New York City skyline image from Flickr.
While the term "crowdfunding" brings to mind online startups and charity fundraisers, another application of the concept by New York-based CityFunders is hoping to appeal directly to healthcare investors.
Co-founder David Behin says his platform is actually part of a well-established concept called "deal syndication." By pooling investors around a particular project – like a real estate deal – the collective stands to gain from multifamily residential building purchases, renovations, repurposing and repositioning of buildings.
Behin is particularly interested in attracting healthcare professionals for his crowdfunding program.
"My father is a physician so I have brought in medical people he has recommended," he said. "They are great partners because they have put aside an allotment to invest and are looking for passive investment. A lot of wealth is created in real estate and there is no better market than New York."
While Behin is seeking healthcare clients, the investment opportunities are not specifically tailored for the demographic, he said.
"A good investment is a good investment no matter who is investing," he said. "A project for physician investors isn't defined by who's putting up the money – it is something designed to generate healthy returns for everyone."
It doesn't take a huge amount to get involved in a CityFunders deal – a minimum of $5,000 to $10,000 is typical, Behin said.
"Most people invest between $25,000 and $100,000 in our deals," he said. "But we wanted a low barrier because in the past, people invested with me because they know me and trust me. With crowdfunding I don't have personal relationships, so I wanted to make the path to saying 'yes' as easy as possible."
Behin concedes that commercial real estate is prone to up-and-down cycles, but maintains that "if a deal makes sense it will still be good even in the lower part of the cycle." Together, the CityFunders team has handled some $85 billion in New York real estate transactions and remains focused on the local metropolitan market.
The bulk of Behin's investments is with multifamily rentals, ground-up development and repositioning of assets. A typical deal is buying a multifamily building and increasing the rent to generate money for investors. A recent $220 million transaction involved repositioning of an abandoned factory into a music venue with restaurants and entertainment.
"As long as the deal make sense and we get the sponsors, we'll do the deal," Behin said.
Crowdfunding as a syndicated investment pool is definitely "a new trend that is here to stay," said Neil Shapiro, partner at the New York law firm Herrick, Feinstein LLP. "By its nature, it attracts a more diverse group of investors, creating more opportunities to invest."
As the economy improves, interest among investors from healthcare and other sectors are looking at new and innovative ways to invest. Sparking the growth in real estate investment opportunities is a change in the law that now allows real estate sponsors to advertise where they used to be restricted from doing so, Shapiro said.
Another driver behind the crowdfunding growth is an improving economy, which has boosted investor optimism in the market – especially real estate.
"People are more optimistic about the future, they have more cash flow and are looking for places to put it," he said. "Crowdfunding for real estate and other concerns are attracting people who might have previously put their money in the bank or bought stocks and bonds. This is a good way to diversify."