of reports on worldwide real estate based on presentations at the MIPIM world property market in March.
Over the past few years, crowdfunding and crowdsourcing have had an increasing impact on a wide range of businesses and industries around the world and MIPIM organizers have devoted a lot of attention to the phenomenon this year. Within the confines of the “Digital Revolution” family of sessions, the 2015 forum embraced trending topics such as big data, smart cities, the sharing economy, open data and of course crowdfunding–all examined as forces for disruptive change.
In a nutshell, crowdfunding means raising equity or debt through online portals and social network contacts instead of relying on the regular medium of investment banks, partnerships and financial institutions. Websites and online communities like Kickstarter or Wikipedia have built a strong presence in established industries. It is safe to say that the concept of involving a broad public in various projects has successfully worked its way from early adopters into the world of major investors. Consequently, sourcing information and investment from the crowd is conquering territories within the real estate industry as well.
Two MIPIM sessions were dedicated entirely to presenting and studying the involvement of the crowd in real estate. Both sessions were moderated by Ben Constantini, Conferences & Content Manager at Reed MIDEM, the entity that coordinated the organization of the global event. While introducing one of the panels, Constantini reminded the audience that crowdfunding is a ten billion dollar industry, whereas the real estate crowdfunding market is currently rated at $1 billion and it is expected to reach $2.5 billion by the end of 2015, and reach $250 billion by 2020.
Although crowdfunding does not have a well-defined starting point, U.S.-based Jumpstart Our Business Startups Act is considered the most important legislative catalyst to the explosion. Signed into law by President Obama in early 2012, the JOBS Act has loosened the outdated securities laws to a certain degree and cleared the way for crowdfunding to becoming a viable alternative in the new economy. Realty Mogul was founded in 2013 in Los Angeles and timing was on their side, said Chief Technology Officer Justin Hughes. The company provides a peer-to-peer real estate marketplace for accredited investors who wish to pool money online and buy shares of pre-vetted investment properties. Apart from the favorable conditions, the platform’s success was secured by a strong presence in the specialized press even before the actual site was launched, Hughes said.
Since the concept is so innovative, the largest issue this open platform has been facing is gaining credibility and popularity. “These stories, in hindsight, look the same – you launched a website, and then thousands of people started using it,” Dan Miller, co-founder & president of Fundrise said. “Getting it to grow momentum is really hard work; you have to grow it day by day,” he added. Miller highlighted that crowdfunding still has a regional nature that originates in the initial skepticism. The platform allows individuals to invest for as little as $100 and the company’s experience shows that communities need to see good results and positive examples before people start to actually get involved. For the time being, this works best if the concept is introduced from market to market.
So how does a crowdsourcing platform look like from behind the scenes? CompStak offers data obtained via Compstak Exchange where real estate agents, appraisers and researchers share commercial lease comparables, and their input is rewarded with a virtual currency convertible to data posted by others. CEO Michael Mandel described a 90:9:1 ratio—a rule of thumb that, in his experience, applies for this type of business. It means that 90 percent of those involved only enjoy the benefits, while 1 percent do the actual hard work in the background, and the remaining 9 percent only occasionally or tangentially contribute to the efforts of the latter group. The challenge is to find that one percent and make sure that they are always willing to share their data. The problem, as always, is the beginning—because of a vicious circle very similar to the obstacle Fundrise had to overcome. It took time and dedication for the company to build up enough comparables for clients to be interested in using the platform and start contributing to it.
The underlying goal of the approach is advancement on all levels and creating a win-win situation. Accessibility, transparency, simplicity and crowd safety are just some of the benefits of crowdfunding that Wealth Migrate founder Scott Picken aligned. He also pointed out that while smart technology is becoming increasingly available and accessible almost everywhere, less than 13% of the world’s population has access to the real estate market. Wealth Migrate’s philosophy is that technology will soon allow the practice behind even the largest real estate investments to be made so simple, that sums as low as one dollar per person per investment will be worth thrown in. This also cuts out the middlemen from the procedure, making the operations faster and more cost-effective. As an ultimate vision, mobilizing the masses may one day unleash powers great enough to put pressure on income inequality, Picken suggested.