Crowdfunding real-estate: A tool to combat displacement or another nail in the coffin?

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Marcus Books used crowdfunding to try and preserve San Francisco history, but Tycoon Real Estate is using it to flip properties
PHOTO COURTESY SUPPORT MARCUS BOOKS


A key provision in the JOBS Act, a legislative package signed into law by President Obama in April of 2012, was hailed as a huge victory for the ever-growing real estate industry, removing many of the bothersome impediments that keep it exclusively in the realm of the upper echelon.

The vast majority of real-estate deals are controlled by private equity firms and "accredited" investors whose individual net worth is $1 million or more. But the JOBS Act opens up new territory by allowing for “crowdsourcing” investment funds, introducing the option of pooling financial resources with up to 500 other “non-accredited” investors, meaning anyone making $100,000 or less a year for an individual, or $300,000 for couples.

This potentially opens the floodgates to a much larger portion of the population -- but it could have positive or disastrous implications for San Francisco’s housing affordability crisis, depending on how it’s used.

Walk down nearly any street in San Francisco, and you can virtually watch the city change by the moment. With reports of mass displacement and staggering income inequality, the city is desperate for a way to stem the tide of evictions and curb the loss of affordable housing.

This idea of using crowdfunding has drawn some interest as a possible tool for restoring balance. At the same time, at least one company has seized on it to do just the opposite, making it easier for real-estate investors to flip properties and escalate displacement, the only difference being that one need not be a member of the exclusive upper crust to get in the game.

The recent campaign to save the historic black owned bookstore, Marcus Books, led by the San Francisco Community Land Trust, sought to take advantage of crowdfunding as a way to preserve an iconic cultural location and housing for long-term residents.

Fundrise, a D.C. based real-estate startup, helped the Land Trust set up a fundraising campaign in an effort to raise $1 million. Although it failed to hit the target, the organization “was able to raise $750,000,” according to Tracy Parent, SFCLT’s Organizational Director. (Marcus Books is hosting a town hall meeting on Sat/12 at 1pm to discuss plans for the future.)

The campaign inspired hope that even the non-rich could band together with crowdfunding campaigns to preserve rent-controlled housing, by moving historic properties under Land Trust ownership with perpetual tenancies for long-term occupants. Fundrise, meanwhile, held several meetings with representatives of San Francisco’s Office of Economic and Workforce Development to explore ways of working together to respond to the affordability crisis.

Yet a different picture emerged when we talked to Aaron McDaniel, CEO of San Francisco real estate startup Tycoon Real Estate.

McDaniel says the JOBS Act provision “can be used as a tool to get into the industry” for those who want to break into the business of flipping houses, a sentiment echoed in a Business Insider article by Nicholas Carlson earlier this year that asked the question: “How can I get into San Francisco's house-flipping, rent-gouging market?” To wit:

“It used to be that if an investor wanted in the San Francisco real estate market, that investor would have to have at least a few hundred thousand dollars around for a down payment. Not anymore. Thanks to the JOBS Act and a new Kickstarter-like website called Tycoon Real Estate, people with a few thousand dollars in savings can now invest in flipping houses the way only millionaires used to be able to.”

In other words, anyone looking for a get-rich-quick scheme can cash in on the city’s red-hot real-estate market. As the Business Insider observed:

“If [Tycoon Real-Estate] gets big and starts funneling even more capital into the San Francisco real estate market, all those people throwing rocks at Google buses and whining about rents are certainly going to come after the startup, accusing it of fueling an already dangerous bubble.”

Therein lies the danger that could actually speed up displacement in the city. And with San Francisco housing prices at an all-time high, there’s strong incentive for any random person with a thousand dollars or so lying around to give it a go.

As Parent noted, to her knowledge, no other organizations looking to combat displacement have sought to create crowdfunding campaigns of their own for the purpose of preserving rent-controlled housing, rather than flipping it. But Parent is holding out some hope. Even though “we were not successful” in raising the $1 million needed to save Marcus Books, she said, “we will use Fundrise again.” 

Comments

Because that's what cities do - they change. Change is the only constant in life. When will progressives understand that?

Posted by Guest on Apr. 10, 2014 @ 1:31 pm

I get the idea behind crowd-funding real estate, but it's not something that will work or benefit people. How are you going to get enough people to crowdfund to buy an apartment building or somesuch and then divvy up the rewards for people who kick money in? It's impossible.

What will happen is that a bunch of projects will get half-assed, fall apart and leave a bunch of people screwed over, and some real estate magnate will swoop in and buy up all the pieces in one go. There's just too many moving parts.

Crowdfunding to deal with our real estate problems in CA and SF will not solve the problem. Repealing Prop 13 will do more to help make the real estate market here manageable than trying to convince thousands of people they can purchase a building for a buy-in with a DVD reward.

