Tell us about the early days of Fundrise. How did the concept of real estate crowdfunding come to life?
Real estate has consistently proven to be an extremely lucrative investment. But the vast majority of these investments are limited to a very small, select number of institutional investors. The reality is that as an individual, it’s easier to invest in a company in a foreign country than it is to invest in a property across the street. So, we started Fundrise with the goal of giving everyone the opportunity to invest in real estate.
When you were starting out, what did you foresee as the biggest risk to success/growth? How did you manage it?
Regulatory! It took us a year to even find an attorney who thought that offering shares of a single property to the public online for $100 was even possible. When we started Fundrise in 2010, the entire securities law framework was in opposition– traditional real estate private offerings had to be kept secret (i.e., no general solicitation was allowed) and only high net worth “accredited” investors were allowed to participate. Now, three years later, especially after the JOBS Act, expectations have changed. Investments should be transparent and accessible. The idea is becoming the norm now, but when we started people in the industry thought we were crazy.
Currently, what is the biggest risk or challenge to your success and growth? How do you manage it?
Right now, our biggest challenge is hiring. As we seek to expand across the country, we need to bring on the best and the brightest, and we need to do it quickly. Currently, we use our website to manage the recruitment of new talent.
Who within your company is responsible for managing risk?
Our CEO. Offering private real estate investments to the retail investor public is novel. It is critical to manage expectations and investment risks. Everyday, we worry about it. As we can say from experience, it is inevitable that some real estate investments won’t go well. So we have been diligent in not only offering the highest quality of deals on our platform, but also educating potential investors on the risks associated with real estate investing– helping them make informed investment decisions.
Do you have a risk-management strategy?
We have been through two market down cycles–2001 and 2008–which have taught us not to buy into the hype. Eventually the music stops. So we focus on the fundamentals. If something doesn’t make sense, especially when investing, then it probably won’t work.
Where does Fundrise aim to be next year?
We are planning to have offerings in every major metro city by the end of 2014 so that every citizen can build a real estate portfolio and access diverse, high-yield real estate opportunities. There are still a lot of deals to be done in the United States– the largest real estate market in the world– before we take on another national market. However, capital flows are global, so we are absolutely open to expanding overseas in the future.
Zurich neither endorses nor rejects the recommendations of the discussion presented. Further, the comments contained in this article are for general distribution and cannot apply to any single set of specific circumstances. If you have a legal issue to which you believe this article relates, we urge you to consult your own legal counsel.