Crowdfunding coming of age in German market

Germany tends to lag behind when it comes to financial innovation, and the rise of crowdfunding worldwide has been no exception. However, in the German real estate industry, as elsewhere, plenty of new arrivals have appeared on the scene since the first project was launched over three years ago, and the market is gaining traction.

The subjects of crowdfinancing, along with equity bridge financing, were big themes at the most recent Real Estate Network Dialogue Hamburg, a regular event organised by Berlin's Flatow Advisory Partners (FAP) in conjunction with DGIM and Savills which invariably deals with timely issues of alternative real estate financing.

According to Michael Stephan, the CEO of Berlin-based iEstate GmbH, crowdfunding is now increasingly competing for market share with traditional mezzanine capital in real estate financing. Althought the market is still in its early stages, German property developers are increasingly open to the new form of financing with an additional digital marketing effect, he said.

"In a few years, alternative online financing will be just as established as financing via banks or mezzanine capital providers. Real estate crowd financing has the potential to replace traditional mezzanine financing owing to the speed and simplicity of the transactions", said Stephan.

Alexander Schmitt, counsel at lawyers CMS Hasche Sigle, confirmed the rise in mezzanine forms of financing for real estate projects. "From a legal point of view, the objective is to regulate the interests of the primary banks and those of the mezzanine capital providers at an early stage in the structuring and via an inter-creditor agreement," he said. He cautioned mezzanine finance providers to be mindful of regulatory pitfalls so as to avoid excessive licensing requirements when lending.

Rahim Bavandi, a director at real estate investors Empira AG in Zug, Switzerland, said a key reason for the popularity of mezzanine and equity bridge financing is the opportunity to combine rapid decision-making processes with individual lending structures and short maturities. He considers this a genuine unique selling proposition in the real estate financing market. "The central components of bridge financing are track record, business plan and the exit strategy of the borrower," said Bavandi.

Jörg Scheidler, Head of Capital Partners at Flatow Advisory Partners, said that FAP were increasingly regarding crowdfunding as a growing and exciting element of future real estate financing. FAP has specialised in procuring and structuring capital for investors into German real estate for more than a decade.

"The growth rates in real estate crowd financing over the last two years speak for themselves", said Scheidler. "We will be involving it in appropriate deals as an additional component of potential financing structures, thus complementing what we can offer our clients."

 A sign of how interest in the crowdfunding segment has grown is the rcent establishment of the first nationwide association of crowdfunding members in Berlin – of whom 45% are in the real estate space. The Bundesverband Crowdfunding e.V. (BVCF) has just been set up in Berlin with an initial 22 members to realise common projects and set professional standards for the industry.

The members include Aescuvest, Bettervest, Brickgate, Companisto, Conda, Deutsche Bildung, Exporo, Flmstr, FunderNation, GeldzuGrün, Giromatch, Greenvesting, Immofunding, Investofolio, LeihDeinerUmweltGeld, Lightfin, and Zinsland. Associate members include Effecta, law companies KWAG, Ahrens und Gieschen, Schiedermair and Schenk Lechleitner Krösch, as well as payment platform Lemon Way.

Other names we're hearing about at REFIRE include Brickvest, crowd house, Home Rocket, REVAL, Renditefokus and Bergfürst, as well as Michael Ullmann's Kapitalfreunde, on which we've reported a number of times.

Brickvest is a pan-Eropean platform that launched only 2 months ago, but has already raised over €1m and claims more than 1,300 members, including many family offices and high net worth individuals. It says it has two over-subscribed ofers for two German "institutional grade" offers, which is pushing them to scale rapidly.

 CEO Emanuel Lumineau said, “We knew BrickVest could satisfy sophisticated investors, historically unable to access significant real estate investment opportunities, and the success in the first month is strong validation for the platform. With the first two deals in Germany already closed, our members have indicated their intention to increase their allocation to our investment offerings. We are now focused on investing in our technology and people to scale our services and on ensuring that we are reacting swiftly to this remarkable global demand for accessible real estate investment.”