Posted by bassguitarhero on Apr. 10, 2014 @ 1:46 pm

It's probably the single most popular law in the State.

Posted by Guest on Apr. 10, 2014 @ 2:01 pm

not following your logic.
make it more expensive to own a home?
have owners taxes go up that would then be passed through to tenants?

Posted by guest on Apr. 10, 2014 @ 2:39 pm

Repealing Prop 13 would improve the real estate because realistic property taxes would mean more property owners would return their property to the market and sell it rather than sit on it, putting more supply into the market and allowing supply/demand to take hold.

It would incentivize property owners to take care of their property and improve it whereas now they are incentivized to do nothing to their property as upgrades can trigger revaluations of housing.

prop 13 is basically rent control for property owners. It has all the same downsides of artificially restricting supply for the chosen few who got in early.

Posted by bassguitarhero on Apr. 10, 2014 @ 4:08 pm

OK, Get rid of it and then we will talk about Prop13.

Posted by Guest on Apr. 10, 2014 @ 4:36 pm

a year minimum in property taxes paid to the city and county of San Francisco. Are you claiming that's not high enough - that property owners can afford more? How much, exactly, were you thinking homeowners can afford? Do you consider $10,000 to be a laughable amount?

Maybe they could afford $20,000 a year or $30,000? Or go back to the years before Prop 13 when property taxes increased, on average, 150% per year which forced many people to sell their homes to pay their taxes?

The last vestige of the middle class in SF would be decimated by a repeal of Prop 13 - there's no way a couple making $120,000 per year who purchased their home in 1988 could afford a jump in their property taxes from $2900 to $25,000 per year if their home were immediately reappraised and taxes went back to 2.5%, which is what they were before Prop 13 passed (they're 1.169% currently).

Posted by Guest on Apr. 10, 2014 @ 8:28 pm

Home-ownership is a bourgeois concept.

Posted by Snoozers on Apr. 10, 2014 @ 8:58 pm
Posted by Guest on Apr. 10, 2014 @ 9:44 pm

Divvy up the rewards among people who invested, you say?

You capitalist pig!

Posted by Snoozers on Apr. 10, 2014 @ 7:40 pm

SF RE works, then they should quit whining and put their money where their mouth is.

Why not raise funds to buy a building under Ellis and then run it as a "going concern"? If they are really correct that it is only greed that causes evictions, and that these buildings are viable with low-rent tenants, then why don't they put their own money into such a venture? Rather than trying to steal other peoples' money?

And no change in the law is needed. Activists can do this right here, right now. What are you waiting for? Make me an offer!

Posted by Guest on Apr. 10, 2014 @ 1:48 pm

Those that would advocate the repeal of prop. 13 clearly have no intention of owning a home in CCSF and definitely are not residents of CCSF and will never because they can't afford the tax bills!

(...suck it and move to Ohio!)

Personally speaking, that is s p e a k i n g as a high IQ, anti capitalist I hope you experience broad deflation on all of your fucking assets (sic) and are forced to re-evaluate any plans you have for settling in San Francisco infinitely.

for every boom cycle, there's a bust...

Posted by Guest099 on Apr. 10, 2014 @ 4:37 pm
Posted by Guest on Apr. 10, 2014 @ 5:19 pm

How long before these "land trusts" exempt themselves from rent control because, lets face it, the rents these long term renters pay is simply not enough to keep an old building up and running!? Example would be the whole Midtown Terrace issue. If the rent control laws were not so one sided and allowed for landlords to raise their rents to reasonable levels on some long term low rent tenants, then perhaps we wouldn't have all these Ellis act evictions!

Posted by Guest on Apr. 10, 2014 @ 6:05 pm

and thus, unless the property were rented prior to the late 1990s, exempt from rent control.

Posted by Guest on Apr. 10, 2014 @ 8:30 pm

from rent control.

So it's a total racket. The city passes laws that devalue rental buildings, like rent control. They can then buy them cheap and of course the building then gets exempted from rent control.

A clever racket. But a racket nonetheless.

Posted by Guest on Apr. 11, 2014 @ 8:19 am

Crowd-funding works great for charity (or any non-investment) and even for investment in things like Lending Club.

But look at the practicalities:

Say, 10,000 people give $1,000 to buy apartments, assuming this is a charity to help poorer folks. They never expect to get their money back.

Now, who actually owns these apartments? The renters? Who pays upkeep? Property taxes?

I guess the buildings would be run like co-ops in the sense that all the dwellers make the decisions democratically. Sounds good, but at some point down the line, there is going to be terrible feuding, and eventually, a lot of dilapidated buildings.

Posted by Guest on Apr. 13, 2014 @ 9:15 am

We just listed a few new projects on a crowdfunding platform (groundbreaker.co) and invite you to follow them if you are interested in seeing some ongoing transactions:
projects.terrafunda.com

Posted by Guest on Jul. 04, 2014 @ 10:01 am

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