Raising Capital in the Real Estate Industry : Crowdlending as a Financing Source

Abstract Background: Since the financial crisis in 2008, it has become more challenging for small and medium-sized companies to obtain loans from traditional financial institutes. This has in turn lead to an increase in demand for alternative financing methods. One of these alternatives is crowdlending, which has seen a rapid growth in recent years within the real estate sector and created a new market, real estate crowdfunding (RECF). Studies on the topic of crowdlending is relatively limited and existing literature has primarily focused on the lender’s perspective, leaving a gap in research regarding why companies in the real estate industry choose this type of financing. In addition, crowdlending research within the Swedish market is limited even though it possesses one of Europe's leading crowdlending platforms, Tessin. Purpose: The aim of this paper is to address the factors and motives that real estate companies have for using crowdlending to financing real estate projects. Thus, to explore the crowdlending market and for assessing more knowledge regarding the creditworthiness and attractiveness of using this type of financing. Method: A review of the previous literature added insight about the new emergent market of RECF and what funding alternatives real estate companies currently possess. Further, interviews were conducted with seven companies, among these, five real estate companies that provided advantages and disadvantages of using crowdlending as a source to access capital. In addition, two industry-experts were interviewed to add insight about the market. Conclusion: The findings shows that it exists several motives for real estate firms choosing to raise capital through crowdlending platforms, and that it is most often viewed as a complement to traditional financing. Further research in this topic can assess the future of this industry and clarify if crowdlending is a reliable and trustworthy real estate investment and financing alternative