Crowdfunding the Skyscraper

March 2, 2017
Can a new model for real estate investment help spread the wealth?

The commercial real estate developer Rodrigo Niño has a problem with commercial real estate development. The immense amount of wealth it generates, he argues, falls into the hands of too few people. People like him.

Niño’s sitting in the corner office of the New York headquarters of Prodigy Network, his 50-person company with offices in Miami, Buenos Aires, and his native Bogotá, Colombia. He’s been developing real estate since the early 1990s, and by all appearances has made a successful go of it. But he’s also an unusually reflective real estate mogul. He sees that sometimes the success of one comes at the expense of others, and he wants that to change. “The idolization of capital has created greed and mistrust between people,” he says. “We need a revolution of unity, a revolution of oneness.”

The problem, he says, traces back to the passage of the Securities Act of 1933, a U.S. law that, among other provisions, drew a hard line between investment opportunities offered to the public and those offered to an accredited group of private investors. Private offerings were allowed to be significantly more valuable than public ones, and that select group of accredited investors was empowered to reap the rewards. Think of a startup: A venture capitalist could invest an unlimited amount in a company like Google, while an individual could buy far fewer shares on the regulated stock market, and only once Google went public. “That legalized and institutionalized exclusion, separation, and privilege,” Niño says.

Now, he’s trying to erase those divisions through crowdfunding—a relatively new model of real estate development that, thanks to a recent exemption to the Securities Act, allows anyone to be a potential investor. Developers like Niño are now able to mimic the Kickstarter approach by proposing a project and inviting the public to help fund it. But instead of receiving a thank you note or t-shirt as a reward, investors get a cut of the profits.

The rule changes are still new in the U.S.; restrictions were first loosened in 2012 to allow crowdfunded investment opportunities from accredited investors—those who earn more than $200,000 a year or have a net worth above $1 million—and the market fully opened to everyone last year. But Niño has been using crowdfunding to develop real estate since 2010. He started in Colombia, where crowdfunding has long been legal. In downtown Bogotá, his first crowdfunded venture is a two-tower skyscraper called BD Bacatá that’s set to open later this year. Peaking at 67 stories, it’s the tallest building in the country and the second tallest in South America.

Now, he’s using the crowdfunding approach to develop real estate in New York City, one of the most valuable markets in the world, where he’s been based for 20 years. Two projects are already open, and three more are under construction. All five have been financed through crowdfunding.

And he’s not alone. In recent years, dozens of real estate crowdfunding platforms have popped up, offering seasoned investors and rookies alike the opportunity to buy shares of real estate developments across the street or around the world. The projects these platforms help fund run the real estate gamut, from flipped houses to urban condo conversions to self-storage facilities to hotels to shopping centers to office towers. For some, it’s just another technology-enabled avenue to make investments. For Niño, it’s a way to undo the system of haves and have-nots that the Securities Act of 1933 put in place. ...