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The Real Estate Reality Show

At GowerCrowd, we take a realistic view of commercial real estate investing, providing pragmatic insights for passive investors who are looking for sponsors they can trust and opportunities they can invest in. You’ll find no quick fixes or easy money ideas here, no sales pitches, big egos or hype. Real estate investing for passive (accredited) investors is turning messy with vast swathes of loan maturities approaching which is going to send many sponsors into default causing their investors to lose capital. While this is nothing to be celebrated, it will also bring in a period of wealth transfer and opportunistic investments. We’re here to guide you by looking at the harsh realities of real estate investing, examining the risks and the rewards in conversations with some of the world’s top experts so you can make informed decisions. You’ll learn how to build your wealth while protecting your capital investing as a limited partner in commercial real estate investments, even and especially during an economic downturn. Each week we add new episodes that provide you with access to the foremost specialists in commercial real estate investing with a focus on discounted distressed real estate and the associated market dynamics. We provide interviews and explainer videos that dive deep into the trends driving today's real estate industry, how the economy impacts returns, how to access and invest in distressed real estate deals, and how to protect your capital by mitigating downside risks. There’s no doubt that it is a very challenging time right now for the average investor. With the impact of COVID still being felt and the era of record low interest rates behind us, commercial real estate is experiencing severe headwinds. This creates financial distress for many CRE owners who did not include contingencies in their original business plans and who now face dramatically increased debt costs, increased construction and maintenance costs due to inflation, and reduced revenues from rents as the economy slows down. Is the commercial real estate world on the cusp of a major correction? Is it 2007 or 1989 all over again? Will passive investors (limited partners) who have invested in syndications (through crowdfunding or otherwise) see losses they had not predicted? How can you access discounted real estate opportunities this time around that were only available to a select few during prior downturns? Let us help you prepare your real estate portfolio no matter what the future holds, whether it be business as usual for real estate investors or a period of wealth transfer where those less prudent during the good times, lose their assets to those who have sat on the sidelines, patiently waiting for a correction. Be among the first to know of discounted investment opportunities as the market cycle plays out by subscribing to the GowerCrowd newsletter at https://gowercrowd.com/subscribe Subscribe to our YouTube channel: ⁠⁠⁠ https://www.youtube.com/gowercrowd?sub_confirmation=1 Follow Adam on Twitter: ⁠⁠⁠ https://twitter.com/GowerCrowd Join the conversation on LinkedIn: https://www.linkedin.com/in/gowercrowd/ Follow us on Facebook: ⁠⁠⁠ https://www.facebook.com/GowerCrowd/ *** IMPORTANT NOTICE: This audio/video content is for informational purposes only and should not be regarded as a recommendation, an offer to sell, or a solicitation of an offer to buy any security. Any investment information contained herein is strictly for educational purposes and GowerCrowd makes no representations or warranties as to the accuracy of such information and accepts no liability therefor. Real estate syndication investment opportunities are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. Past performance is not necessarily indicative of future results. GowerCrowd is not a registered broker-dealer, investment adviser or crowdfunding portal. We recommend that you consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any investment opportunity. Unless otherwise indicated, all images, content, designs, and recordings © 2023 GowerCrowd. All rights reserved.
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Now displaying: January, 2018
Jan 29, 2018

Looking to the Future

Having been founded only in 2013, CrowdStreet’s growth trajectory has been very rapid reaching the $200 million milestone of equity placed just four years later in 2017 and exceeding 70,000 investors in the same year.  The company focuses on bringing institutional quality deals with a diversity of both asset types as well as risk profile so that investors can create a truly diversified portfolio of commercial real estate.  The platform plans to incorporate easy to use tools to compare and contrast the offerings in a transparent for way for member investors who have multiple investments on the marketplace to be able to view their portfolio in a very constructive manner.

Listen to this podcast on the Shownotes Page

Though impossible to predict, the company attempts to remain cognizant of the inevitability of a real estate market recession and how to address investor anxiety understanding that no-one wants to be the last one in on a deal, so to speak.  Being conscious of leverage rates that developers are using and where are soft places in certain markets, CrowdStreet tries to give a little bit more clarity of what the outlook looks like at any point in time, from an overall economic as well as from a real estate perspective.

Tores’s background is squarely in the Internet and software space for the last 20 years of his career and in bringing technology into industries that have not adopted the Internet and software for the betterment of their customers as well as the operating efficiencies.  He also has a background in financial services, though he does not like to confess to this, and early in his career started in banking. This gave him a good appreciation for lending and for the financial institutions and the financial services and consumers.  It served him well when he met Darren Powderly his co-founder at CrowdStreet some years later.  Darren comes out of the commercial real estate space and was a partner at a well-known firm in the Pacific Northwest.  He was looking for a co-founder who had built Internet and software based businesses before in order to facilitate his vision for a marriage between technology and an industry that traditionally has not adopted technology to really transform real estate investing.

