Can Crowdfunding Change Real Estate Investment? Portland Developers Trying to Find Out

There’s a few things you should know about the Fair-Haired Dumbbell development in Portland. First, yes, that is its real name. A pair of six-story towers connected by a skybridge planned for a fast-developing, formerly industrial area of town called the Burnside Bridgehead, the nascent project does vaguely resemble a set of old-timey weights, the kind lifted by a mustachioed, turn-of-the-century strongman. Second, the rendering isn’t exaggerating the busy exterior. As a cheeky response to Portland's rainy climate, the developers initially tried to use the specific Florentine pattern shown in renderings, Rossi, but couldn't gain approval from the city's Design Review Board, so they’re commissioning an artist to create an original design for the facade.

Third, and perhaps most important, the local firm behind the project, Guerrilla Development Company, is turning to crowdfunding to help finance the building's construction. While that might be dismissed as a Portlandia-esque affectation, or tech-savvy marketing ploy—according to Anna Mackay, a designer and developer, crowdfunding will raise only $1.5 of the $18 million required, and they can proceed without the public investment—it’s a real test of a new funding model the developers hope leads the way toward more public engagement in real estate. 

"What happens when people can get involved in a real estate development in their own city, would they be more empowered, feel like they have a semblance of control?" says Mackay. "Portland has a booming real estate industry. There’s a sense of nervousness people have as these projects pop up all around them. But what if they supported the building? They might be able to have a sense of control and pride."

It’s no surprise a crowdfunding experiment would originate with Guerrilla Development Company, founded in Portland in 2011 by CEO Kevin Cavenaugh and a team of "socially-conscious ex-architects." The firm has already established a reputation for experimentation; previous projects including The Ocean in 2012, a former car dealership transformed into a series of 450-600 square-foot "micro-restaurants" meant to incubate small businesses, and The Zipper, another series of shops and micro-restaurants completed last year alongside the high-traffic Sandy Boulevard that was "made for 35 mph" (a lenticular art installation on the side comes into focus for drivers speeding by). 

The Fair-Haired Dumbbell concept, which is already raising money with the Crowdstreet platform, is an attempt to democratize real estate investment. Investors can get in for as little as $3,000, which purchases three $1,000 securities, a fairly low bar for real estate investment with a 3-5 year term with an 8 percent rate of return. Crowdfunded contributions will be held in an escrow account until the total reachs $1 million. This way, the project could have hundreds of everyday investors—for typical Guerrilla projects, a traditional accredited investor put in at least $100,000—and more community ownership. This isn't the first example of crowdfunded real estate. Colombian developer Rodrigo Nino has built high-rises and hotels utilizing the concept, and Crowdstreet, which focuses on commercial projects, has more than 30 other customers. But Guerrilla's arrangement truly lowers the bar, as far as the barrier to entry. 

"We think it could shift the landscape in real estate," says Mackay. "We truly want to democratize real estate development."

After attempting an earlier "test the waters" trial run a few years ago to gauge response and interest, they received approval from the Portland Design Commission last fall for the building plan, and worked with the SEC to get approved to accept investment from Oregon, California, Washington, Massachusetts, Virginia and Washington, D.C. While the crowdfunding campaign will be live for a year, they expect to raise $1 million much earlier, and will break ground on the building next month, with an anticipated opening in early 2017.

Mackay and her team believe there’s a lot for investors to like about this 56,000-square-foot development. While its signature shape, a response to an unorthodox site, gets attention, the real draw is its location, undeveloped, formerly city-owned property near major roads on the East side of the Willamette River, which bisects the city.  With a number of high-profile developments by edgy local architecture firms going up on the surrounding blocks, it’s in the midst of a up-and-coming area. While it's certain to stand out, it may end up having pretty interesting neighbors. 

"We’re going to go first and learn best practices for this type of development, and test the market," says Mackay. "We hope that other developers and communities will say, ‘hey, this works, let’s try this ourselves.’"

· NYC's First Crowdfunded Hotel-Condo Hybrid Ready For Guests [Curbed New York]