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Crowdfunding and Mortgage Lending

By Jeffrey B. Steiner and David Broderick
June 01, 2021

Online real estate investing platforms (frequently called "crowdfunding" platforms) are becoming a common way for real estate operators and sponsors to raise equity capital for various types of real estate assets. This article discusses several topics that lenders should consider when making loans to borrowers that are indirectly funded using crowdfunded equity.

The general approach taken by these platforms is that "accredited investors" (pursuant to SEC regulations) become eligible to view investor presentations related to specific real estate investment opportunities (often related to a specific property), and thereafter these investors are afforded the opportunity to make equity investments (usually passive) of varying sizes. These investments are most often structured as acquisitions of limited liability company or other equity interests in an entity that will indirectly own the real estate asset.

Crowdfunding platforms afford real estate operators and sponsors access to a broader group of investors than they might otherwise have through established contacts or relationships. Likewise, these platforms offer accredited investors access to investments that they might not otherwise be aware of or that would require too much upfront capital for relatively small investors.

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