Brian Dally is on a quest to democratize the $70 billion-dollar commercial real estate lending market, a space that’s historically lucrative but accessible only to a select and privileged few.
When the Harvard Law School and Harvard Business School graduate met securities law expert Nick Bhargava at Groundwork Labs in North Carolina four years ago, the budding entrepreneurs quickly rallied around Dally’s mission.
“We wanted to reformat finance to work more like the Internet,” Dally told Free Enterprise. “We thought, ‘Why shouldn’t everyone have equal access to investments, the power of financial self-determination, and equal financial opportunity?’”
Enter Groundfloor Finance, the Atlanta-based real estate crowdfunding startup Dally and Bhargava bootstrapped and launched in 2013. Their goal: to take private lending public. They claim the company, which offers short-term, high-yield commercial real estate investment loans, is the first and only Securities and Exchange Commission-qualified real estate lending marketplace open to non-accredited investors.
Groundfloor—which has raised $5 million in Series A funding and $1 million in initial seed funding—is one of dozens of real estate crowdfunding upstarts to sprout up in the wake of the mainstream success of popular crowdfunding sites such as Kickstarter and Indiegogo.
In case you’re not familiar with it, basic crowdfunding enables inventors, entrepreneurs, and startups to fund a project, product, or venture by raising several small amounts of money from a large number of people, i.e. “the crowd,” via the Internet. Real estate crowdfunding works similarly in that it offers the ability to pool a large number of relatively small investments together from individuals to fund a single real estate project.
“Unlike investing in a real estate investment trust [REIT] or other type of fund,” Dally said, “this model allows for everyone to become a capital allocator—no matter how much capital you have to allocate.”
For example, several investors using Groundfloor’s services have accumulated portfolios of 50 or 100 loans with as little as $500 or $1,000. Meanwhile, other Groundfloor customers choose alternative investments and earn an average of eight to nine percent interest, while others take on more risk and earn 12 percent or more. Bottom line, as Dally pointed out, “With real estate crowdfunding, it’s up to you.”
Unlike several other real estate crowdfunding platforms that require a minimum investment of $5,000, Groundfloor asks for a minimum investment of only $10. Typical Groundfloor loans, which carry interest rates varying between seven and 26 percent, return 12 percent annually on a six-to-12-month term.
While Dally is excited and hopeful for what the future brings for Groundfloor, he’s not quick to proclaim that his real estate crowdfunding startup, nor those similar to his—Equity Multiple, CrowdStreet, Patch of Land, Fundrise, and ArborCrowd, to name a few—are poised to upend the real estate industry any time soon.
They are, however, already increasing efficiency and opening up access to investors of all kinds.
“We think some of our peers are overreaching and overhyping when they say that crowdfunding will radically change real estate,” he said. “It might sound ‘disruptive’ and cool for an entrepreneur to say, but we think that’s pretty unlikely in the short term, or even in the medium term.”
Rather, the most significant impact he sees outlier businesses like his having right now, today, is on everyday average people who are saving and investing for a rainy day, college, or retirement.
“Real estate crowdfunding opens up the potential for achieving high risk-adjusted yields that have traditionally remained the province of a very narrow sliver of privileged people,” Dally said. “We think it’s difficult to predict the timing, scale, and scope of a change like that, but we’re as excited as anyone to watch it play out.”