Developers tap crowdfunding investors to finance construction and renovation projects

On September 10, AKA United Nations, an extended-stay hotel-condominium in Midtown Manhattan, started receiving guests. This is the first building in New York City whose costs were partly financed via crowd funding, with $12 million of the building’s $95 million purchase and renovation costs being raised from 116 online pledges of at least $20,000 each, according to BloombergBusiness.

In 2012, President Obama signed the JOBs Act (the acronym stands for “Jumpstart Our Business Startups”), which loosened securities laws to allow crowdfunding platforms, and cleared the way for companies to accept pledges from up to 500 unaccredited investors. Times Realty News lists 152 crowdfunding websites in the U.S., although Bloomberg reports most of these are vying to finance modest buildings in smaller cities.

Still, the research firm Massolution estimates that crowdfunding for commercial real estate could double to $2.57 billion this year. One of the more prominent crowdfunding activists is Prodigy Network, which renovated AKA United Nations with partners. About 90% of the money it raised for this project came from investors outside of the U.S.

Prodigy Network’s highest profile crowdfunded project to date is BD Bacatá, a 67-story, 364-room hotel in Bogata, Colombia. By the time construction started in 2013, Prodigy had raised more than $170 million from 3,800 investors to build what will be Colombia’s tallest structure. This week, the last floors of the tower are being put into place.  

This was the world’s first crowdfunded skyscraper. Each of the investors in BD Bacatá owns equity shares in the project, and some have already received returns exceeding 40% of their stakes.

Prodigy currently has three other crowdfunded projects underway in New York City, including The Assemblage, a 12-story existing building on 25^th Street, for which Prodigy is trying to raise $15 million. The projected IRR on a minimum investment of $20,000 is between 10% and 12%. Prodigy already has fully funded a $38 million redevelopment of another building on John Street in Mnahattan, for which the projected IRR is 15% to 17%.

Prodigy’s campaign “shows the real estate industry that crowdfunding isn’t just a theoretical model,” Ben Miller, co-founder of Fundrise.com, a competing site, tells Bloomberg. Fundrise in January sold interests in bonds backing 3 World Trade Center, an 80-story skyscraper under construction in lower Manhattan, for as little as $5,000. Miller says the effort raised $5 million, in spite of resistance from investment banks that originated the bonds.