Kriston Capps is a staff writer for CityLab covering housing, architecture, and politics. He previously worked as a senior editor for Architect magazine.
D.C.'s Maketto was built on literal buy-in from residents. Now, this crowd-sourcing model has spread to projects including 3 World Trade Center.
Maketto could be in London. Or Paris. Or Tokyo.
Maybe L.A. It'd definitely fit in L.A.
Instead you'll find this hip take on an Asian night market at 1351 H Street NE in Washington, D.C. That's not entirely off the circuit of global destinations, though D.C. isn't chief among them when it comes to food or fashion. Maketto, however, puts D.C. out there.
Maketto is unique—in D.C. or anywhere else—for two reasons. It's the only restaurant anybody can name that also serves as a fully realized retail outlet. The shop is jointly operated by Erik Bruner-Yang, the James Beard Award–nominated chef behind D.C.'s popular ramen shop Toki Underground and Will Sharp, the creative director who launched the Durkl streetwear line in 2005.
"Think about this deal," says Ben Miller, the co-founder and CEO of Fundrise, the other factor that makes Maketto so special. "This project is half-retail, half-restaurant. Name the number of places like that in the country."
The fact that there's a one-stop shop for pan-fried leek buns and Durkl-brand camper caps is news that should make people everywhere jealous of the District. But Maketto is a model in more ways than one. Its opening looks like proof that Fundrise's vision for crowd-funding real-estate projects works as well for neighborhoods as it has for the real-estate market.
From the start, the vision was simple in concept, yet exceedingly complex in execution. As Emily Badger explained in a 2012 curtain-raiser on Fundrise for The Atlantic Cities, the Miller brothers invested in the neighborhood by buying the property at 1351 H Street NE and opening it up to the neighborhood directly—after plenty of finagling with the SEC. The Millers asked neighbors what they wanted to see developed there, and, after settling on the more-or-less unfeasible option of a restaurant-slash-retail store, opened the investment to those same neighbors. People bought all of the 3,250 shares offered, many of them first-time investors buying in for as little as $100 per share.
"If anyone looks at this industry called real-estate crowd-funding, it’s still the early, early days," Miller says. As it turned out, Fundrise didn't have to wait for Maketto to open for vindication. In the two-and-a-half years since the Miller brothers more or less invented the practice with the D.C. offering, more than 100 different players have adopted the crowd-funding strategy for real estate. "It's a whole industry onto itself, and it all started with this one little deal on H Street."
It's since led to bigger deals for Fundrise—including the 3 World Trade Center development by Silverstein Properties—and, as of May 2014, $31 million in financing. Miller says that real-estate crowd-funding platforms like Fundrise have raised between $100 million and $200 million in venture capital over the last few years. At the same time, he says, all the extra attention to the real-estate crowd-funding space hasn't taken Fundrise out of cities.
"Just compare those two deals," Miller says. "On one hand, you have this unique, exciting, local, contextual [property], and on the other you have the biggest real estate development in the country. Both of them crowd-funded by us. That’s just crazy!"
"We do a deal a week. We're hiring a person a week," Miller adds. Give Fundrise another 2 years, he says, and the company will be doing more than $1 billion in crowd-funded brokering annually. "We need to find good real estate deals, which is why we need more people. That’s a lot of work. Finding and screening and underwriting real-estate deals—the whole team, that’s what they do."
Even granting the success of Fundrise and other crowd-funders, including Innovational Funding and Realty Mogul, skepticism still lingers. "Among the concerns: It is a loosely regulated market in which many investors aren't sophisticated real-estate professionals and the scrutiny of potential investments and other practices vary widely," offers The Wall Street Journal. "In addition, many landlords and developers are turning to crowd-funding because banks or other traditional financing sources turned them down."
Yet the latter point is what makes peer-to-peer investment work for targeted in-fill development.
"A normal real-estate company may have kicked Erik [Bruner-Yang] out of the building," Miller says. "It was a really complex vision. Most pure real estate investors are financially motivated only. They think, 'I don’t care—I’ll open a Cingular. Just something that pays rent.' The fact is, our investors are looking for multiple things from the property. They want the economic performance, and they want the vision to come to fruition."
Developing Maketto tapped the crowd in every respect: It was neighbors who decided what they wanted, local business owners who figured out how to translate that demand into an innovative market, and neighbors who partly paid to make that market a reality.
Maybe crowd-funding can help to address the disconnect between brokers and consumers in places like New York, where consumers and residents alike have begun to lament the ground lost by distinctive small business owners to national chains.
"We learned a lot about what a crowd wants from us," Miller says. "When we first did it, no one knew."
Top photo: Maketto 1351