Who Uses Online Syndication Platforms? The Answer Might Surprise You
As a large and experienced player in commercial real estate, developer Cypress Equity Investments has access to a variety of fundraising tools, including both traditional and alternative sources of capital such as online syndication.
The latter approach, which allows individual investors to pool their money to finance specific CRE projects, is an important part of CEI’s toolkit for raising equity.
“We use CrowdStreet for online syndication in addition to other capital when the project size, location/submarket and overall capital strategy aligns with their platform,” CEI Managing Director of Development Mark Lecocq said. “We’ve gotten the biggest response on CrowdStreet for our general partner funds and apartment development projects in the high-growth submarkets of Dallas-Fort Worth and South Florida.”
A company like CEI — which in the past 20 years has developed more than $15B worth of projects across the country — wouldn’t be working with CrowdStreet if it had doubts about the efficacy of online syndication.
However, despite the experiences of CEI and many other large developers, misconceptions about this method of fundraising persist, including the assumption that it is better suited for small, less-experienced sponsors and investors. David Govshtein, capital markets managing director for CrowdStreet, said he believes that view doesn’t generally match reality.
“CrowdStreet conducts a stringent screening process to help ensure we are working with experienced sponsors with track records of successful projects over an extended period of time,” he said. “Typically, sponsors will need to have a minimum of $500M in total transaction volume and have five-plus years of experience as a sponsorship entity in order to be considered for the marketplace.”
In a conversation with Bisnow, Govshtein and Brendan Sparrough, CrowdStreet capital markets senior managing director, set the record straight on online syndication.
Bisnow: What are the major misconceptions about online syndication?
Govshtein: One frequent misconception is that it is being utilized by emerging sponsors that are not well-capitalized and don’t have any other equity options. That misconception is far from the truth.
Some of the country’s top sponsors utilize the CrowdStreet platform to raise capital for deals in a fast and efficient manner from completely passive limited partners. The online syndication space continues to grow and provides a compelling approach to equity raising for sponsors.
Another common refrain we hear is that online syndication doesn’t raise much capital and is reserved for small-scale deals. In fact, our data shows that CrowdStreet has deployed more than $3.8B of equity since its inception, including about $1.2B in 2021 alone.
The average marketplace raise is more than $10M and some offerings are achieving $20M-plus. The ability to raise high levels of capital from passive limited partners presents new opportunities in the real estate industry.
Bisnow: Who is a typical investor on the platform?
Govshtein: Yet another misconception is that online syndication is used by unsophisticated investors who will be a big headache to manage. In actuality, all the investors on CrowdStreet are accredited investors. According to our data, the average repeat investor on the platform will have invested in seven deals and have an average portfolio on CrowdStreet of $350K.
Bisnow: What advice do you have for a potential sponsor to help ensure their online syndication deal is a success?
Sparrough: Sponsors have success attracting capital through our platform by demonstrating experience and knowledge of the asset type and market as the subject opportunity.
A meaningful sponsor co-invest may also help give our investors confidence that the sponsor has skin in the game and is aligned with their interests.
Bisnow: Why should sponsors use online syndication rather than other forms of fundraising?
Sparrough: It isn’t that a sponsor should always choose online syndication over traditional institutional capital — there are situations that lend themselves to both. That said, online syndication through CrowdStreet may provide sponsors added control over their projects compared to traditional institutions; for example, when to sell, when to refinance, execution of business plan, etc.
Additionally, creating brand awareness with individual investors may also allow sponsors to build a following and a new investor base. Of course, there may be instances where the parameters of an opportunity such as investment size and investment type may be better suited to traditional institutional investors. However, as the CrowdStreet platform continues to grow, we are continuously searching for ways to improve our products and services.
The opinions expressed herein describe those of that individual's experience. It is not a reflection of all real-life experiences, is not representative of all of those who have used CrowdStreet's products and/or services, and is not indicative of future performance or success. The individuals quoted herein have the knowledge and experience to form the opinions expressed.
This article was produced in collaboration between Studio B and CrowdStreet. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
CrowdStreet Inc. (“CrowdStreet”) offers investment opportunities and financial services on its website. Broker dealer services provided in connection with an investment are offered through CrowdStreet Capital LLC (“CrowdStreet Capital”), a broker dealer registered with FINRA and a member of SIPC. Advisory services are offered through CrowdStreet Advisors LLC (“CrowdStreet Advisors”), a wholly owned subsidiary of CrowdStreet and a federally registered investment adviser. CrowdStreet Advisors provides investment advisory services exclusively to privately managed accounts and private funds and does not otherwise provide investment advisory services to the CrowdStreet Marketplace or its users.
Investing in commercial real estate entails substantive risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. All investors should consider their individual factors in consultation with a professional adviser of their choosing when deciding if an investment is appropriate. Direct and indirect purchase of real property involves significant risks, including without limitation market risks, risks related to the sale of land and risks specific to a given property, which could include the potential for property value loss, potential for foreclosure, changes in tax status and fees, and costs and expenses associated with management of such properties. All investors should consider risks specific to that given property prior to investing.
This article was written with input from an employee of CrowdStreet Inc. (“CrowdStreet”) and has been prepared solely for informational purposes. Nothing herein should be construed as an offer, recommendation, or solicitation to buy or sell any security or investment product issued by CrowdStreet or otherwise. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. All investors should consider such factors in consultation with a professional adviser of their choosing when deciding if an investment is appropriate. CrowdStreet’s review process of an issuer, deal, investment type or strategy, market, or other investment criteria should not be construed as a recommendation or a solicitation to buy. All investors should consider their individual factors in consultation with a professional adviser when deciding if an investment is appropriate.
