Wharton Emeritus Professor Dr. Peter Linneman weighs in on the future of real estate crowdfunding. What do YOU think? Sound off in the Comments box below!
Bruce Kirsch: We’ve seen a lot of changes in the real estate finance landscape, we’ve seen REITs, we’ve seen private equity funds, we’ve seen CMBS, and now we’re seeing something relatively new again, which is this crowdfunding of individual investors putting in as little as $100 in some cases into investments over the Internet. What do you think about this, and do you think it’s going to be around, or is it just a blip?
Dr. Peter Linneman: It’s interesting, I’m an old guy, and I remain unconvinced that this is really here to stay. Time will tell, but I have seen too many instances of quick and easy money money raising in small amounts, which crowdraise has as a key component, that end up being used by con artists. It doesn’t mean that everybody who uses it is a con artist, it means that it is disproportionately used by con artists, and you get a scandal, and it kills it.
And I think it’s too early to declare successful. I just have in my gut that sooner or later there is going to be a big scandal that’s going to shut it down, and I don’t say that from a technological point of view, I say it from the point of view that small, fast raise without high transparency has usually led in my lifetime to a big scandal, and the big scandal punishes the honest as well as the dishonest. That to me remains the big unknown.