How 8 Leading CRE Crowdfunding Platforms Make Their Mark
- CREtech Blog
Once upon a time, access to quality commercial real estate investments was limited and guarded with high fees. Now crowdfunding platforms connect CRE projects with private party lenders. The multiple CRE crowdfunding platforms typically:
- Have a vetting process for project sponsors and their investment properties
- Promise regular reporting updates and 24/7 access to track investment progress
- Require investor minimums
- Offer investing advice and real person customer service
What sets the platforms apart is how they approach the crowdfunding process, the real estate they offer, and the investor requirements. Let’s examine eight leading platforms in the crowdfunding space.
Like the other crowdfunding platforms, CrowdStreet vets the offerings available on its online marketplace. Its 26-point review process requires both the sponsor and the property meet CrowdStreet’s selective marketplace requirements. The review is broken into three phases. During the Sponsor review, CrowdStreet checks the sponsor’s track record, references, UCC Filings, and more. The Deal review ensures the sponsor has a successful track record in that asset class, plus conducts due diligence on the deal by pulling comps, operating statements, rent rolls, et al. Finally, in the Offering review phase, CrowdStreet compares the deal terms to make sure the offer is in line or exceeded market acceptability. CrowdStreet claims to review around 400 offerings a month and accepts only 3% of into its marketplace, making CrowdStreet one of the most rigorous reviewers.
CrowdStreet classifies accepted sponsors as Emerging, Seasoned, Tenured, Enterprise based on years experience, their portfolio size, and additional qualifications such as industry affiliations. An Emerging sponsor will have less than five years’ industry experience while an Enterprise will have over 15. Additionally, an Emerging sponsor’s portfolio activity may be under $100 million while an Enterprise portfolio must be over $5 billion. Season and Tenured ranked sponsors lie between these benchmarks.
To invest on the CrowdStreet marketplace, accredited investors must have a minimum investment of $10,000, although certain properties will have higher minimum. Property selections range. Examples of assets on the marketplace: senior housing, mixed use, medical, office, and funds.
RealtyShares pinpoints opportunities in the “middle market,” the segment of properties worth $50 million or less. According to RealtyShares, these properties account for over 90% of the CRE transactions happening each year. In 2017, RealtyShares users crowdfunded $235M across 18,000 investments.
RealtyShares vets its investment opportunities using in-house experts. Only 10 percent of the borrower applications meet the platform’s expectations.
Investor minimums start at $10,000 for RealtyShares’s common or preferred equity and debt investment opportunities. All offering materials are presented on behalf of North Capital Private Securities, a registered broker-dealer. Its asset management team monitors each individual asset’s performance and takes action on the investors’ behalf to ensure the deal is executed as planned.
Small Change takes a different approach to vetting its investment opportunities. Where other platforms focus on IRR and making investors money, Small Change focuses on making communities better. Its Change Index is a proprietary system that evaluates the impact the project has on the surrounding area. Data points include public transit access, proximity to green space, availability of commercial and cultural amenities, and other quality of life data points.
Consequently, expect more properties available on Small Change to impact a community’s mobility and economic vitality. These projects include affordable housing, building reuse, and underserved communities.
Small Change investors benefit from no joining fees. Regulation crowdfunding offers are open to anyone, but some investments are accredited investors only. Minimum investment amounts vary according to the project.
EquityMultiple differs from other platforms because it is backed by Mission Capital, an established national real estate capital markets firm. Its tech-backed resources help pinpoint investment opportunities in asset classes like multifamily, student housing, office, and hospitality.
EquityMultiple is for accredited investors looking to diversify across property types, markets, and risk/return profiles. They offer syndicated debt, preferred equity, and high-upside equity investments.
Its review process selects less than five percent of potential projects. EquityMutiple works with national and regional lenders with experience in their markets. Sponsors must have a proven track record, while projects must offer current cash flow, value-add construction components, or preferred equity investments. To date, EquityMultiple has closed over $700 million in real estate deals.
RealtyMogul invests time and effort into its review process. The team spends over $1 million annually on the data and technology for vetting investment opportunities. The review process includes in person site visits. RealtyMogul avoids high-risk investments like ground-up construction. Properties must be well-leased with proven cash flow.
In consumer service, RealtyMogul offers investment specialists to answer any questions about the opportunities presented on the platform. The investor dashboard gives 24/7 access to their investment status.
Investors can be non-accredited, accredited, or institutional. Chose from debt or equity. Pre-vetted investment opportunities start for as little as $1,000. Similar to other crowdfunding platforms, the documentation process is completely online.
Investors will appreciate the free, no-obligation accounts available on ArborCrowd. Access shows vital details on current and past crowdfunding deals for total transparency.
This crowdfunding platform is under the Arbor family of companies that includes Arbor Realty Trust, Arbor Commercial Mortgage and AMAC. Real estate is at the core of the business and the team is careful about its asset selection. Its carefully curated assets are managed by experienced real estate professionals.
Accredited investors minimums begin at $25,000 with no maximum. In exchange, the investors will receive updates on the asset as it moves through its life cycle. Gain access to every component: market reports, property deals, and business plan timelines. Submit investment offers and handle fund transfers all online.
Cadre leverages the power of technology to reduce its investing fee load and scale is investing efforts. The platform typically looks for properties with a minimum equity investment of $15 million.
Accredited investors, groups, and institutions start with a $50,000 minimum per transaction, although Cadre does offer lower per-deal minimums with a portfolio commitments.
Cadre typically structures its investments as limited partnerships. The operating partner in their joint venture handles the daily property management. Cadre takes responsibility for reporting and major decisions for its investors.
Of all the crowdfunding platforms, Fundrise offers the lowest access point for investors. Its Starter Portfolio has a $500 minimum and a 90-day test run. Once a user invests $1000 on the platform, an investor can upgrade their plan at no additional cost. Fundrise offers three investment plans tailored to different investor needs: supplemental income, long-term growth, and balanced investing. Fundrise does charge annual fees for asset management and investment advising.
Fundrise additionally claims to have the lowest project acceptance rate, based on published numbers from 2015. Around 2 percent of the 2000 submitted projects were accepted.
Fundrise uses predictive analytics and proprietary due diligence technology to review potential projects against the platform’s standards. Fundrise reviews the project sponsor, the market, economics, and the property. The vetting and underwriting process includes a site visit by a member of its team.
Crowdfunding is opening more development opportunities in the CRE sector. Borrowers have an alternative access to development funding while investors connect with opportunities previously unknown to them. Investing in real estate, no matter how thorough the due diligence, involves some risk. The crowdfunding platforms included here aim to reduce investor risk through the project review process, access to investment specialists, and reporting services.
Crowdfunding marketplaces differentiate their focus by niche like multifamily, assets worth over $15 million, or community improvement projects; or by investors, from the high-net-worth individual, institutions, or even the first-time investor. As evidenced by the included platforms, CRE’s broad spectrum means there is enough space for crowdfunding to service an array of asset classes and investors.