Crowdfunding may have arrived in the Hamptons just a year ago, but its initial success has participants ready for more. After selling a $2.7 million bayfront house in West Hampton Dunes that was financed in part by crowdfunding, developer Chad Gessin of Chatham Development said the process was seamless.
“We would do it again,” said Gessin, whose company is a large developer on Long Island. “[It’s] like eBay. You say, ‘This is what I got, do you want it?’ — as opposed to interviewing every lender and financial institution.”
Courtesy of the platform Fundrise, the Westhampton project was the first crowdfunded house in the Hamptons, riding a wave of interest in this new, democratized form of financing. And more are poised to enter the game in the exclusive enclave.
Nationally, crowdfunding is taking off. More than 10 dedicated platforms are trying to lure investors for projects ranging from residential to office space. According to Crowdnetic, a New York City-based company that aggregates and analyzes crowdfunding data, 13 percent of the funds that have gone to all types of crowdfunding since the September 2013 Jobs Act, which gave the go-ahead to equity crowdfunding, went into real estate projects.
“Investors love the space,” said Eric Smith, director of data analytics for Crowdnetic. “Long term, I think this is an area of crowdfunding that hasn’t come close to realizing its full potential.”
Deals can be sold as either equity or debt, but the beauty of real estate crowdfunding, added Smith, is that investors can put in as little as $10,000 and handpick their deals.
“You can construct a reasonably diversified portfolio yourself versus investing in a REIT or private equity fund,” he said.
The deal that helped produce the West Hampton Dunes house was two years in the making, said Chatham’s Gessin, as he and the founders of the crowdfunding platform, Fundrise, came up with a structure agreeable to both parties. The rate — 10.5 percent plus fees — was higher than Chatham might have gotten from a bank, but it came with more speed, greater flexibility and less red tape, he said.
Open only to accredited investors, people with at least $200,000 in annual income and more than $1 million in assets, the project attracted about 70 participants mostly from New York, California and Washington, D.C., each investing an average of about $14,000. Crowdfunding raised $1.05 million, about half the cost of building the five-bedroom, four-bath house. For their trouble, investors got the fixed annualized return of 10.5 percent.
Fundrise’s Dan Miller
“It’s better than the stock market or bond funds,” said Dan Miller, co-founder and president of Washington, D.C.-based Fundrise, adding that he’s planning to do more in the Hamptons.
If he does, he’ll be joined by another, soon-to-launch platform. Founded by developers Glenn Callahan and Richard Gherardi, Realty Crowdfunding expects to open its portal, fundinghamptons.com, in a few weeks. The pair has also grabbed the URLs fundingmanhattan.com and fundingjerseyshore.com, two more sites they intend to launch by the end of the year. The intent of the sites are not only to fund their own developments, but to act as a platform for other developers to raise money.
The Hamptons, predicted Callahan, is an opportune location for real estate crowdfunding, especially at a time when the so-called “one percenters“ are doing so well.
“A place with that level of cache is going to attract investors,” he said.
For all the enthusiasm, though, real estate crowdfunding comes with its own set of precautions, including a young track record.
“It’s still very early,” said Omri Barzilay, co-founder of Propcy, a new site now in testing that aims to help real estate investors make smart decisions. “People should stick with crowdfunding websites that can show deals and turnover in dollars.”