Fundrise, a website that aims to draw in a broad range of investors to finance commercial real estate deals, has raised more than $31 million in its first round of funding from a group of prominent technology, real estate and other backers.
Fundrise, based in Washington, is a pioneer in real estate crowdfunding, allowing individuals to directly invest with as little as $100 in hotels, apartment buildings and other development projects. Until recently, even small-scale real estate projects typically had been the exclusive domain of wealthy investors and private equity firms.
The company was founded by two brothers, Benjamin and Daniel Miller, in August 2012, shortly after the JOBS Act legalized crowdfunding, although they began working on the concept as early as 2010.
The financing round was led by Renren, a large social networking company based in China. It is also being backed by several real estate firms and individuals including executives of Silverstein Properties, the owner and developer of the World Trade Center; Rising Realty Partners, a Los Angeles developer; the Ackman-Ziff Real Estate Group; Scott Plank, a real estate developer and former Under Armour executive; and Richard Boyle, former chief of Loopnet, an online commercial real estate listing service. The Collaborative Fund, an investment fund, also participated in the round.
The new money allows Fundrise to expand nationally and open the platform up to big developers. Over the past several months, almost 300 developers have signed on to the site.
Investor interest in real estate crowdfunding is growing. In the last few months, Realty Mogul announced a $9 million funding round from the venture capital firm Canaan Partners, RealCrowd took in $1.6 million in seed funding from the Silicon Valley accelerator Y Combinator, Andreessen Horowitz, Maverick Capital and others, and the North Carolina-based Groundfloor raised $300,000 from angel investors.
In late April, the Carlton Group, a traditional real estate investment banking firm, also started a crowdfunding portal that will offer $1 billion worth of deals from around the world.
“When we started, no one had ever heard of real estate crowdfunding,” said Ben Miller, 37. Three years later, “the concept is well understood and we’re now in a place where we can scale,” added Daniel Miller, 27.
Most of the real estate portals deal exclusively with accredited investors — those deemed wealthy enough by regulators for risky investments. The Carlton Group, for example, aims for individual investments of $1 million to $20 million.
In contrast, Fundrise’s mission from the start has been to let any resident of a community invest in real estate being developed there, even if they have just a few hundred dollars to invest.
Most commercial real estate projects are typically backed by private equity investors who are often far removed from the property. That distance, the Miller brothers say, frequently leads to a mismatch between what is built and the needs of the community. In addition, the chain of middlemen cut into investors’ profits.
While it awaits the final rules of the JOBS Act, Fundrise has to register each deal that includes small investors with securities regulators, a costly and time-consuming process. Fundrise’s investors on the sites typically receive a share of the rental income from the property as well as a share of the proceeds (and any appreciation) when it is sold. Fundrise says its investors get average returns of 12 percent to 14 percent after fees.
Of the three dozen or so deals Fundrise has financed on its site, totaling $15 million and involving 1,000 investors, just three have been open to smaller investors so far, though more are in the works. But institutional capital will be a critical part of the mix, the brothers noted.
Renren, which has also invested roughly $70 million in SoFi, a peer-to-peer lending site for the student loan market, sought out Fundrise this year after surveying the real estate crowdfunding field, according to Joseph Chen, the company’s founder and chairman. “The commonality here is community,” said Mr. Chen, whose company, Renren, means “everyone” in Chinese.
The other investments came about after months of cultivating relationships with like-minded partners, such as Martin S. Burger, chief executive of Silverstein, and Tal Kerret, its chief investment officer, who said he was impressed with the brothers’ vision and execution. “I think they’ve cracked the code on how to do real estate crowdfunding well,” said Mr. Kerret, who has also joined Fundrise’s board.
Correction: June 2, 2014
An article on Wednesday about a financing round for Fundrise, a crowdfunding website, omitted some investors in a reference to another real estate crowdfunding website, RealCrowd. RealCrowd took in $1.6 million in seed funding from Andreessen Horowitz, Maverick Capital and other investors, not just Y Combinator.