Rodrigo Niño, CEO at Prodigy Network, is well aware of the importance of innovation in the real estate sector. He has achieved major milestones in his career in the industry and has a reputation across the globe as an expert. After experiencing major success with projects such as The Trump SoHo, Niño has moved towards the direction of ‘crowd funding.’ He discusses his thoughts with PSFK.com.
You have operated as a traditional real estate organization with projects like the Trump Soho – but recently you explored a new model that involved crowd funding. Can you explain the skypscraper project in Bogota?
The BDBacatá project, developed by BD Promotores, is the second tallest building in South America and the first one in Colombia in 35 years. And the novelty is that Prodigy, as sales and marketing organization for the project, funded over 178 million dollars with retail investors at 35K a piece. This is as far as I know, a world record in crowd funding in real estate. There are more than 3,000 investors in this project.
For a developer, what is attractive about crowd funding rather than traditional financing?
Many things. For example a project as massive as BD Bacatá, would not have been possible with traditional bank financing. An interest rate of 7 or 8 percent would eat up any IRR. Also, delays in projects like this are very common and that complicates things further. You don’t have any of these issues with crowd funding in real estate.
Why did it work in Bogota? Why did people want to put money into a building rather than into savings or their own housing?
People with disposable income to invest have limited options right now. If you have little money, you can buy only something small. The problem is that the smaller real estate assets like apartments, normally are the worst performers in terms of rent and appreciation. On the other hand, the bigger commercial assets like hotels, shopping malls and skyscrapers, perform much better and are also normally safer investments. Up to now, these properties have been only available to the super-rich and out of reach of the smaller investor. With crowd funding in real estate, you can now buy into the best performing assets in the world with relatively little capital.
You are trying to use the same model on William Street in New York. Can you describe that model?
The model applies everywhere. A perfect example are the international investors from around the world, interested in real estate assets in the US. If you are in Argentina for example, and you want to invest say 250 thousand US dollars in an income producing asset, you are limited to buying a condo somewhere in Florida. That condo, will yield no more than 2 or 3 percent on rent, plus a highly uncertain potential of appreciation. You will also have the hassle of renting it, managing it, etc. With crowd funding in real estate, you now have access to large commercial assets in Manhattan, where the return on rent and appreciation is well known to be much higher. Why would you buy a condo to rent it, when you can now buy a much better performing asset in a safer market?
Could you see crowd funding impacting the real-estate sector on a significant level? What are the opportunities?
Absolutely. The fact that technology allows people to buy participation – REPs is what we called them – in major single specific assets, is a simple yet revolutionary concept. Investors will be able to control their risk, build their own portfolios and manage their own investment decisions. It is the birth of a new market that democratizes the real estate investment. That’s why Bloomberg Businessweek published an article about this innovative approach in the last edition.
The fact that the better investments in real estate have been privy to the wealthiest individuals and institutions is a bizarre concept that no longer applies thanks to crowd funding. Investors will be able to control their risk, build their own portfolios and manage their own investment decisions. It is the birth of a new market that democratizes the real estate investment. The fact that the better investments in real estate have been privy to the wealthiest individuals and institutions is a bizarre concept that no longer applies thanks to crowd funding.
Where can people find out more information?
They can visit our website at www.prodigynetwork.com to learn more about it. For now, the website is for international buyers outside the US only, but with the implementation of the Jobs Act, Americans will be able to invest in individual assets. The size of this new market is huge and the possibilities beyond comprehension. It is the future of real estate.
Thank you Rodrigo.