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Hotels join the crowdfunding craze

Harriet Baskas, Special to CNBC
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Hotels cozy up to crowdfunding

The online money-raising craze that made possible both the Pebble smartwatch and the Oculus Rift virtual reality system is now becoming a trend in the hotel hospitality industry.

Crowdfunding is being used to help raise funds to transform a historic building in San Francisco's gentrifying Mid-Market neighborhood into a hip, high-tech YOTEL-branded hotel.

In a joint venture with a Kuwaiti real estate company named AQARAT, New York-based real estate investment firm, Synapse Development Group is spearheading the redevelopment of 1095 Market Street. If all goes according to plan, the antiquated office building will soon become a 203-room hotel—the city's first financed via crowdfunding and located just blocks from the headquarters of tech heavyweights Uber and Twitter.

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"We thought crowdfunding a small portion [10 to 15 percent] of the equity on this deal would fit with the ethos of the neighborhood, given the demographic of the young, millennial, tech-heavy crowd that is there day-to-day," Justin Palmer, Synapse's CEO, told CNBC in an interview last week.

"It's a good way to encourage local buy-in on the project," said Palmer. "These people can reap investment benefits as owners and also actually visit the property, go to the restaurant, the roof top bar and get owners' discounts on room rates."