How Does Equity-Based Commercial Real Estate Crowdfunding Affect Expected Return and Principles of Traditional Real Estate Investment?

31 pages. A thesis presented to the Lundquist College of Business and the Clark Honors College of the University of Oregon in partial fulfillment of the requirements for degree of Bachelor of Science, Spring 2017Real estate crowdfunding (RECF) is a new and evolving investment vehicle that is disintermediating traditional capital markets. This research is one of the first empirical studies surrounding the RECF space, with the goal of identifying the campaign effects of equity crowdfunding on annualized expected return for commercial real estate projects. This research uses a hand-collected sample of 165 projects from seven leading U.S.-based RECF platforms. I analyze whether property-, campaign-, and financing-data explain annualized expected returns of RECF projects based on traditional real estate investment principles. In line with traditional principles, results show that projects with higher risk (requiring development, redevelopment, or renovations) and shorter anticipated holding periods correlate with higher expected returns. Additionally, an increase in the ratio of crowdfunded equity (equity released to the crowd) to the project’s size results in negative expected returns for investors. This signaling would provide evidence that even in the face of disintermediation, actors in this market may provide a certification role