Diversifying your portfolio is an important step to take whether you’re an amateur investor or have decades of experience. And while you may think that diversifying the types of stocks, bonds or ETFs you buy will cut it, it may not be the most well-rounded plan for 2021 as many “alternative investments” have changed the landscape for everyday investors.
Take, for example, cryptocurrencies like Bitcoin and its rise — this is one of the prime examples of how alternative investments can be a lucrative, albeit risky, way to invest.
Surely, crypto has created a lot of wealth for many people in recent years, but many still find it too risky to add to their portfolio.
Luckily, there’s another option with commercial real estate investment via crowdsourcing platforms. Real estate investing, in general, is a lot more stable than crypto or other alt investments, and dozens of real estate investment marketplaces have emerged after Congress eased the securities regulations back in 2012 with the JOBS act. These platforms, like DiversyFund or GroundFloor, have made it extremely simple for novice real estate investors to take part.
One of the more popular real estate crowdfunding options is CrowdStreet, a platform that makes it simple to invest in commercial real estate projects across the country by connecting investors with “sponsors” (project developers) looking to fund a project.
CrowdSteet Platform Quick Facts:
|Expected Annual Rate of Return (IRR)||17.10%|
|Equity Multiple (expected ROI to investor)||1.39x|
|Hold Period (how long your money will held)||2.3 years|
|Fees||0.50% – 2.50%|
If you’re looking for a platform to get started in real estate investing, CrowdStreet is certainly worth looking into. Here’s what this real estate investing platform can offer.
What is CrowdStreet and Who is Behind It
Founded in 2013, CrowdStreet is one of the oldest and largest real estate crowdfunding platforms available to investors. It’s also one of the highest volume marketplaces — at least in terms of standalone crowdfunded real estate deals. Since its inception, CrowdStreet has hosted 367 commercial real estate offerings from sponsors looking for funding from small and large investors.
The number of real estate offerings on this platform isn’t the only reason for its popularity, either. The company’s co-founders, Darren Powderly and Tore Steen, are both industry veterans who have helped to establish CrowdStreet as a legitimate investment opportunity.
Prior to founding CrowdStreet, Powderly served as President of Compass Commercial, a full-service commercial real estate services company. Since that point, Powderly has transacted billions of dollars’ worth of commercial real estate investments and enterprise software contracts.
Steen, on the other hand, led the product, sales, marketing, and business development efforts for Janrain prior to launching CrowdStreet. Steen is widely recognized for helping guide Janrain from its phases to a recognized leader in the social identity space with a full user management platform.
Both Powderly and Steen are still at the helm of the massive platform, with Steen acting as Chief Executive Officer and Powderly as Vice President of Capital Markets.
And, the duo’s combined expertise has clearly paid off. CrowdStreet currently offers the largest number of investment offerings in this market at any given time — helping to set it apart from the competition.
That’s not the only thing setting CrowdStreet apart, either. What’s unique about CrowdStreet is that unlike other platforms, CrowdStreet acts as an intermediary, taking a small fee (between 0.50% and 2.75% depending on the project) while connecting sponsors — who they vet thoroughly via background checks and references — directly with investors.
This gives both the investors and sponsors the freedom to manage the relationship with each other. It also helps keep issues with communication or delayed funding to a minimum that you would generally find with SPVs or special purpose vehicles, which are frequently formed entities in commercial real estate deals.
With CrowdStreet, you can choose between individual properties or CrowdStreet’s funds, which act much like mutual funds with a diverse range of real estate projects. Those features aren’t standard on other platforms.
These less common features, coupled with a potential for a high rate of return, have helped build CrowdStreet into one of the mainstays in the real estate crowdfunding space.
Features and Benefits
One of the more obvious benefits of the CrowdStreet platform is that it allows investors to pick and choose what real estate crowdfunding projects they’d like to buy into. If a savvy investor feels capable of picking individual real estate projects and navigating the relationship with the sponsor, that’s an option on this platform.
Or, if the investor is a little more gun shy and would prefer a safer bet, the CrowdStreet fund may be a better option. Having both options to choose from — along with a highly-integrated investment management platform — makes this platform user-friendly for a wide range of investors.
It’s also friendly to sponsors or real estate investment and development groups who are looking to fund their projects. As of 2021, more than 250 large commercial real estate developers and operators had utilized CrowdStreet’s technology to raise the funds necessary for their projects. That is a substantially higher number of funded projects than many of the smaller platforms have hosted, lending credibility to the idea that both the investor and the project sponsors can benefit from CrowdStreet.
The platform also offers a wide range of investment opportunities for investors. In recent years, investors were able to choose from new construction rental projects, charter school projects, multifamily developments, and other real estate projects. Many of these projects are unavailable on other real estate crowdsourcing platforms — which further helps CrowdStreet to stand out against the competition. Whatever type of project you’re looking to invest in, CrowdStreet likely offers it.
