How One Firm’s Raising Money with Crowdsourcing and Social Media

Origin Investments is using crowdfunding and social media to help raise its third property fund. Co-CEO Michael Episcope says such technology isn’t an “either-or” proposition for institutional real estate fundraising

Few GPs would consider using Facebook or social media to raise a private equity real estate fund, yet for emerging manager Origin Investments technology is a crucial pillar in its fundraising efforts as it looks to raise capital not just from institutional investors, but from retail investors, as well.

Chicago-based Origin is one of a growing number of GPs using online crowdfunding platforms and social media outlets as lead generation tools to attract accredited retail investors to invest in its single-asset deals and commingled funds.

The firm has already closed on $70M of investor equity for its $150M third fund, including from retail investors sourced through crowdfunding, housing them in funds where they sit alongside larger investors, such as high-net-worth individuals and family offices.

“Crowdfunding isn’t an either-or proposition for institutional real estate,” says Origin co-founder and co-CEO Michael Episcope. “The problem is that most operators don’t know how to attract this capital base or handle the logistics of serving hundreds of investors.

“For us it’s less about raising capital and more about attracting partners to our platform,” says Episcope, who adds: “Our goal is to have thousands of partners at Origin and deliver a high-quality investment product to a segment of the market that needs it the most.”

“This is simply an extension of the old syndication model—it’s just under the premise of crowdfunding and a lot less expensive,” he says.

Commercial real estate crowdfunding platforms have proliferated over the past few years, with the largest players investing billions of dollars of retail capital in projects. The largest player, Fundrise—that is now focused on its own REITs to invest crowd-sourced equity—raised $2M in 2015 for Silverstein Properties’ 2.5 million square foot World Trade Center 3 office tower in New York, while Prodigy Network raised $170M from more than 3,800 investors to fully fund the development of the skyscraper Bacatá in Bogota, Colombia, in 2014.

Origin closed its first crowdfunding offer in 2015, the 264-unit Iroquois Club hotel in Naperville, Ill., raising almost $4M from 34 investors for the $38M deal, according to media reports.

Origin said in a press release in July that it was raising between $1M and $4.4M a week from investors, including crowd-sourced equity, for Fund III that is targeting core-plus and value-add office and multifamily deals in Charlotte and Raleigh, N.C., Atlanta, Houston, Dallas, Austin, Chicago, and Denver.

For crowdfunding, though, Episcope offers cautionary advice to the retail investors themselves: “Retail investors are focused too much on the brochure returns and not enough on the sponsor.”

He says there’s plenty of opportunity in U.S. real estate today, thanks to a historically high-risk premium spread between commercial real estate yields and the 10-year Treasury. “You are being paid to take risk,” he says.

But as valuations continue to catch up with replacement costs, investors—including retail investors—need to be mindful of how sponsors are going to meet targeted returns.

“Appreciation isn’t going to be as big a percentage of total return going forward. It’s really going to be driven by cash flow and what you to drive value at the asset. For investors, that means you need to understand the sponsors and the amount of skin they’re putting in the game,“ he says. “It’s about how performance is incentivized, how risk is managed and the quality of the team.”