The majority of large property deals in the UK are transacted by a handful of institutional investors or very wealthy people.  As Thatcher’s legacy is currently being closely examined, the obvious question is what would Lady Thatcher have thought about this new way to invest in real estate?  Surely she would want everyone to have the opportunity to share in this market?

This is already happening overseas.  In Colombia, for example, they have built the first crowd funded sky scrapper.  A company was formed to build Colombia’s tallest building.  A high profile advertising campaign was launched encouraging everyone  - from doctor to barbers – to invest and share in Bogata’s regeneration in return for a share in the profits.  Hard to believe I know - for those of you who doubt - watch the clip below:

Colombia sky scrapper funding by Crowdfunding

This has very strong resonances with the 1980s and Thatcher’s public listing of utilities and other state owned businesses.  She had a clear vision that everyone should be encouraged to share in the economic activity of the country whether by buying their council house or shares in British Gas or BT.  You can imagine the TV ads, "Tell Sid" that he can own a bit of the new sky scrapper in the city!

Crowdfunding real estate has already attracted some players in the US, such as Fund Rise, who have taken an interesting position.  The premise behind their crowdfunding platform is that local people can come together to invest in a company that then buys empty or rented commercial property.  This is being marketed as a community activity with the investor contributing and benefiting from the regeneration of the local neighborhood.  Investors can then have a say in what business rents the property and share in the return it produces.  What they don’t mention is that the company also has to cover management and other costs including taxes and upkeep of the real estate. There is no exit strategy for the investors unless they hold a private sale of their shares (within the SEC legal rules). Clearly this is a model that has potential but there is no clear management strategy that they follow to avoid conflicts of interest or conflict between share holders. 

The websites Realty Mogul, Ifunder and other players are positioning themselves with a very straightforward proposition – the crowd will come together to buy real state.  Most of the sites are wordpress or tumblr templates with little sign of actual activity.  They appear to be positioning themselves for the implementation of the JOBs Act that has been predicted to open up this sector to the general public.

In the UK, without any imminent legislative changes, crowdfunding is almost exclusively for equity in start ups or the broadening of the angel and venture capital markets.  There is a growing P2P lending market due to the inactivity of the banks.  Sites such as Relendex, which is launching next month, is aiming to capture the property lending space.  They have a much more liquid strategy than the US players.  Investors are invited to participate in lending auctions for commercial property.  As cash is king with banks retreating from property I believe there is massive opportunity in this space.

There is clearly an opportunity to follow the Colombian model and give small investors the opportunity to own a share of an income producing real estate asset. The attraction of equity crowdfunding is not only the financial return but also the emotional rewards of being part of an exciting venture.  It’s unlikely that you would feel that emotion lending to a property company who own some warehouses but if it was a signature building in your town or city you might.  It would feed into the investor appetite that the buy to let market filled, but in a more balanced secure way.  Unfortunately (or perhaps fortunately) however the days of “light regulation” of the financial services are in the past, so crowdfunding of property is likely to remain firmly within the control of the Financial Conduct Authority.  This authorisation will be decided by the FCA and is likely to be centered on rules around the structuring, selling and management of collective investments.

Once the road map to this authorisation has been agreed watch out for the next UK “Big Bang” and one can guess that Lady T will be smiling down.