With news stories emerging daily about crowdfunding for real estate, more and more individuals in the US and abroad are taking note of the new way of investing their money in real estate.
Thus far, with the industry in its earliest stages, the majority of deals are taking place locally, and involve relatively modest sums of money. There have been a few large deals — for instance, the $171.8 million investment in the BD Bacatá building in Colombia — that shows the impressive sums that crowdfunding can raise. The deal, however, was only open to Colombian citizens.
A recent deal conducted by the international real estate crowdfunding platform Wealth Migrate, founded in South Africa, demonstrates how crowdfunding can open up real estate investing on a global scale. A perspective that company Massolution is in the process of validating with the launch of the 2014CF Crowdfunding for Real Estate Study.
As an alternative, quicker and cheaper way of promoting and funding real estate deals, Wealth Migrate’s investment in Oak Hill, a medical building portfolio in Georgia, US, provides further validation of using crowdfunding for international property deals.
This summer, the platform’s investment team and lead investors went on a real estate viewing trip to Georgia, which resulted in Wealth Migrate identifying an attractive investment opportunity consisting of seven medical buildings in Newnan, Peachtree City, and Blairsville.
Publicising the offering on WealthMigrate.com, Wealth Migrate’s crowdfunding portal, resulted in securing 27 international investors for the full $5.725 million equity raise needed, which enabled the purchase of the $16.2 million property. The crowdfunded investments ranged between $100,000 and $1 million; impressively, less than ten percent of the investments came from North America, underscoring the platform’s global reach. The accredited investors making up the balance came from as far afield as Australia, South Africa, Pakistan, Thailand, the UK, and Canada.
Here are the performance highlights of the investment, provided by Wealth Migrate:
- 7 medical office buildings — over 65000 square feet
- 100 percent tenanted with AAA rated tenants
- Income distributions to investors of between 8 percent and 10 percent per annum, growing as rentals increase over time and efficient management incentives drive operating costs down
- Project Internal Rate of Return — 20+ percent conservatively in the 5 year term of the investment
- Cap rate going in: 8.2 percent
- Industry accepted cap rate for resale/refinance: 6.8 to 7.25 percent
- Between 11 and 15 percent below market value acquisition
- Massive value play in year 3 or 4 when looking at a refinance on the portfolio to pay out investors, lower risk, or grow the portfolio with no added capital calls required
- Complete focus and structuring of the investment for risk mitigation.
While the deal is one of the most trailblazing to have been conducted thus far, both in terms of amount raised and in terms of the make-up and diversity of investors, it’s not to suggest that the crowdfunding process was entirely automated — yet.
While the investment was promoted and investors were sourced via the portal, certain aspects of the financial transaction were still conducted using supporting offline processes. Wealth Migrate’s founder and CEO Scott Picken explained that, given the large sums, the investors first put the money into a lawyer’s trust account prior to closing and the portal served primarily as the communication hub, due diligence tracking system, and document management system for the transaction. Its most important use, Picken said, is the ongoing portfolio management for Wealth Migrate’s clients.
“People are embracing technology, but it takes time — eBay was exactly the same,” he noted. “Nowadays, people are prepared, with the likes of PayPal, to do anything online, and we’ll get there.”
The CEO said he’s already seeing some of that happening on his platform: one previously unknown investor, for instance, found the offering on WealthMigrate.com by clicking on a Google advert, and ended up investing $300,000 across multiple projects.
Crowdfunding real estate may seem best suited for local deals, where investors have good knowledge of properties in the context of local business and residential communities. After all, it’s easy for a potential investor to visit a property to do some due diligence, look out any potential faults, and make a more informed decision on the investment. More than anything else, this adds a level of comfort for the investor, ensuring that an opportunity is, indeed, real.
While this certainly isn’t a bad strategy, it does close the door to investors finding properties outside their immediate locality and for sponsors connecting with investors from other markets. International property investments, deals often driven by savvy investors hedging currency fluctuations or investing in rising markets overseas, have previously been off-radar to smaller investors. As Wealth Migrate’s Oak Hill investment shows, however, crowdfunding can drastically change real estate investment dynamics.
“Why not follow nature’s principles,” said Picken. “The birds don’t stay in one place no matter what the season, they migrate from one environment to the next to make sure they are in the best environment at the time. We see our global real estate investments no different as markets change, cycles change and one needs to adapt to these changes. The best part is with technology, we all now have access to the best information and opportunities globally.”
Perhaps most importantly in the case of Oak Hill, smaller investors were able to invest along side wealthy property industry veterans, with some assurance that the collective experience provided a greater level of assurance that the due diligence was sound. Together, the Wealth Migrate team touts 227 years of international real estate experience, with nearly 11,000 investments made on five continents. One member of the team, as an example, is Hennie Bezuidenhoudt, a medical expert in commercial property and someone who is currently building 14 hospitals and has invested in medical buildings since 1992.
The platform has been SEC-compliant since May 14, enabling it to operate in the US (for now, it only works with accredited investors). Wealth Migrate has ambitious plans to launch designated portals on six continents by the end of the year.
It’s no surprise that Picken preaches the global real estate mantra: in a recently-published book, Picken discusses the importance of glocalization, and the impact it has had on his thinking.
The team’s experience and willingness to travel across the globe is evident. The company schedules regular vetting trips to properties for hands-on due diligence (like the one it took to Georgia this summer). In the process, the team has created an advanced and global network of trusted partners who screen opportunities and send them Wealth Migrate’s way.
As further proof of its global aspirations, Wealth Migrate has been invited to MIPIM’s Real Estate Crowdfunding panel. The company will share its vision for the future of real estate crowdfunding, and how individuals and companies can best make use of the opportunities it offers, while understanding the risks involved.
“MIPIM is the biggest and most important real estate event globally,” Picken said. The event is held annually in Cannes, France.
Wealth Migrate’s Oak Hill deal clearly demonstrates how crowdfunding can be used to drive real estate investing. And with a clear, focussed strategy on the medical sector, the number one real estate sector earmarked for growth over the next year according to the DLA Piper State of the Market survey, investors will have an opportunity to grow their wealth.
With another vetting trip scheduled for next month to the US, Australia, and parts of Asia, and with more opportunities hitting its platform, look out for Wealth Migrate to announce more successful deals in the near future.
Disclosure: Wealth Migrate is a client of Crowdsourcing.org / Massolution. The editorial was updated on Oct. 1 with a quote from Scott Picken.