More platform benefits include:
- A direct investment: Unlike other platforms, you deal directly with the sponsor if you opt to invest that way. This works in favor of the sponsor too, who is offered a more personal relationship with the investors using the platform.
- A very thorough vetting process: CrowdStreet has an incredibly thorough vetting process it uses to determine legitimate projects and sponsors. It’s worth noting that only ~5% of submitted projects get approved for the platform. But, the vetting process doesn’t stop there. The platform also vets the investors, too — so both the investor and the sponsor can rest assured that the deals and funding are legit.
- A culture of transparency: Investing in real estate crowdfunding deals can be intimidating, especially on this platform — where the minimum amount you’re investing is much higher than it would be on other platforms. CrowdStreet makes the process transparent, though, by offering documents and research on each deal.
- The option to buy into CrowdStreet’s fund: Another benefit is the option to buy into CrowdStreet’s fund, which, as mentioned, acts much like a mutual fund in that it uses your money to buy into a wide range of real estate projects. This option is great for investors who aren’t comfortable with the one-on-one interaction with sponsors — or for those who want to fund a wide range of projects without buying into each one individually.
- Tons of investment options: As one of the largest real estate crowdfunding platforms, CrowdStreet offers investors a massive range of commercial real estate projects to choose from. There are between five to 15 private equity investment opportunities on its marketplace, including both single-asset projects and funds.
- Easy access to project research: One very unique feature of CrowdStreet is that you get access to all of the information you need to make a decision on a project. For example, each investment opportunity on the website gives you a detailed video with information about the project. This feature gives you a very simple way to both vet the project and understand what the purpose and goal of the project is. You can watch these videos and understand where your money is going — and why — to ensure you’re doing your due diligence before forking over any cash. Plus, you also have the option to submit questions to the sponsor, which can help you further understand the goal of the project — and decide whether the investment makes sense for you.
- Access to a ton of resources: In addition to the easily accessible research, you’ll also get easy access to a ton of resources in the website’s research section. You can find instructional videos, articles, investing topics, and other resources in this section — along with access to the Quick Start Guide, which can help you navigate the platform.
Average Return to Investors
Another major perk of this platform is that it makes return information easily accessible to users. According to the website, CrowdStreet’s investors have made, on average, about 17.1% IRR as of June 2021, which is the annualized return metric that spreads cash flows and equity return over the course of the entire holding period.
Furthermore, according to CrowdStreet’s data, investors, on average, receive a 1.39x equity multiple, which is the total cash distributions received from an investment, divided by the total equity invested.
Both of these numbers are based on a 2.3 year hold period, which is the amount of time from the date of the purchase to the date of the sale.
Those are just the current numbers, though. Thus far, CrowdStreet says it has successfully funded 485 deals on the site, of which 47 of have realized (sold).
As more deals work through their holding periods, the numbers will be updated to reflect the latest metrics, which are calculated to be net of fees.
While there are opportunities for a very healthy return on your investment of 18% or more with this platform, there are also potential drawbacks to using CrowdStreet to invest. These include:
- Limited to accredited investors: Right now, CrowdStreet is mainly limited to accredited investors. That means that anyone who cannot meet the accreditation standards set by the SEC is out of luck. There are other platform options to choose from, of course, but CrowdStreet isn’t a viable option for anyone who would struggle to meet accreditation standards.
- A long investment term: The payoff for using CrowdStreet can be extremely high, but you’ll have to leave your money sitting in the investment for a period of years before you realize it. It takes about two-and-a-half years for most investments on this platform to mature, so if you can’t leave your funds tied up for that long, you may want to steer clear of this one.
- A high minimum investment: In general, the minimum investment on this platform is $25,000 for the marketplace but this goes up to $250,000 for a CrowdStreet Advisors account which is privately managed.
CrowdStreet charges a 1% management fee for investing in its Blended Portfolio. It also charges a 1.75% management fee on the REITs, along with a 1% financing fee.
There are also fees for managed investments, which carry a 2% to 2.75% fee on the assets that are under management for the first year. After the first 365 days, that management fee drops to 0.25%, but the costs are still significant given the amount you’re investing in this platform.
How are CrowdStreet’s Investments Sourced
Unlike many of the smaller real estate crowdfunding platforms, investors don’t typically seek out CrowdStreet. Rather, the company’s “Capital Markets” team has a presence in every region of the nation and is always looking for deals worthy of making it onto the platform.
When the team finds a potential deal worth featuring, the opportunity is taken to the investments team, which puts the sponsor and the deal through a rigorous review process. This helps them determine whether the deal is a prime fit for the CrowdStreet marketplace.
According to CrowdStreet, out of every 100 deals that makes it in front of the investor team, only five will make it onto the marketplace for investors to buy into. It’s evidence of how extremely thorough and, dare we say, picky, CrowdStreet is with the investment opportunities it promotes.
