Crowdfunding apartments

Could the tech startup FundRise help San Francisco build more affordable housing?

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rebecca@sfbg.com

We caught up with Dan Miller at a cafe in San Francisco's Financial District, where solitary patrons hovered over laptop screens as they sipped coffee.

Sporting a goatee and collared shirt, Miller, 26, seemed to blend in perfectly. The Washington DC native, a product of the East Coast real estate development world whose father had a hand in developing several iconic properties, was in San Francisco for meetings about FundRise, a startup he and his older brother Ben cofounded. The company is frequently described as being like Kickstarter, but for real estate investment.

Miller has been meeting with representatives from San Francisco's Office of Economic and Workforce Development, a city agency in the Mayor's Office. While nobody in City Hall was willing to get specific about those meetings, it seems officials are looking to FundRise for help tackling the city's bedeviling housing affordability crisis.

Miller has been meeting with economic development offices in cities nationwide, and he's convinced that housing affordability is a problem everywhere. "But it's more acute in San Francisco than anywhere else I've seen," he said, "just because of an influx of tech jobs."

In the last six months, he added, OEWD representatives have seemed increasingly concerned.

The idea of crowd funding real estate is new, and the whole enterprise is still coming to fruition. But the underlying idea is intriguing: Take real-estate investment out of the hands of exclusive multimillion-dollar investment firms, and open it up instead to anybody who happens to have 100 bucks or more to throw in.

In an affluent city like San Francisco, the tool could create wiggle room for more housing projects that are tailored to actual needs, through partnerships with affordable housing developers.

It started when Miller and his brother encountered across-the-board rejection from big investment firms. To hear him tell it, the rise of private equity firms — which have no meaningful connection to the communities they develop — has produced blandness on a sweeping scale.

Objectives like preserving economic diversity, or honoring a community's wishes, don't factor in when these firms determine what to fund; they only consider whether an investment is deemed safe and profitable. That means predictable: think obscenely expensive, characterless market-rate condos. And since they're the dominant financiers, their judgment is the final call.

"We spun off from our family business and started buying old auto warehouses, converting them, leasing them to local tenants," Miller explained. "We took these projects to private equity firms, and they just didn't get it. All the decisions they made were predicated on the financial pro forma," he added, referring to documents that project expected returns. "They were really constraining what's possible."

Sounding like a tech person, he pronounced the whole system woefully inefficient. FundRise seeks to take advantage of little-known Securities and Exchange Commission regulations, as well as new provisions under the federal Jobs Act, to give people the opportunity to use crowd funding instead. (It doesn't eliminate the need to apply for bank loans, which is a different part of the financing picture.)

The idea is that FundRise vets a project's viability to make sure it won't result in widespread loss, then helps proponents attract contributions through an online social network.

In the investment world, the vast majority of transactions are made by "accredited" investors, whose net worth equals $1 million or more, or with annual incomes of $200,000 or higher. But there are others out there who might have extra cash to put toward projects they believe in, like, say, affordable housing complexes for seniors — who don't mind making a lower return.

Comments

market-rate housing and get much better returns?

And suddenly the SFBG likes tech?

Posted by Guest on Dec. 17, 2013 @ 4:01 pm

So you're right, most folks will invest in luxury developments over below-market-rate or even market-rate apartments. The issue with something like FundRise aiming for SF's housing market is that the people who want a LandTrust or anything of the like don't have the money up-front to purchase it, which means you still have to go through real estate companies, loans, etc.

Like HandUp, this doesn't actually address the root of the problem, which in our case is a mixture of Prop 13 and huge land costs that are out of the hands of most people, and the fact that the developers have such high up-front costs to get the property to develop that there's little point in addressing the needs of middle-class and working-class communities until the bubble bursts.

It's yet another "technological solution" to a social problem that doesn't actually address the problem, but instead just moves real-world communication onto the internet where it can benefit the founders of the company and not the people trying to make real estate work.

The big problem is that if you want to purchase a building that's worth a million dollars and you're trying to crowdfund it, people who kick in are going to want something from it. If it's a building with 4 apartments, the only people who are going to benefit are those who are in those 4 apartments, and unless they can come up with $250k each then you're not going to get the funds to take over the property.

Which means you still wind up going the old-fashioned route of getting loans and investments to purchase the property, and that's not something you can crowd-source.

Posted by Jason on Dec. 19, 2013 @ 10:15 am

because you still have to come up with the capital to pay market price for the building in the first place. I suspect many SF LL's would be happy to sell to a bunch of bearded guys wearing sandals who want to set up a co-op, except that losers like that never have any money.

Posted by Guest on Dec. 19, 2013 @ 10:59 am

doomed to failure attempts at web-based application solutions to deep rooted social problems exacerbated by inequalities fueled by the technology sector point out how limited this industry is.

Housing, hunger, clothing, poverty are not issues because of a lack of technology. They are allocation issues that our economic system worsens as unemployment and poverty rise and almost all wealth flows to a tiny minority.

New ideas and ways of thinking are always important. However, these start-ups will only make a few people feel better about themselves without addressing the causes of the problems they hope to solve.

Posted by Guest on Dec. 19, 2013 @ 10:27 am

progressives. When a new billionaire is minted, society becomes unequal but not poorer as a result. In fact, in net terms, society becomes less poor.

Posted by Guest on Dec. 19, 2013 @ 11:01 am

Whether it's a viable plan or not, at the very least it shows an initiative for some out of the box ideas to help fix this problem. Maybe it will work...maybe it won't. I do think there is no one silver bullet to address this problem. Right now there is a perfect storm of factors driving the hyper-inflated housing costs.

I think one thing that would really help is to streamline the approval of projects through planning. Perhaps fast track the projects that are focused on affordable housing stock or even fast track buildings that increase the % of BMR units.
Definitely throw in a huge tax break, if it is good enough for Twitter, it should be good for others as well.
I also would enact a strict limitation on the ability of NIMBY's and special interests to drag out the approval process on certain projects. These restrictions would apply to the affordable or BMR projects or any building that exceeds the required % of BMR units.
They should be allowed one appeal to any project, if they don't like that result, they get a final ruling by the B.o.S, no more bites of the apple.

Posted by Guest on Dec. 19, 2013 @ 10:43 am

reduce housing costs. But of course the NIMBY's will never allow that.

Posted by Guest on Dec. 19, 2013 @ 11:02 am

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