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Spotlight on: property crowdfunding

Whether building an entirely new property or simply refurbishing, enterprising hoteliers are turning to crowdfunding to raise funds for their business. Click. explores

Forget traditional fundraising and investment initiatives, the hospitality industry is increasingly looking towards crowdfunding as a way to finance ventures. A favourable way to source capital, crowdfunding allows property owners to quickly raise funds while establishing a rewards programme for investors - offering everything from attractive rates to free upgrades alongside shares or equity.

After completing a successful crowdfunding campaign - with 413 people collectively contributing €400,000 - the Relaxed Hospitality Group acquired Marquette Hotel from NH Hotels. “We used crowdfunding through two platforms, Knab and Collin Crowdfund - two highly rated platforms with high standards for entry,” says Erik Kuiper-van den Berg, Director and Owner of Hotel & Chateau Marquette. “I used crowdfunding because the time schedule to get funded was tight - too tight for traditional banks.” Those who invested in the project will receive a refund of their contribution in 60 months, plus an interest rate of 8.5%.

Besides raising capital for projects, this type of transaction can help businesses create a network of advocates who encourage their circles to frequent the property. “I wanted to use crowdfunding to get publicity for my hotel and to get the ‘crowd’ involved so they would become my ambassadors,” says Kuiper-van den Berg. “Now, people talk about it and they come over to visit our hotel or restaurant to see with their own eyes where they invested their money.”

Inside the world of hotel investing

Opening the doors to hotel investing, crowdfunding platforms expose investors to opportunities typically reserved for the extremely wealthy. “Hotel owners are a very small community and it requires significant resources to get into the ownership position of this business,” says Bhavik Dani, President of Equityroots - a crowdfunding platform that focuses on licensed and franchised hotels, including the likes of Hilton, IHG, and Marriott. “The average equity check required to start or acquire an 80-120 room select-service franchised hotel is US$2.5m - US$3m, putting it out of reach for most.”

Leveraging these platforms, in turn, benefits the property by reducing the amount of effort involved in acquiring capital. “We’re also taking the headache away from hoteliers having to organise several hundred, if not thousands of smaller investors, allowing technology to streamline and simplify the process,” continues Dani. “We’re essentially conducting private offerings online for a fraction of the cost of an IPO.

“Allowing smaller, passive investors to join them [also] allows them to spread their money around and do more deals. They’ll end up growing their portfolio quicker than they would without outside capital.”

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Photo: credit to Austin Distel, Unsplash

So, how does the model operate? In Equityroots’ case, “there is always a leader for the deal, often termed the sponsor. The sponsor is responsible for organising the deal, getting licenses approved by the brand, guaranteeing the debt - if any, and organising the permits for construction,” says Dani. “Equityroots holds the sponsor accountable to properly manage the business and distribute profits/losses to passive investors, and can help a sponsor raise the appropriate amount of equity required for any given deal. For example, if they need to raise US$3m to build a new hotel, or US$1.5m to renovate an existing hotel, we will create unit shares in smaller increments.”

Engaging local participation is another advantage for developers. “It’s a very powerful statement to let city council know that your project is backed and funded by local constituents looking for an investment in their backyard,” says Dani. “These businesses are creating jobs, taxes, and helping to foster tourism and business travel in their respective communities.”

Setting up a successful campaign

Boutique hotel brand Amberlair has taken the concept one step further, using crowdsourcing, alongside crowdfunding, to gather ideas that helped shape its property. “We were looking for alternative approaches to setting up hotels, and thought it was a good idea to first ask the people what they love and hate about hotels - who knows that better than the global travel community?” says Marcus Orbé, CEO and Co-Founder of Amberlair Boutique Hotels. “Combining crowdsourcing and crowdfunding, we are convinced the mix for our new hotel brand is as balanced as we have imagined it. A hotel for the people by the people.”

However, while crowdfunding can pay off if successful, it’s important to ensure you seek out proper guidance and are able to inform potential investors who may be new to the process. “Crowdfunding is still a tough way to raise money, especially when you need millions for a hotel project,” says Orbé. “Our community was not familiar enough with our way of fundraising, we figured out too late.”

To create the best chance for a successful campaign, Hotel Marquette’s Kuiper-van den Berg also recommends doing your research and selecting “a platform that is trustworthy and has a good team that will help you through the process of getting the story right … to ensure the crowd that it’s a safe investment.”

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Hero image: credit to Ryoji Iwata, Unsplash

Takeaway
  • Crowdfunding allows property owners to quickly raise funds while establishing a rewards programme for investors
  • Besides raising capital for projects, crowdfunding can also help businesses create a network of advocates
  • Before starting a campaign, it’s important to ensure you seek out proper guidance and are able to inform potential investors who may be new to the process
  • To create the best chance for a successful campaign, it's crucial to do your research and select a platform that is trustworthy

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