Crowdfunding the built environment.
—Published on HA Magazine in January 2019
The Statue of Liberty was a gift from the people of France to the people of the United States, designed by Frédéric Auguste Bartholdi and built by Gustave Eiffel. France would finance the statue while the US would provide the site and build the pedestal. But several attempts to raise funds for a granite plinth failed.
Then newspaper publisher Joseph Pulitzer (yes, the Pulitzer prize guy) decided to run a campaign to collect donations, offering rewards including gold coins for the largest donor. In just 5 months a total of $102,006 were collected from more than "120,000 generous patriots"(sic), most of whom gave less than a dollar. The pedestal was completed in April 1886 and there was even some leftover money to send a gift to the sculptor.
This is not always the fate of audacious building proposals though, as they are often likely to perish on the drafting board due to the lack of funding. It's ultimately bankers and wealthy investors who decide what gets built and what doesn't. Risk averse and conservative financiers rarely want to take chances and back the most innovative, original and unconventional ideas.
Crowdfunding, which is a lot more practical now than in the 1880s, offers a fantastic opportunity for entrepreneurially minded architects to test the popularity of an idea, measure the public support behind it, and have more decision power over the entire development process once the project gets off the ground.
The donation model.
The Luchtsingel bridge in Rotterdam was the world's first piece of public infrastructure to be accomplished through crowdfunding on a Kickstarter-type platform. The initiative was launched by Rotterdam-based architects ZUS in 2011, who saw an opportunity to improve an area of office buildings that were under-occupied due to the lack of a good pedestrian connection.
The campaign rewarded donations of €25 and more by printing the name of the donor on a plank of wood used as cladding on the bridge. The €100,000 raised were not enough to build the entire bridge, but plenty to demonstrate to local authorities that the project was needed and endorsed by the public. The government provided the remaining funds and the bridge was completed in 2015.
The investment model.
Because of the high entry barrier, direct investment in property is exclusive for institutions and wealthy tycoons. But investing indirectly in large-scale real estate is possible since the creation of Real Estate Investment Trusts in 1960. REITs are publicly traded companies that connect a group of investors to a pool of properties that the investors don't necessarily know anything about. The investor could be unintentionally backing hideous projects or disastrous developments for the sake of making an unmindful profit.
Since Obama passed the JOBS bill in 2012, equity crowdfunding - or crowd investing - platforms have emerged all over the world as an alternative to donation-based crowdfunding. Instead of receiving rewards for donations, participants pick a project they want to invest in and become co-owners of the property. On platforms like Exporo.de, Crowdstreet.com and Urbe.me one can invest amounts starting at a few hundred Euros or Dollars and receive dividends, or recoup the investment with profit once the project is finalized. In addition to making a buck, participants can be proud agents of positive urban interventions.
“Right now, you can only turn to a limited group of investors — including banks and wealthy individuals — to get funding. Because of this bill, start-ups and small businesses will now have access to a big, new pool of potential investors — namely, the American people. For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.”
Tokenization.
Taking one step further, NYC-based companies Propellr and Fluidity have joined forces to develop a method of blockchain-based financing, where fractional ownership of buildings is represented by cryptocurrency tokens on a platform like Ethereum. The blockchain technology creates a transparent ecosystem where there is no need for middlemen - notaries, bankers, accountants - to determine who owns what and how the asset is transferred. Once fully implemented, this system will increase liquidity in the property market - buying and selling fractions of buildings will be as simple as shopping on Ebay.
In addition to a smart alternative way of raising capital, crowdfunding platforms are a direct participation tool that provides transparency and open communication, enabling investors to engage with proponents, monitor progress, discuss ideas and provide suggestions. In a time when global culture is increasingly defined by an elite with a questionable agenda, a tool that democratizes financing can position people right at the center of the economic processes that shape our cities.
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