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Potential for crowdfunding in commercial real estate

Crowdfunding may soon expand its presence as a commercial real estate financing source thanks to the U.S. Securities and Exchange Commission.

Recently, the SEC adopted final rules implementing Title III of the JOBS (Jumpstart Our Business) Act. Title III allows for non-accredited investors to participate in securities-based crowdfunding investments. The participation is subject to certain investment limitations and limits the amount of money an issuer can raise using the crowdfunding exemption, which is $1 million.

The amounts a non-accredited investor can invest are also limited. If an investor makes less than $100,000 per year, they can only invest up to $2,000, or 5 percent of their gross income. Those that make more than $100,000 per year can invest up to 10 percent of gross income. There is an annual limit of $100,000 per investor to all crowdfunding ventures.

While crowdfunding has gained some steam over the past couple of years with some companies raising millions of dollars to invest in commercial properties, these new rules opens the door for more participation. It should also be a boost for smaller companies giving them an innovative way to raise capital.

According to a recent analysis conducted by Monetarex, crowdfunding in commercial real estate has proven a small, yet steady component. Their findings showed crowdfunding was responsible for financing only 0.4 percent of all real estate transactions over the past couple of years. They said crowdfunding is growing the market but not jumping ahead of it.

Granted, the Title III rules are limited to small amounts, but many national experts believe this could bring in an influx of capital for smaller deals such as small retail stores, office condos and multifamily properties under 20 units. It could even set off a buying frenzy in some markets.

Of course, the big question remains: is crowdfunding just a fad or a viable trend? Only time will tell.

Darren Currin is an analyst with ARA Newmark who specializes in Oklahoma commercial real estate. He may be reached at A version of this column originally appeared in The Journal Record (Oklahoma City, Oklahoma), sister publication to The Daily Record.