© 2017 Fannie Mae. Trademarks of Fannie Mae. 7.6.2017 1 of 3

Multifamily Market Commentary – July 2017 

Over the past few years, crowdfunding is increasingly being used as a vehicle in financing multifamily properties and 

providing investment opportunities for less sophisticated investors. Simply put, crowdfunding is the practice of funding a 

project or venture by raising small increments of cash from a number of people, usually through a website. Most importantly, 

for certain types of crowdfunding, anyone can invest, not just high net worth individuals, institutional investors, or 

corporations. But these type of investments are quite illiquid. In fact, crowdfunding investors will likely be required to hold 

their investment for a period of time and will be limited in their ability to transfer their investment.

Crowdfunding Overview

Crowdfunding received a boost from the Jumpstart Our Business Startups (JOBS) Act, which became law in 2012 and allows 

smaller investors to participate in funding startup entities. The initial purpose was to provide small businesses access to 

more capital by reducing regulatory requirements.

Since the passage of the JOBS Act, various rules have been adopted by the Securities and Exchange Commission (“SEC”) 

permitting offerings to be advertised to smaller investors. These rules impose varying requirements on the businesses 

raising capital relating to, among other things, the maximum size of the offering, information that must be provided to 

regulators and to investors, and whether the deal can include investors who do not meet net worth or income tests. 

Crowdfunding Risks

Crowdfunding involves significant risks, some of which are noted below:

 Speculative. Investors need to be prepared to lose their entire investments. 

 Illiquidity. Investors may be limited in their ability to resell their crowdfunding investment and may be 

required to hold the investment for an indefinite period of time.

 Limited disclosure. Information may be limited and may not be updated as frequently as in other types of 

investments.

 Possibility of fraud. There is no guarantee that crowdfunding investments will be immune from fraud. 

A Crowded Field for Real Estate Crowdfunding

There are many real estate crowdfunding platforms with various investment terms for investing. For example, minimum 

investment amounts appear to vary widely, from at least a $50,000 investment on one platform to another platform offering 

just a $10 minimum investment amount. In addition, investors may not have equity in the real estate but rather only share 

in the debt. Most real estate crowdfunding websites make it fairly easy to sign up for additional information, while others 

are already closed to new investors. 

Limited Crowdfunding Property Sales Information

Real Capital Analytics has been able to gather some information on property sales, but its reported crowdfunding investment 

activity may not be comprehensive due to these crowdfunding platforms investing as a general partner rather than as a 

stand-alone investor. In addition, real estate crowdfunding platforms often partner or co-invest with local developers and 

investor partners, making identification of crowdfunding-specific real estate transactions difficult. 

That said, according to data compiled by Real Capital Analytics for properties valued at $2.5 million or higher, it is estimated 

that the largest annual real estate crowdfunding property sales transactions occurred in 2016, at $218.7 million, compared 

to an estimated $121.5 million in 2015, as seen in the table below.
© 2017 Fannie Mae. Trademarks of Fannie Mae. 7.6.2017 2 of 3

 

Fannie Mae and Multifamily Crowdfunding

Due to the increasing participation of crowdfunding platforms, Fannie Mae has specific guidelines for acquiring multifamily 

mortgages that include a crowdfunding equity position. 

Fannie Mae’s Multifamily underwriting guidelines state that any mortgage loan in which anyone with a direct or indirect 

equity interest in the borrower or any key principal that solicits financial contributions from the online community for 

capital funding and/or investment in real estate, or at any time during the term of the mortgage loan, is considered to be a 

crowdfunding investment. 

As such, all multifamily loans with crowdfunding investments must be reviewed and approved by Fannie Mae prior to 

acquisition, and the lender does not have the authority to deliver the loan to Fannie Mae without such review. The following 

underwriting guidelines apply for all loans with crowdfunding:

• Crowdfunding investment requires a payoff, or it must have a redemption period, maturity date, trigger date, or 

similar mechanism requiring the repayment of the crowdfunding investment. This was designed to ensure the 

crowdfunding investment would have a term as long as the senior loan. 

• The terms of the organizational documents of the borrower or any key principal do not allow or permit for any 

reason the crowdfunding equity to cause a direct or indirect change of control in the borrower or such key 

principal. This was drafted to ensure the crowdfunding entity could have no mechanism to gain control of the 

asset during the term of the senior loan. 

• Changes of control for any reason to the crowdfunding investment (including changes of control for “bad boy” 

carve-outs or with later lender consent) are not acceptable. 

Fannie Mae multifamily lenders are expected to work diligently to ensure the crowdfunded investments in their transactions 

are structured as passive limited liability equity. 

Multifamily Crowdfunding: Just the Beginning?

Crowdfunding investment for commercial real estate, including multifamily properties, is likely here to stay. With some real 

estate crowdfunding platforms offering various investment options, investor demand, especially from the average 

consumer, is likely to continue expanding. 

Yet, commercial real estate remains a risky investment, and being a small part of a large community of investors can feel 

safer to those with little or no real estate experience. It remains to be seen how influential and expansive commercial real 

estate crowdfunding will be over the next few years. 

Year # Props $ Volume

2013 2 $ 73.5 million

2014 7 $ 138.7 million

2015 16 $ 121.5 million

2016 25 $ 218.7 million

YTD May 2017 4 $ 75.1 million

Source: Real Capital Analytics

Note: Property sales of $2.5 million or higher. Also, crowdfunding investment activity may not be comprehensive 

due to these platforms investing as a general partner and often partnering with local developers/partners.

Real Capital Analytics

Estimated Real Estate Crowdfunding Property Purchases by Year
© 2017 Fannie Mae. Trademarks of Fannie Mae. 7.6.2017 3 of 3

Zoe Paige

Intern

Kim Betancourt

Director of Economics

Multifamily Economics and Market Research

July 2017

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Multifamily Economics and Market Research 

Group (MRG) included in these materials should not be construed as indicating Fannie Mae's business prospects or 

expected results, are based on a number assumptions, and are subject to change without notice. How this information 

affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts and 

other views on information it considers reliable, it does not guarantee that the information provided in these materials is 

accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these 

views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published 

by the MRG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie 

Mae or its management.