Crowdfunding perfects real estate investment by giving the public the opportunity actualize ideas that they want implemented.
In anticipation of his presentation at the PSFK CONFERENCE 2014 we spoke with Rodrigo Nino, the CEO of Prodigy Network about his groundbreaking work on crowdfunding real estate, beginning with the first crowdfunded skyscraper in Colombia. Read on below to hear about Rodrigo’s new plan to crowdsource the designs for a new business hotel in downtown Manhattan called 17John and how his model of real estate development can help thousands improve their quality of life.
What are the unique factors that are coming together to enable crowdfunding to happen at scale? How far can they go?
There are two main factors that have enabled crowdfunding to happen at scale. First, the rapid evolution of technology; and second, changes to US regulations that were brought on by the JOBS act.
Technology has already transformed the way we share information, purchase products and plan for the future – and the investment landscape is just starting to catch-up. With technology, rather than relying on a select group of people to fund development or drive innovation, we now have the ability to curate better ideas from the community at large, and provide individuals with the opportunity to invest in these ideas for a profit.
In the United States, SEC regulations brought on by the passing of the JOBS Act have been implemented in order to improve small businesses’ ability to raise capital. With these changes, the application of crowdfunding at an impactful scale is becoming more and more imminent.
Crowdfunding is more than just a way to finance cool ideas — it actually perfects the framework of investing by giving the public the opportunity to invest in the ideas that they want implemented. I believe that the collective intelligence of the “crowd” has the potential to revolutionize not only the real estate industry, but in many respects capitalism itself.
When we move from ideas to money, how does that change the stakes? How do we ensure that everyone benefits?
In the US about 420 people have more than half the wealth of the entire country. This imbalance is a problem that has surfaced throughout history, such as in 1928 and 2007 when 1% of the population earned more than 23% of the total income. Government sets the rules on which “free markets” function, where the most important thing to stabilization is a strong middle class. When the middle class doesn’t share into the economic wealth, we get into a vicious downward cycle. Therefore, the real question here is, how do we create a prosperous middle class and help them thrive? One possible solution is to replace the traditional “top-down” approach to economics, with a more “bottom-up” strategy, and that is where crowdfunding can be applied.
The model of crowdfunding that we’re developing and aiming to implement in the US, is by function self-regulated. The aspect of self regulation is imperative because when it comes to sharing ideas or investing capital, the main concern of every person should be the same, “Am I protected from someone taking my idea or capital and using it without fairly compensating me?” The solution to this question is quite simple, but if it’s not implemented the implications are drastic.
The solution is to incorporate an independent third party fiduciary that provides investors and/or contributors with the assurance that they will be paid first before others profit from their contributions. In relation to crowdfunding real estate, this simply means that cash should be handled exclusively by the fund administrator; an escrow account should be used and funds should only be released for the project after adequate funds are available; the sponsors and construction team should be incentivized through carried interests.
What inspired you to create a crowdsourced hotel? What are the challenges to harnessing the wisdom of the crowd?
Our inspiration stems from our belief that crowdsourcing is the most effective way to generate the best ideas possible. Crowdsourcing and co-creation gives investors, architects, designers, locals customers, and other professionals the opportunity to come together and propose ideas based on a wide range of experiences. Opening up the conversation to broader audience to encourage collaborative engagement also allows us to determine what the public is actually interested in.
By integrating crowdsourcing and crowdfunding, we’re effectively giving the public the opportunity to solve its own needs by proposing ideas, and then profit from those solutions by investing in them. The result, the inception of 17John, the world’s first ‘Cotel‘ as a ‘living-canvas’ for the crowd to design the future of hotels and business travel.
Our biggest challenge is to design an impeccable process that clearly informs the crowd about the contest, and effectively collects the information that comes from each individual of the crowd. Our technology also needs to efficiently measure crowd voting and deliver submissions to the jury.
What impact will these peer-to-peer models have on the real-estate going forward? How do traditional businesses keep up?
Prodigy Network has already started to revolutionize the industry by showing that it is possible for investors from around the world to invest directly in commercial real estate. This is a significant divergence from traditional financing models in that smaller investors have never before had the opportunity to buy specific commercial real estate assets.
We believe that this model helps both small investors, and the traditional institutional real estate investors. Rather than working against each other, we believe that crowdfunding investors can invest alongside institutional investors to enhance the supply of capital and improve the quality of the projects it funds.
What’s one thing we can look forward to (without giving too much away) in your talk at PSFK CONFERENCE 2014?
I would like to share our experience with crowdsourcing and crowdfunding in the real estate industry so that more people can participate and benefit from our revolutionary approach.
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