The past couple of decades can be defined by innovators who brought power and transparency to the hands of individuals from the hands of powerful corporations.
Rich Barton, the founder of Expedia and Zillow, has been a perfect example of using technology to empower individuals over corporations.
Expedia empowered individuals to search all things travel at the click of a button. Zillow empowered individuals to search all things real estate at the click of a button. Both of these companies leveraged technological advancements to enable transparency for individuals.
A more recent advancement that is benefiting individual investors is crowdfunding. Crowdfunding expands the traditional pool of investors from owners and venture capitalists to average investors.
One company that has successfully leveraged the opportunities of crowdfunding in the real estate sector is CrowdStreet. So, how does CrowdStreet work? Let's jump in.
A simple definition of crowdfunding is that organizations use the internet to raise small amounts of capital from a large number of people. These funds are then used to support organizational projects that hopefully result in profits (although there is no guarantee).
Crowdfunding is revolutionary because it enables a large number of investors to supply capital through small investments rather than a small number of investors providing high amounts of capital. In essence, this allows more investors to play in the game rather than just venture capitalists!
Successful crowdfunding is contingent upon a high volume of investors. Without high volume, the capital demands are not met. In modern times, these investors are found through marketing efforts such as social media campaigns.
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CrowdStreet is a relatively new commercial real estate investment platform that launched in 2014. Since launch, the CrowdStreet Marketplace has closed 560 commercial real estate investment offerings (76 have been fully realized), raised over $2.6B in capital, and has distributed over $360M to the CrowdStreet Marketplace investors.
CrowdStreet utilizes crowdfunding to connect individual investors with commercial real estate deals.
Check out our full CrowdStreet review to learn more about how CrowdStreet ranks among commercial real estate platforms.
CrowdStreet’s capital markets team is committed to bringing only the best investment opportunities to CrowdStreet investors. To accomplish this goal, CrowdStreet has created a vigorous process to confirm that the deal sponsor, the deal itself, and all documents are high quality.
CrowdStreet has advertised that out of every 100 deals brought to the company, only 5 make it to the CrowdStreet Marketplace for investors to see. That means that the other 95% of deals are rejected before landing on the Marketplace.
Complete details on the deal review can be found on the official CrowdStreet website.
The first round of the quality control process is the sponsor evaluation phase.
Sponsors are a vital component of CrowdStreet and are those who are seeking to list investing opportunities on the CrowdStreet Marketplace. In other words, the CrowdStreet Marketplace has deals populated by external companies and CrowdStreet helps connect the deal.
Sponsors must complete a full background check and provide required documentation for a track record review. After proving commercial real estate investing competency, the sponsor is designated as either emerging, seasoned, tenured, or enterprise to help investors gauge skill levels.
The second round of the quality control process is the deal evaluation phase.
During this phase, CrowdStreet collects required documentation from sponsors to help evaluate the assets. Though there is detailed analysis during this phase of the process, below are some key requirements for all CrowdStreet deals.
Even with this deal evaluation phase, CrowdStreet encourages all investors to complete their own research before investing in any deal.
The final round of the quality control process is the document review phase.
Prior to any deal landing on the CrowdStreet Marketplace, the deal materials are once again reviewed to confirm that there are no discrepancies. This means that financial numbers found in the documents match those verbally extended to the capital markets team.
If there is any disconnect, sponsors typically have the opportunity to adjust documents to align with CrowdStreet standards. Failure to comply will result in a withdrawal of the deal from further consideration.
CrowdStreet offers accredited investors three unique ways to invest in commercial real estate on the CrowdStreet Marketplace. It is important to note that each investment found on the CrowdStreet Marketplace has varying investment holding periods.
While non-accredited investors can still browse the marketplace, only accredited investors can participate in current CrowdStreet investment offerings.
As a reminder, accredited investors must meet one of the below three requirements.
In addition to the accreditation requirement, minimum investments for CrowdStreet range from $25k - $250k. Once the accreditation and minimum requirements are met though, investors can invest through funds and portfolios, individual deals, and tailored portfolios.
Through this form of investing through CrowdStreet, you will have access to single-sponsor funds and CrowdStreet funds.
Single-sponsor funds are led by just one sponsor on the CrowdStreet Marketplace. Each deal can be specific to location, asset class, and sponsor expertise.
CrowdStreet funds are collections of deals offered by numerous sponsors on the CrowdStreet Marketplace. These funds are hand-selected from CrowdStreet experts and are made up of a group of investments that diversify across numerous locations and deals from numerous sponsors.
These funds enable an investor strategic foresight with increased diversification even within commercial real estate investing.
Investors who want to participate in individual deals have the opportunity to select deals directly from the CrowdStreet Marketplace just as they would individual stocks in the stock market.
Investors who choose individual deals have the ability to diversify their personal investments to fit their overall portfolio. Additionally, the investors will have visibility into industry-leading tracking and reporting tools.
For investors looking for additional guidance, tailored portfolios provide them a customized investment strategy that aligns with their personal goals.
This option also provides investors specialized access to online tracking, dedicated support from the CrowdStreet team, as well as the ability to adjust portfolio goals based on personal goals.
Unfortunately, to receive a tailored portfolio the investor must have a minimum balance of at least $250k.
Once interested, qualified, and invested, a fee is charged directly to the individual investor. While fees vary depending on investments, CrowdStreet has created an example of the typical fee schedule for each deal.
During the first year, CrowdStreet Advisors charge 2.0-2.5% of assets under management. This is where the bulk of the fees come in as during the first year majority, if not all, of the portfolio design and deployment occurs.
During the remaining years of the deal, CrowdStreet Advisors charge 0.25% of assets under management. The fee is significantly reduced from years 2 and on because the advisors focus on ongoing maintenance and service at this time.
Creating an account with CrowdStreet is completely free. In fact, unless you subscribe for tailored portfolios, every piece of CrowdStreet is free to you as the investor. However, sponsors will typically factor in investor fees to the overall deal analysis so keep that in mind as you search out deals!
After creating an account, you can begin investing with the three simple steps below.
CrowdStreet actively works to replace crowdfunding and commercial real estate myths with facts. Myths often drive fear in investors while facts can be liberating. Below are a few key debunked myths according to the official CrowdStreet website.
The first myth is that you have to be a millionaire to invest in commercial real estate. Fortunately, crowdfunding has opened the door for the everyday individual to invest in commercial real estate.
The second myth is that commercial real estate investments are much riskier than stocks. CrowdStreet has advertised that historically, commercial real estate has outperformed stocks almost 2:1.
The third myth is that real estate investing requires a lot of work. Although this may be true for other real estate investments, CrowdStreet allows you to play a passive role in each of your investments.
The final myth is that crowdfunding typically lacks transparency. CrowdStreet on the other hand offers industry-leading documentation and reporting to increase the levels of transparency for any real estate deal.
CrowdStreet provides great opportunities for investors to diversify portfolios with commercial real estate. With zero fees to create an account, there is no reason not to check out the platform to see if any investment opportunities match your particular needs and goals.
In general, the team at Investing Simple finds that CrowdStreet may be a good fit for the following people:
If you feel like CrowdStreet may be a good fit for your investment portfolio, sign up to create a free account!