Collaborative Consumption, Crowdfunding & The Construction Industry – Part II

collabIn yesterday’s blog post we talked about how companies are using the collaborative consumption economic model to disrupt and change the construction equipment rental market. Today, we are looking at another form of collaboration, crowdfunding, and how it is being used in architecture and construction. Crowdfunding is an alternative financing method for funding projects or ventures by collecting money from a large number of people through an online platform such as Kickstarter or Indiegogo.

Financing through crowdfunding has skyrocketed over the last couple of years. Massolution, a firm specializing in crowdfunding solutions, released their annual report earlier this year based on data they had collected from 1,250 funding platforms. According to their report, crowdfunding raised $16.2 billion in 2014, a 167% increase over the $6.1 billion raised in 2013. They predict $34.4 billion will be raised this year through crowdfunding, more than double last year’s total.

Some of the more successful crowdfunding campaigns have been for the design and development of products like the Pebble Time, a smartwatch that surpassed its goal of $500,000 in about 17 minutes on its way to raising over $20 million from over 78,000 backers, which made it the most funded Kickstarter project ever. Another good example is the Coolest, a cooler packed with a ton of features including a battery powered blender, waterproof Bluetooth speaker and USB charger. The Coolest campaign raised over $13 million from over 62,000 backers after an initial goal of $50,000.

There have been some uniquely odd and absurd campaigns that have proven successful like the guy who as a joke wanted to raise $10 to make potato salad for the first time. His campaign received contributions from 6,911 people and raised over $55,000. He used the funds to host a festival where the proceeds from concessions were donated to help the homeless. There was also the guy who managed to raise $30,000 from 237 supporters so he could have Kenny Loggins perform a private concert in his living room earlier this month. (I hope he got him to play “Danger Zone.”)

There are two primary types of crowdfunding, reward-based crowdfunding and equity crowdfunding, and both are being used to fund construction and architecture projects. With reward-based crowdfunding, supporters are offered some type of reward or swag depending on their donation level. This can be something as simple as a “Thank You”, to more tangible items like T-shirts, hats or the product being developed. With equity crowdfunding supporters receive share of the company for the money they pledge. Reward-based crowdfunding is being used for civic projects such as community buildings and greenways, while equity crowdfunding is being used to develop commercial construction projects where the investors see returns from rental income and appreciation of the property. Crowdfunding is a great way to gauge interest in a project and identify an engaged base of supporters that will help promote your vision.

Here’s a look at some of the architecture and construction projects that have been fully or partially funded with crowdfunding campaigns:

In 2011 real estate developers and brothers, Ben and Dan Miller bought a rundown property in transitional neighborhood in Washington, D.C. with the idea of allowing small-time investors from the local community to buy into the project. In order to allow unaccredited investors to buy shares starting at $100 they had to receive special permission from the Securities and Exchange Commission (SEC). The project, which opened back in April, is called Maketto and is an open concept shared space housing a bakery, bar coffee house, restaurant and sneaker shop. They estimate that the property has appreciated about 50-100%. Their company, Fundrise, raises about $500,000 a day now for commercial real estate deals.

Prodigy Network started a crowdfunding campaign back in 2009 to finance the construction of BD Bacatá, a 67 story mixed-use skyscraper including a 384 room hotel in Bogota, Columbia. The campaign raised over $170 million from 3,800 investors by the time construction on the project started in 2013. Shares cost about $20,000 each and investors were allowed two years to pay for their shares. Thanks to the Jumpstart Our Business Startups (JOBS) Act of 2012 that basically made way for equity crowdfunding from unaccredited investors, Prodigy Network’s first U.S.-based project just opened recently in New York. The AKA United Nations is an extended-stay hotel/condominium that received $12 million of its $95 million price tag from 116 investors.

Luchtsingel, which means “air canal”, is a pedestrian bridge in Rotterdam, Netherlands which was partially financed through a crowdfunding campaign initiated by architecture firm ZUS.  In order to create a pedestrian-friendly path to three previously disconnected areas of the city, the firm sold individual planks inscribed with the names of the names of the donors as well as segments of the bridge to raise about $130,000 for the project. Probably due in part to the success and awareness raised by the crowdfunding campaign, the project also received an additional $4 million in funding through a government grant that was decided by the results of a popular vote.

Civic projects that seem to be the most successful appear to be smaller projects such as neighborhood parks or larger projects where the crowdfunding campaign is used to only fund a portion of the total cost the way the Luchtsingel project did. Similar projects include the Hampline, a protected bicycle lane in Memphis, TN and the Franklin’s Paine Skatepark project in Philadelphia, PA. Both projects had strong support from their local communities with a majority of the funds for both being raised from public and private sources. Both projects needed additional funds to complete construction and both turned to crowdfunding to raise the money needed. The skatepark used Kickstarter while the bicycle lane project used Ioby, an acronym for “in our back yards”, a civic crowdfunding platform.

Neighborly, a civic crowdfunding platform in the same vein as companies like Ioby and Citizinvestor appears to be shifting their focus to become an equity crowdfunding platform. Instead of funding private projects like Fundrise and Prodigy Network, they plan to sell municipal bonds to fund the construction of civic infrastructure projects such as parks and schools. The goal is to make investing in municipal bonds more accessible to individual to help fund local projects. Investing in municipal bonds is generally considered a safe and stable investment that makes money off the interest generated by the repayment of the bonds.

Construction History Fun Fact: Joseph Pulitzer, of Pulitzer Prize fame, used his newspaper The New York World to crowdfund construction of the pedestal for the Statue of Liberty. Congress wouldn’t approve the $100,000 needed to complete construction and New York Governor Grover Cleveland had vetoed approval for $50,000 from the state. Pulitzer used The World to promote the fundraising efforts, publishing the name of all donors in the paper regardless of the amount they sent in. He ran editorials and cartoons shaming the wealthy and appealed to the civic pride of the middle class. He even ran public interest stories about children raising money. His efforts paid off big time. The campaign started on March 16, 1885 and by August 11, 1885 they had raised the $100,000 (about $2.4 million in 2015 dollars) needed to complete the pedestal.

So what do you think? Could crowdfunding someday play a prominent role in financing civic projects? Would you consider crowdfunding the construction of a private building as an investment opportunity? Let us know in the comments below.

If you have a Twitter account and want to continue the conversation, we will be costing a Twitter chat with Riggins Construction using the #ConstChat on Thursday, September 24, 2015 at noon ET and 9:00 a.m. PT. You can find all the details here.



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