NMHC shared an article discussing the rise in crowdfunding, and how that funding focuses on individuals rather than institutional investors.  In some ways, this is a huge opportunity for the industry, and especially for smaller entities who don't need large established connections to institutional capital in order to fund their deals.  However, one quote really stuck out to me:

“We definitely are surprised by what the crowd wants,” he said. “We started with [conservative] deals where investors weren’t going to lose money. But the investors often want high risk—and I’m more middle of the road.”

As a higher tolerance for risk has emerged so has the expectation on the timing of returns. “They also want short term,” Miller said. “They'd rather take a nine-month deal rather than a nine-year year deal. The online investor has an Internet mentality. If they could give you the money and get it back next week, they would.”  (Emphasis added)

The multifamily industry is separated into two primary elements - gains from asset appreciation and profit from operations.  Obviously, the two are related, as profit can drive asset value, but they are also quite separate, as a gain in asset value can be purely from market dynamics.  Additionally, increases in transactions for a property can negatively impact operations, as new owners implement their own processes, employees, etc creating instability at the property.  And in this way, an influx of very cheap money could create "pump and dump" situations within the multifamily industry, where investors look to churn through properties looking for quick turnarounds.   This would gain value for investors, but hurt operations.

Obviously, investment companies that quickly turn properties already exist, but dramatically increasing the volume of those types of investors could have a detrimental impact on the industry if multifamily properties are seen less as operating entities and more as assets that are just bought and sold on a whim.

To be clear, I don't think that crowdfunding will be inherently bad.  In fact, the ability for smaller players to put together a deal and implement innovative operations is a huge opportunity.  But there are concerns about how a market that creates less stability for individual properties might reflect badly on apartment living.

What is your take on crowdfunding in multifamily?