THE DEMOCRATIZATION OF REAL ESTATE INVESTING

Written by William Schumann^*

I. INTRODUCTION

As former United States Supreme Court Justice Louis D. Brandeis wrote in his book Other People’s Money, "Sunlight is said to be the best of disinfectants."¹ By that he meant when it comes to investing, company disclosures act as the "sunlight" which "disinfects" the investments of fraud.² In this paper, I apply Brandeis’s philosophy to the securitization of real estate investing. I will argue that this securitization is democratizing real estate investing, which overall is a positive development. Although there are significant financial risks involved with this democratization, substantial disclosure obligations will mitigate these concerns.

In Section II, I explain how past speculative real estate investing has led to dire economic consequences. In Section III, I will explain the intricacies and attributes of the traditional form of securitized real estate investing, Real Estate Investment Trusts ("REITS"). In Section IV, I will explain how the Jumpstart Our Business Startups ("JOBS") Act has facilitated the democratization of real estate investing. I will focus on crowdfunding and Special Purpose Acquisition Companies ("SPACS") within the real estate investment sphere. I will conclude by noting that although the JOBS Act has set the stage for a proliferation of securitized real estate investing, such a phenomenon does not endanger investors.