Former governor David Paterson (left) speaking at an event on crowdfunding in real estate in New York.

Crowdfunding has already brought millions of dollars to real estate development projects—and this is just the beginning, said William Skelley, CEO of iFunding, a real estate crowdfunding website. “It’s an $11 trillion market,” said Skelley. His company has already funded 17 real estate projects, raising more than $25.5 million in debt and equity. The Wall Street Journal recently reported that crowdfunding sites, including  iFunding, RealCrowd Inc., Realty Mogul Co., Patch of Land Inc., and Fundrise LLC to name a few, have raised more than $100 million in debt and equity for real estate.

Skelley spoke in April at “Innovations in Real Estate: Crowdfund Investing,” an event held by the Harvard Business School Club in New York City. The panel discussion included the founders of two crowdfunding portals, two real estate developers who have already financed deals using the portals, an investor who put money into the crowdfunding portals, and former New York governor David Paterson. The panel explained why crowdfunding is now bringing significant capital to real estate—and why it is likely to grow rapidly.

More than 100 people braved pouring rain to attend, including real estate developers looking for funding and investors looking for potential investment opportunities. All of this activity is possible because of the JOBS Act of 2012, which loosened a prohibition against advertising investments to the general public. That allows firms to offer investments to the public over the internet. The prohibition had been in place since the Great Depression—the internet can provide much more information to investors than the newspaper ads of the 1920s.

Last September, officials released the rules for Title 2 of the JOBS Act, which allows firms to mass-market investments to the public provided they only accept money from accredited investors who have a net worth of more than $1 million or income of more than $200,000 a year ($300,000 for couples). Regulators are still working out how smaller investors should be allowed to invest through internet portals. The law assumes that accredited investors need less protection. “These people are wealthy, and wealthy people can protect themselves,” said event moderator Markley Roderick, a lawyer with Flaster/Greenberg PC.

These accredited investors represent a tremendous amount of wealth. Most do not yet include real estate in their portfolio of investments. “If only a small percentage of them invest only a small amount of their assets in real estate, it will be trillions of dollars,” said Roderick.

Capital has already begun to flow to real estate developments. Since the Treasury released its Title 2 rules last September, entrepreneurs have launched more than 100 crowdfunding websites targeted at raising money from accredited investors.

Goldeneye Investments, a small real estate investment firm, has used iFunding twice so far to finance development projects. Goldeneye’s investments are relatively straightforward, such as buying, renovating, and reselling a $625,000 two-family home in northern New Jersey. iFunding focuses on providing equity to these deals, along with debt investments as needed. Investors contribute an average of $29,000 each. One project took only five minutes to get funded through the site. The longest time taken by a project to get funded was 21 days for a planned development in Texas.

Each site has a slightly different model for investing. Patch of Land, another real estate crowdfunding site, offers developers loans made from its own balance sheets, then sells those loans to its crowds of investors. Each loan gets split between an average of a dozen investors.

The biggest challenge for these investment portals is convincing potential investors to turn over their money. They carefully woo their accredited investors. The founders often speak personally with potential investors or connect potential investors with project developers. “I did a lot of dialogue with both of these folks,” said Scott Lichtman, who has invested in real estate crowdfunded projects through both iFunding and Patch of Land. “You are investing in real estate . . . but you are also betting on the portal.”

Most portals also post a great deal of documentation online about themselves, the developers with whom they work, and the individual investments. Many crowdfunding portals including both iFunding and Patch of Land are also becoming registered broker/dealers or are affiliating with registered broker dealers, said Roderick. Becoming a broker/dealer generates an enormous amount of cost and regulation, but also gives investment portals a kind of badge of authenticity.

“We are asking for thousands of dollars . . . tens of thousands . . . hundreds of thousands, at the click of a button,” said Jason Fritton, cofounder and COO, Patch of Land, who also spoke on the panel. “We are kind of at the early e-commerce days when people didn’t want to give their credit cards to”

Fritton expects that ten to 20 major internet portals like his own will eventually connect qualified investors to real estate properties. “The entire market is going to be unrecognizable in six months.”

Venture capitalists also are becoming interested in these platforms: Fundrise, a crowdfunding site that has been profiled in Urban Land and at several ULI events, recently completed a $31 million round led by Renren, a Chinese social networking site.