CrowdStreet puts each of its potential investment opportunities through the same objective review process, which includes:
- Background checks using industry-leading platforms. These background checks are run on the firm and the principals involved in the potential deal.
- A track record review. CrowdStreet wants to know the history of the companies behind the potential deals, so they look into any past deals to find successfully executed projects in the asset type they are looking to bring to the marketplace. This gives them an idea of whether the past projects have been actualized in a sufficient manner.
- Sponsor designation. Each sponsor is placed into a category based on background and experience.
These categories include emerging, seasoned, and tenured to help prospective investors understand the experience level and size of the sponsor or real estate firm they will be working with.
Below is a table breaking down the categories and what the sponsor requirements are for each.
|Emerging||Requires 2–5 years worth of experience with portfolio activity up to $100 million, as well as experience in both the geographical region and proposed asset class.|
|Seasoned||Requires 5 or more years worth of experience with portfolio activity over $100 million. Must also have an existing network of repeat investors and established banking relationships.|
|Tenured||Requires 10 or more years’ experience with portfolio activity of over $500 million, with principals who have invested together through multiple real estate cycles. The company must also have a dedicated staff for investor relations and accounting.|
Any red flags, including “bad actor” violations or any pending material litigation, are grounds for immediate rejection — which is part of why only 5 out of 100 projects make it onto the marketplace.
Who is CrowdStreet For
While other platforms allow non-accredited investors to buy into projects, CrowdStreet primarily caters to accredited investors. This limits the opportunities to those who can meet the laborious accreditation standards set by the SEC.
In order to become accredited, the SEC requires a net worth of more than $1 million — not including your residence — or an annual income of at least $200,000 per individual for at least two years. CrowdStreet makes it clear that their platform is geared toward investors who can meet these standards — which can block out the little guys from the equation.
Accreditation isn’t the only requirement, though. Right now, only U.S. citizens and green card holders can invest in CrowdStreet, so if you’re outside of the United States, you’re likely out of luck.
You also have to be in this investment for the long haul. You won’t see a quick return on your investment with this platform, so anyone interested in using CrowdStreet to invest needs to be ready to leave their money tied up in a project for a couple of years at minimum. This can be tough if you need the cash unexpectedly, so before you take a dive into this platform, make sure you’re OK with tying up your funds for a few years at least.
And, CrowdStreet can pay off, but it can also be risky. If you’re risk-averse, you may not want to invest in real estate crowdfunding on any platform. The potential payoff is large because there’s risk involved with funding other people’s projects. You don’t have much control of what happens after you part with your capital.
But, if you’re willing to take the risk and do your homework on the projects you’re considering funding, this platform can be a great way to get into real estate crowdfunding — especially if you value choice and options in the projects you invest in.
Is CrowdStreet Safe
As mentioned above, if you’re going to invest in real estate crowdfunding, you’re going to take a risk. It’s important to remember that a good chunk of change is going into these projects — generally about $25,000 at minimum — so be sure this figure works within your overall portfolio. If it takes up a sizable portion of the pie, this probably isn’t for you.
And, as with any investment, you’re at risk of losing money with this platform. That’s the reality of investing. There’s a payoff because there’s risk. If a project you funded fails to pan out as expected, you may not make as much as you expected.
That said, CrowdStreet is transparent with the results of the past investments from the marketplace. You’re able to see what the results of each project were right on the website.
The recent performance results show that most of the individual investments tend to outperform the blended portfolio options, but individual projects are by far much riskier than blended portfolios. When investing in an individual project, you run the risk of losing some or all of your capital.
How CrowdStreet Differs from the Competition
CrowdStreet makes it easy for accredited investors to shop around for commercial real estate projects to add to their portfolio. They have one of the largest platforms in terms of active deals on the market. You can browse projects by region, view incredibly in depth videos, see key statistics such as estimated time lock requirements, targeted cash yields, IRR (Internal Rate of Return) estimates, etc.
It also requires a hefty investment. You’ll need at least $25,000 to invest in this platform, though minimum investments can be much higher depending on what you’re investing in. That can limit who uses this platform to invest. Many competing platforms have much lower thresholds, some as low as $500.
CrowdStreet is one of the big players for a reason. This platform offers everything from video briefs on projects to clear and transparent vetting and project information on who it works with, from the individual investors to the deal sponsors. All sides are on equal footing with this platform, which is a pretty unique feature for the industry.
But, while the platform offers everything, it doesn’t offer everything to everybody. Smaller investors who can’t meet accreditation standards may feel boxed out.
That said, if you can meet current accreditation standards, the risk may be well worth it. With an average of an 18% return on investments, this platform offers a very high rate of return especially when pitted against other traditional saving vehicles.