Even During Turbulent Times, This Online CRE Investment Platform Has The Capital To Keep Projects Moving Forward
It’s a very uncertain time for the U.S. economy. Significant shifts in the stock market, paired with surging inflation and rising interest rates, have many investors looking for alternative investments to help diversify their portfolios and potentially gain a better risk-return trade-off.
One of the first places many look for alternative investments is the real estate industry. While offering generally low correlation to the broader stock market, it’s also an asset class that’s relatable. People understand it because they live in it, work in it and play in it every day.
While investors are looking to break into the industry, major CRE firms are lining up to offer a way in after recognizing the many associated benefits, one of which is the opportunity to maintain full control of their deals due to the passive nature of these investors. But maybe most impactful of all is that these owners, operators and developers are realizing just how active this seemingly limitless source of capital is.
In uncertain times, many traditional sources of capital like lenders and large institutions tend to pull back on projects, leaving firms with two options — find a new source of capital or sit at a standstill until times return to normal. In Q2 2020, for example, CBRE’s Lending Momentum Index was down 27.6% from Q2 and 39.4% from Q3 2019. For both these firms and potential CRE investors, CrowdStreet offers a solution.
CrowdStreet is an online investing platform that has expanded access to the world of private real estate investments, matching hundreds of CRE firms with billions of accredited investor dollars. As of May 2022, the CrowdStreet investor community has invested more than $3.25B across 650 deals from more than 300 sponsors nationwide.
“We have a robust marketplace where both our buyers and our sellers — the CRE sponsor firms — can all benefit,” CrowdStreet Director of Investment Product and Portfolio Management Thomas McDonald said. “There is a huge market of accredited investors — more than 10 million households in the U.S. — and many of them have never had this kind of access to private equity real estate before. Our Marketplace opened that door for them, and sponsors are seeing the benefit of that.”
He said that throughout the pandemic, passive retail investors were filling the equity gaps as institutional capital pulled back. In 2020, CrowdStreet’s investor base widened by nearly 50%, and it matched that again in 2021. Of CrowdStreet’s investors, 67% become repeat investors, investing in more than six deals for a total of nearly $350K. The company’s wide range of investors means that when a project comes to CrowdStreet, there is a highly diverse set of preferences sponsors can tap into.
McDonald said that in 2019, CrowdStreet took its company to the next level and launched its managed fund business. With this solution, CrowdStreet pools investor capital into investment funds targeting a range of strategies, which it then places into select Marketplace opportunities.
Today, CrowdStreet manages about $370M in capital through its managed solution business with close to $330M of that already allocated to deals. Sponsors reaping the benefits include Cypress Equity Investments, which, together with direct investments from CrowdStreet investors, has received nearly $75M, and Provident Realty Advisors which, in combination with just over $8M from CrowdStreet’s managed services, has received more than $114M between its first Marketplace launch in 2019 and its 11th in May 2022. Not only is CrowdStreet able to supplement its fund investments with its retail investor base, but in certain situations, it also uses these funds to fill entire deals, often when less capital is needed, like one of Cypress Equity’s deals, which required just $3.1M.
More recently, in early 2022, CrowdStreet launched its own real estate investment trust, which goes by the shorter name C-REIT. The lower investment minimum and simplified 1099 tax reporting structure has pulled in a whole new group of investors. For sponsors, this is an additional source of capital that CrowdStreet is able to place into a range of projects given the REIT’s broad strategy targeting 20-25 deals across the country, asset classes and risk levels.
“Our funds are just another lever that we can pull to offer readily available capital to our sponsors, ultimately allowing us to commit even more to their projects,” McDonald said. “This ‘dry powder’ means we’re more confident in our ability to raise the desired equity because, at the start, we already know how much is allocated.”
He added that in today’s market, in particular, many CRE firms are looking to expand where they find their capital. They want to know that when they look at a project, they can count on a provider to help finance that project. CrowdStreet’s managed solutions — paired with its ready, accessible investor base — help the company to be one of those providers.
McDonald said that during the pandemic, a lot of financial institutions paused lending. Once the Fed started to put a lot of capital back into the economy, CrowdStreet was able to quickly offer strategies that spoke to investors and as a result was able to fund many of these projects that other institutions would not.
Today, McDonald said, similar to the start of the pandemic, the markets are once again volatile and institutions may again begin to pull back their funding. CrowdStreet, however, has funds ready to place into attractive deals and investors eager to jump in to once again help keep the CRE market moving.
“We have about $40M just sitting in the bank right now, ready to go into projects,” he said. “We always have a fund available for investors to come into, and we're always looking for the most attractive investments. That’s the great thing about this type of two-sided marketplace: The quality of the investments we approve for the Marketplace brings in new investors, which in turn brings in bigger and faster raises for sponsors, spurring them to come back with bigger and better deals. This is how we grow, even during turbulent times.”
This feature 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 branded content studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
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.
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. An investment in a private placement is highly speculative and involves a high degree of risk, including the risk of loss of the entire investment. Private placements are illiquid investments and are intended for investors who do not need a liquid investment.
CrowdStreet Inc. (“CrowdStreet”) offers investment opportunities and financial services on its website. CrowdStreet offers broker-dealer services 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.
