Connected Dots And Inner Workings Of Real Estate Crowdfunding

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With his new book Leaders of the Crowd: Conversations with Crowdfunding Visionaries and How Real Estate Stole the Show(Palgrave Macmillan, 2018), Adam Gower, Ph.D. chronicles the run up to the JOBS Act (Jumpstart Our Business Startups) and acceleration to the new frontier for capital formation and investment in real estate. His book advances conversations with whom he calls “some of the brightest, most inspirational people in the country,” leaders who wrote the law and regulations, and visionaries who connected the dots to real estate.

Dr. Gower is a real estate development expert and online capital syndication specialist, focusing on crowdfunding investment and finance. He’s also an author, educator, podcaster and business owner. He and his team build capital marketing platforms for real estate developers, and train investors with tools to invest in deals online with greater confidence. Dr. Gower earned a Ph.D. from University College London and a bachelor’s from the London School of Economics and Political Science. He has taught courses at California Polytechnic State University and recorded lectures for the University of Southern California. He is on sabbatical to write a textbook for university students about real estate crowdfunding.

After the release of Leaders of the Crowd, I caught up with Dr. Gower.

Tom Pfister: To borrow the word “industry” from your book, Leaders of the Crowd, what skilled labor will need to be filled during an expansion of this early-stage real estate crowdfunding industry?

Adam Gower: As a merger between two existing industries, real estate and digital marketing, the labor opportunities in this brand-new industry are for professionals who can straddle both worlds. Yet this is an extremely rare combination of skills and here’s why.

Adam Gower, Ph.D.

Adam Gower, Ph.D.

COURTESY OF ADAM GOWER

The Securities Act of 1933 prohibited companies, including real estate companies, from raising capital from the general public without doing an initial public offering (IPO). Being such an onerous proposition and relevant only to the largest of companies, real estate developers avoided IPOs and became accustomed to seeking the capital they needed for their projects solely from personal acquaintances in closed, private networks.

Developers learned the only way to raise money was to meet with investors in person over lunch, in meeting rooms, and that this meant carrying paper presentation documents and using PowerPoint presentations with projectors to pitch deals. Use of social media to raise money was prohibited, so developers never familiarized themselves with digital marketing and it became unknown and unused.

Then came along the JOBS Act of 2012 which, rolling back 1933 Act restrictions, opened the doors to general solicitation, allowing real estate developers to use digital marketing to raise capital for the first time. The opportunity, therefore, is for skilled professionals who have both real estate capital formation experience, and who also have digital marketing expertise.

Like the team at GowerCrowd, these professionals seamlessly marry the two industries so real estate developers can raise money using best of class digital marketing techniques previously off limits to them.

Pfister: Given your knowledge about the legislative and entrepreneurial steps climbed by real estate crowdfunding and documented in your book, as a researcher what feedback will you be most curious to hear in the near term from investors directly?

Gower: The real estate crowdfunding industry – online real estate syndication by another name – is in its infancy and the greatest challenge in the near term will be how investors react during the inevitable real estate downturn that is headed our way.

Since inception in 2012 and promulgation of crowdfunding regulations in 2014, the real estate market has been on nothing but an upward trajectory. There has been a consistent rising tide of rent and asset values, buoyed along especially strongly by the flow of cheap, low interest debt, that has protected weak real estate projects from exposure to their flaws.

Like gamblers on a winning streak in Vegas, real estate investors, particularly first-time, inexperienced investors must steel against being seduced by the seemingly unfailing profit streams they can enjoy investing passively through online real estate syndications.

When the market turns downward, ill-conceived projects will fail and investors will lose their capital. This will knock confidence in the industry and the reputation of the business model of real estate crowdfunding will suffer.

Investors who are best positioned to benefit from the wealth transfer a downturn always brings, will be those who have patience during the bubble times of today because they will thrive on the opportunistic investments available to them at distressed pricing. Insightful sponsors who are similarly preparing for the downturn are already establishing their online digital presence and building relationships with investors now – making hay, if you will, while the sun shines.

Pfister: With respect to the industry’s outreach and marketing, what’s going well with enlightening real estate developers on accessing crowd funds?

Gower: The calculation for real estate developers is not a difficult one and one that they are intimately familiar with from the highly competitive world of asset acquisition: act decisively or lose the game.

Developers who recognize the importance of having a sophisticated online presence, and who realize that it’s not that difficult to put together, will be those who capture the attention of investors looking for deals online. Taking that a step further; having a robust online presence is no longer optional, it’s essential. Previously, a developer’s investor network was protected by the closed networks in which they operated. Developers were prohibited from contacting anyone they did not know personally, and the use of social media was off limits, so developers only slowly expanded their networks, and investors seldom saw opportunities other than from a very small group of developers.

Now that developers can use digital marketing to solicit investors, early adopters are not only engaged in a pseudo land grab online for the attention of investors but are also directly reaching out to everyone else’s previously closed investor networks. Investors can compare on a wholesale level, for the first time in history, every real estate investment opportunity against all others and can view dozens of developer deals, comparing them alongside each other.

Developers who recognize that to play defense in the new world of digital marketing means playing offense. The winners will be those who are going out proactively now in this nascent stage of the industry to attract and expand their investor networks.

Pfister: With Leaders of the Crowd, you were chronicling frontline actions of pioneers in tech-enabled real estate finance. Intersecting your book’s research with one of your professional roles as an educator, how has that convergence renewed your approach to teaching students of real estate who are tomorrow’s leaders?

Gower: I have always been intensely conscious of the risks that novice, or even experienced investors face when electing to invest in real estate online. The opportunities are extraordinary and investors must become better educated to fully understand what they are getting into. I am known for having produced the first online training courses focused exclusively on real estate crowdfunding, that compresses my 30-plus years of experience into a few hours so that investors can quickly recognize transactions that are worthy of closer examination.

Another exciting shift is in educating real estate developers so that they can get a head start on their competition for attracting online accredited investors. My greatest pleasure is in merging best of class digital marketing expertise with my real estate experience and providing this rare combination to developers, so they can establish relationships directly with prospective investors independently to raise the capital they need now and to see them through the opportunities of the next cycle.

My experience with university-level students, as well as with my online students (almost 2,000 and counting) is that they are extremely interested in the potential for real estate syndication to be radically changed by crowdfunding for two reasons. The first is that they intuitively understand that it makes sense to raise capital online for real estate. Indeed, to today’s generation of students, it is anachronistic that anything remains beyond the reach of the online world, especially if prevented not by economics, but by ancient (1933) regulations.

The second reason students are excited – at least by the way I teach it – is that I emphasize to them that there is an entire generation of real estate professionals who have no idea how to be effective online because they’ve never been allowed to use it. Their natural adoption of social media, digital marketing, automated email systems and all things tech about communications in the Digital Age, gives them a skills set of very high value to real estate developers – particularly if they have a good foundation of knowledge regarding real estate finance and investment.

[“source=forbes”]