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Is the Future of Real Estate Capital Online?

At a recent evCrowdsource Funding for Real Estate Developmentent for Mason MS in Real Estate Development students, the topic was crowdfunding and Fundrise’s Jared Perlmutter was on hand to explain the pros, cons and possibilities of adding crowdsourced funds to the capital stack.

He was joined by Brian Benninghoff, partner, Buchanan Partners, who shared his firm’s recent experience using crowdsourced capital.

Why crowdsourced funds?

Crowdsourced funds allow small-scale investors to partake in complex and profitable real estate development projects that they would otherwise be unable to include in their portfolios.  The Fundrise model does this by offering shares raised via its online investment offerings.  From a developer’s perspective, crowdsourced funds provide guaranteed capital with two significant advantages to project sponsors:

  • a lower-than-average fee structure
  • fast transfer turn-around—often in as little as two weeks.

“We come in as a joint venture preferred partner, with developers retaining complete control of their assets,” explained Perlmutter. “We generally provide ten to thirty percent of the stack for terms between one and ten years.”

Fundrise provides financing for everything from ground-up construction to value-add development for mixed-use, commercial, office, retail, and multifamily properties—focusing on the small balance commercial market under $10 million.  With a client roster that spans the country, some of the more recognizable names from the national capital region include MRP Realty Residential, The Bernstein Companies, Georgelas Group and Western Development Corporation, along with Buchanan Partners.

“You can reinvent how you raise capital, but you can’t reinvent good real estate assets,” said Perlmutter, citing market potential, cash flow and sponsor’s track record as the primary vetting criteria. “All the old rules of trust and relationships still apply.”

Case study in point:  Innovation @ Prince William

In 2006, Buchanan Partners sold 80% of their equity interest in Innovation Business Center, a three-building flex complex in Manassas (VA).  In 2015, they bought it back.

“We were able to acquire the asset at a very favorable basis,” said Benninghoff.  “With the buildings 100 percent leased, quality tenants and smaller cap need, we thought this would be a great time to test crowdsourced funds.”

Buchanan Partners worked with Fundrise to gain access to $1.5 million, closing the deal at the same time they closed the loan. “They had the money readily available and it allowed us to reinvest other capital in other projects,” said Benninghoff. “These kinds of deals are the wave of the future.”

Jared Perlmutter (center) real estate associate at Fundrise, with Brian Benninghoff, partner, Buchanan Partners (left) and Mason MRED Professor Patrick Connors. Fundrise launched their first online offering in 2014 with 175 individual investors. They currently have more than 80,000 members and have invested in nearly $3 billion worth of real estate.

Jared Perlmutter (center) real estate associate at Fundrise, with Brian Benninghoff, partner, Buchanan Partners (left) and Mason MRED Professor Patrick Connors. Fundrise launched their first online offering in 2014 with 175 individual investors. They currently have more than 80,000 members and have invested in nearly $3 billion worth of real estate.

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Janet Palmisano

Janet Palmisano is a member of the Recruiting and Admissions team at the George Mason University School of Business.

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