By Lisa Graham and Alexandra Fairweather
With their crowd- funded real estate investment company Fundrise, brothers Daniel and Ben Miller are revolutionizing real estate development and showcasing a model that very well may be the future of investing.
Growing up in the real estate world, Daniel and Ben Miller gravitated to- wards real estate as they watched their family’s company, Western Development Corporation, develop more than 20 million square feet of real estate in its 46-year history. We spoke with Daniel about how their company, Fundrise, is changing the business—and having a positive impact on communities.
Daniel and Ben started their careers as urban retail developers, focusing on building unique real estate projects in Washington, DC. “I love the development side,” explains Miller, who gets particularly excited about historic preservation projects. However, as they raised funds for their real estate deals, they noted that the traditional model of raising money from investment funds in New York City and abroad was antiquated, as many funds were not aware of the neighborhoods where the projects were, nor did they have a meaningful connectionto the project. In contrast, their friends and neighbors, who did understand their visionfor a particular neighborhood, did not have an economical process or feasible mechanism to allow them to invest.
“Real estate is one of the best investment classes there is,” explains Miller. Even though real estate has historically proven to be an extremely lucrative investment, and while private equity investment in real estate has grown in excess of $100 billion, the majority of real estate investments have been limited to a small, select number of institutional investors. Daniel and Ben set out to give everyone the opportunity to invest in real estate. “Fundrise allows people to invest,” he explains. Moreover, the democratic process “changes the dynamics of real estate and what can be built.”
ALTHOUGH THEY FACED SKEPTICS and challenges, spending a year working with the Securities and Exchange Commission (SEC), they crowdfunded the first online equity offering for a real estate property, raising $325,000 from 175 individual investors in 2012. “We opened, in our view, to the broader population who historically has had no way to invest in commercial real estate. Over time, you can have people take part in shaping their communities,” explains Miller. Whereas the traditional process took months to raise capital, they were able to secure financing in hours. After their initial success, they kept successfully raising funds for their real estate properties and they had hundreds of people from across the country starting to reach out to the Miller brothers. “There’s a new generation of real estate developers who are more inclusive who can use technology who are viewing development in a more inclusive way,” remarks Miller. “It will be the norm. It will be creating an efficient and transparent way of making investments,” explains Miller. Currently, Fundrise has 22,000 people on the site and 10,000 non-accredited investors. Fundrise carefully reviews and selects the deals presented on their site and less than 5 percent of the applications received are accepted on the platform.
Fundrise is currently active in 15 cities and is looking forward to becoming a national plat- form. “We see this taking a long time to roll out; a lot of infrastructure has to be built out. People have never invested in real estate and there is going to be a real shift. It is going to allow people in 5-10 years to feel very comfort- able with investing,” notes Miller. “Real estate exists in every community; it works in every market,” continues Miller. After their national rollout, their next focus will be Europe. “It is just a matter of resources and focus. You are going to see a lot of global capital flow through the platform,” explains Miller.
Prior to Fundrise, Ben and Daniel founded Popularise, a real estate crowdsourcing web- site that serves as a consumer marketing tool. “When we were doing our real estate developments, really building projects that impacted local areas, we realized we were deciding who to lease to, so we asked people online, to gauge consumer sentiment,” notes Miller. “Now, it’s a consumer marketing tool across the country,” whereby people have a say in how their com- munities are shaped and defined. Not surprisingly, local governments have also gravitated toward the Millers’ ventures, recognizing their potential to rejuvenate cities and towns as well as prompt innovation, fostering creative, distinct development projects in their cities.
“We have a unique opportunity; there is a much broader transformation happening with capital investment: We see how technology has entered the media and publishing world, but it has not entered the investment world, mostly because of regulation. We spent over half a million dollars on one deal so the public could invest in it, but with the JOBS Act, regulations are changing. We think we are going to see huge shifts in who can invest, which will allow for smaller investors. We want to be the largest and most innovative platform for financing real estate projects and make people feel that they can control and be a part of a development.”