I recently attended a “crowdfunding” conference because I felt ill-informed about this nascent industry. Is crowdfunding a small time sideshow or a real estate sea change? I think it is too early to tell, but I was struck by one aspect of the industry which is compelling, and rather ironic; the very essence of crowdfunding is “personal choice”—the opposite of “crowd.”
Crowdfunding is the “me” part of the industry. “I get to choose investments for me, in the dollar amounts I want, in the places I want to put them.” There is no investing “with the crowd” in the stock of a publicly traded REIT, or an investment in the fund of undefined properties. Rather, there is the personal choice—apart from the crowd—investing in a particular deal that fits “my wants, my needs, my investment philosophy.” And in the USA of 2015, that is a compelling message.
Where does this mesh with NorthMarq Capital clients in 2015? Slowly we have been migrating toward such personal choice in our industry. For the past 20 years we have been shifting from “one- size-fits-all” into segmented markets for debt and for equity that appeal to the personal choice of both borrowers and investors.
Back in the day, people actually went to the department store and bought clothing and appliances and furniture and candies all in one store under one roof. This hardly happens in 2015. Back in the day, large lenders used to do it all: debt and equity, office and warehouse, long term and short term, high leverage and low leverage. Not in 2015. Our world is much more specialized.
Lenders and equity investors are now all marketing to a particular capital client—whether an internal life company portfolio or an externally raised equity fund. Even large capital clients covering many market segments diversify their capital into different debt and equity accounts with separate and defined objectives. Like the individual investor choosing among several deals on a crowdfunding site, the big investor selects separate advisors or programs to properly place its money.
The result is a healthy competitive capital market, but one far more varied and segmented than 20 years ago. In the 1980s, if we did a large office deal with a lender in a particular market, they most assuredly would want to do the client’s next one. Today, many would likely pass on the next deal due to “concentration.” The loan may be a good risk, but it is not what the separate account client looks for in terms of its capital diversification. That is only the tip of the iceberg. Any way you can cut the numbers—large/small, high leverage/low leverage, short term/long term, there are different capital market specializations.
So “back in the day,” it was all about who had the access to the capital that “did it all.” The market segmented by which firm had which big-name investor. Now the equation is more complex. It is not just having access to capital but having access to a lot of capital and knowing all the preferences—to make sure your deal matches up properly with the capital who says, “I want that—it is my type of deal.”Download PDF