How crowdfunding can tackle inequality, urban density

How crowdfunding can tackle inequality, urban density

by RODRIGO NINO, founder and CEO, Prodigy Network  | Jul 29, 2015

In the 19th century, there were only 11 cities with over one million inhabitants. Today there are over 500 cities around the world where the population stands above 1 million. 

There are over 7 billion souls on this planet and this number is predicted to grow to 11 billion by 2050, creating many predictable challenges and, as one would expect, many unforeseen problems, as increasing demands are placed on urban areas, infrastructure, and our intrinsic sense of community.

As it stands now, 54 percent of this growing population lives in cities, but urban density has skyrocketed in recent years. Unfortunately, development and infrastructure have been lagging behind as the quality of life for citizens has rapidly deteriorated in some metropolitan centers. Traffic seems to worsen everywhere, security is always a problem, and the impact on the environment is potentially devastating.

As many concerned individuals understand, governments lack the necessary resources or proper motivation. The private sector is not always aligned with projects that are the most vital in cities. Returns may be too low and the risk exceptionally high.

RICH v. POOR. Exacerbating the situation, inequality has topped levels that undermine growth itself, even as global wealth has jumped substantially during the past 100 years. It is not only the challenges of urban density that are rampant. It is also that cities are filling with an under-class creating a social dynamic where frustration can turn very quickly into civil unrest.

Traffic Troubles: The average daily commute for everyone in Bogota, in any direction, is 70 minutes!

Many urban planners advocate for “vertical density” and the development of skyscrapers with appropriate conditions of "livability" and "walkability". Aside from homes in tall buildings convenient for work, people also require public transportation, parks, athletic facilities, schools, entertainment and many other things that too many communities lack today.

I will cite as an example a city I know well. Bogota, Colombia, where I was born, counts over 10 million in population. Approximately 1.7 million of these people are commuters; working downtown but living outside the city without viable options for a convenient and desirable home.

The daily commute in any direction is on average an astounding 70 minutes each way. Transportation in the city is just shy of chaotic. Urban anxiety and insecurity is increasing as the city continues to expand horizontally aggravating the situation. People need to work, but the quality of life deteriorates as daily stress and urban challenges grow.

NEW FINANCING METHODS NEEDED. Unfortunately another challenging situation is the lamentable corruption of the local government.  While not unique to Colombia, this complicates matters even more.  The recent Mayor of Bogota, Samuel Moreno, is currently spending his days behind bars after being found guilty of accepting bribes from contractors for public works contracts.

“Without a viable financing mechanism, I believe we are headed for an urban disaster.”

For most private developers, it is safer to build 10 buildings, six stories high, instead of a single skyscraper 60 stories in height.  And why would you blame them?  Many existing skyscrapers around the world have exchanged hands more than a few times. From original owners to banks to funds; interest rates don’t always align with the construction industry.

Traditional equity financing is insufficient for many of the projects that cities need today. Without a viable financing mechanism, I believe we are headed for an urban disaster.

Funding first: The BD Bacata has raised more than $220M from private citizens via crowdfunding.  (Image via BD Bacata)

Paradoxically, it may be precisely in my hometown Bogota where a global solution for this enigma has been born.

BD Bacata, the first skyscraper in a generation built in the nation of Colombia, was not financed by banks. It was funded by many of the 1.7 million affected individuals I mentioned before.

Over 5,000 of these very same Bogota commuters contributed more than $220 million, starting at $10,000, to finance the first skyscraper in a generation. BD Bacata is to date, the world record in crowdfunding.

Local skeptics, however, question if it is a good investment for the investing crowd. I know they are dead wrong.

The pent-up demand of the 1.7 million inhabitants could occupy not just this building, but perhaps 100 more. So such real estate crowdfunding in an urban market at scale unlocks enormous potential by empowering people to invest democratically in the solution to one of their biggest needs while simultaneously earning a profit. The profound potential for crowdfunding to generate a powerful catalyst for urban growth and utility is enormous.  If this combination is not the ultimate shareholder value paradigm, then I don’t know what is.

“REAL ESTATE CROWDFUNDING WILL FINANCE THE FUTURE OF CITIES AND BE THE TIP OF THIS TRANSFORMATIONAL SPEAR.”

We are in the very early transitional stages of this new form of finance. The efficiencies delivered by digital technology have disrupted so many industries in recent years, and the time may finally be right for it to disrupt the finance industry.

I believe that crowdfunding, and its transformational properties, will impact all forms of finance over the next decade. Real estate crowdfunding, combined with the dearly needed social impact, will finance the future of cities and be the tip of this transformational spear.

Based in New York City, the author runs the Prodigy Network, a commercial real estate crowdfunding platform that has raised more than $300 million from 6,200 investors. Currently focused on $850-million worth of projects in Bogota, Colombia, and Manhattan, the firm uses its crowdfunding model as a tool against inequality. It provides an efficient and secure mechanism for smaller investors to participate in ways once available only to the rich.