February 25, 2013

Crowdfunding can be a building tool

Construction Corner | Korky Koroluk

It's been flying under many people's radar for the last year or two, but crowdfunding seems to be an idea whose time has come.

Crowdfunding in the architecture-engineering-construction sector? Well, yes. After all, the BD Bacatá, a 66-storey project in Columbia, is well on its way toward its objective of $240 million raised by crowdfunding.

The last time I looked, the total raised was more than $150 million, so it seems likely that construction will be able to proceed in time for a projected completion in 2014.

It’s a mixed-use residential/commercial building being promoted by a group known as Fidi Global, which, instead of trying to obtain traditional funding, decided to push for a financial model in which Colombians would fund the building themselves.

The group kicked off its effort with an extensive advertising campaign on radio, television, newspapers and billboards, and it struck a chord among people with money to invest.

Crowdfunding, in its brief history, has involved people tossing a few dollars into small projects.

I’ve contributed $20 to someone who needed to raise a few thousand to finish and publish a book that was already half written. But, BD Bacatá has drawn from people wealthier than I. The average contribution so far has been almost $50,000.

The idea of crowdfunding is appealing, since it gives people a chance to help launch a project.

Their contribution can be treated as a donation or as an investment, depending on the model used.

In the case of the book I mentioned, my contribution will get me a copy of the book. People investing in BD Bacatá, expect a return on that investment.

Now the concept of raising money bit by bit has been given more credibility with the publication, earlier this month, of an extensive paper on the subject by the American Institute of Architects (AIA).

Called Crowdfunding Architecture, the paper makes a cogent case for funding large building projects with pooled cash received from “the crowd”. Crowdfunding is still an embryonic industry, but has shown its potential to fund things like churches, a pedestrian bridge and a multitude of community improvement projects. And now, BD Bacatá.

The AIA paper provides a good primer for anyone needing to understand the different models of crowdfunding. Some models treat money received as a donation, some offer some sort of reward (like the book I hope to receive) and some hold out the promise of financial return.

The last of these models is the most recent iteration of the concept, and is sometimes called crowd-sourced capital. These various models have been used by entrepreneurs seeking start-up money, musicians wanting to produce and market a recording, and for just about anything.

The paper also includes a section that helps readers create their own crowdfunding campaigns.

Sometimes, crowdsourcing has been used to call for ideas. In Ottawa, the National Capital Commission, used crowdsourcing to gather ideas about how to help the National Capital Region meet the coming challenge of integrating the ideas of sustainability, resiliency and livability into its many communities.

In a release accompanying the paper, the AIA states that the crowdfunding concept holds special promise for architects because it involves them in more projects earlier, creating the possibility of working with local communities “to discuss, develop, and then implement design ideas that benefit the members of the community while creating both short- and long-term job opportunities.”

Of course, laws vary from country to country, province to province, so if you’re interested in crowdfunding, you may want to talk to your lawyer. The AIA paper is, of course, American, and is written in the context of American laws, but its still a useful resource for Canadians.

>Download the paper for fee at www.aia.org then click the link for Crowdfunding Architecture.

Korky Koroluk is a regular freelance contributor to the Journal of Commerce. Send comments or questions to editor@journalofcommerce.com.

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