The partners met in the summer of 2013 and Darren had already come up with the concept of CrowdStreet and the idea of democratizing access to commercial real estate investing.  The whole idea of CrowdStreet emerged out of the Great Recession of 2008 and the idea that that too much capital is sitting in too few hands could have some negative implications.  This tallied with the passing in 2012 of the JOBS Act which was created by Congress and the President at the time, to further decentralize finance by updating regulations that had been around for over 80 – the securities laws.  Subsequent rulings, Title 2 of the JOBS Act and Titles 3 and 4 further helped to solidify what was going to happen.  By the time Tore met Darren in 2013 those other things had yet to come out, but Tore felt that Darren had a great vision about how to reform finance and as their skillsets were complementary, they teamed up and launched CrowdStreet in April of 2014.

 

One of the largest challenges they faced early on, and it is not uncommon when trying to transform and disrupt and industry, was that there is a lot of education needed initially. The legislation and the securities laws had been changed but there were still a lot of questions and ambiguity about it. In the early days of the company, they had to do a lot of evangelizing and a lot of educating of commercial real estate developers, operators, and investment firms who were intrigued by the idea but really had more questions than they had answers.  Tore found CrowdStreet was to be part of a subset of a subset people out there sharing knowledge and information, and many times connecting them to other experts whether it was attorneys who worked on the SEC in legislation to enable this to happen, or whether it was some of those early adopters who had taken the plunge and were the innovators.  So that was really one of the biggest hurdles which was really getting the industry to understand that this new opportunity was possible; that it was legal and that it would actually benefit their business as well as benefit many consumer investors across the country.

The way of traditionally doing business for sponsors, the commercial real estate developer who is going out and acquiring either an existing asset, it could be a senior housing facility and office multifamily complex storage facility or whatever their specific asset type and geographic focus was, was very different from what had become possible.  For decades the way they have traditionally done it was they would put together a private placement, they would do a Reg D 506 (B) offering with a traditional form B filing, and they would go out to those individuals who they knew and had a substantive relationship with to raise their capital.  Usually that equity amount that they were looking for was anywhere between $3 million and $8 million because their project value was in that midmarket $20 to $40 million range.  So these guys were flying underneath the radar of getting a big institutional check of $10 or $20 million, but they had definitely built up a network of high net worth investors that they cultivated and built a relationship with for years.  So they had a great way of going out and probably financing between five and ten acquisitions each year, sometimes doing ground-up but a lot of times it would be value add to an existing asset.

What CrowdStreet has to share with these developers was that Title 2 of the JOBS Act, which was passed in September of 2013, had created what's called the Reg D 506 (C).  This said that you can do that private offering but now you can make it public and so you can actually generally advertise. Developers, for the first time since 1933, could solicit investors from the general public and therefore could use the Internet to promote their offerings – in  way, to securitize offerings with the caveat that all those investors have to be verified as being accredited investors. There can be an unlimited number of those investors however, with the extra step of needing to have a verification process.  The CrowdStreet marketplace was set up as a medium to go and advertise and they have now attracted thousands of accredited investors to register on the platform because they are looking for access to great sponsors with great deals.

Key Benefits

One of the key benefits for sponsors and is the ability to reach investors outside of their immediate geographic location. Sponsors have traditionally built up relationships in the off-line world with investors and many times the way gain new investors with their deals through referrals and word of mouth, but it only goes so far and is usually confined to a geographic region. So first and foremost, what sponsors really like is the fact that by putting their offering on the marketplace like CrowdStreet, they are making their deals available to a wider population of investors who could be in Seattle, Washington, or in New York City or in San Diego, or Los Angeles, Florida; all over the country looking at their offering at 10:00 at night. sitting on the couch sipping a nice glass of wine with their spouse and looking at their offering and deciding whether they want to invest.  Many times in the off-line world sponsors have one on one meetings with investors that are very time consuming, so the efficiency of online is really important to them. The second key aspect that's tied to that, is not only the acquisition of new investors and the efficiency by which they can do that, but by facilitating the mechanics of investment itself. By automating and streamlining the fundraising process from review of the information entirely at the fingertips of the investor, through the actual investment itself, deciding how much an investor wants to put in, to signing documents and then funding their investment and then post fund raising.  Everything is automated on the CrowdStreet platform.  In addition to this, another thing that sponsors like is that the ongoing communication with investors is done through an online channel which brings with it many more efficiencies and the capability that now that they have maybe up to 50 more investors that they are working with, they can actually do it in a very efficient manner.

One way that this online communication is facilities is, for example, how they distribute K1's. Most deals are set up as an LLC, which is a traditional format and the format is no different when they are putting their offering online.  As they bring investors in they distribute capital to them on a monthly or quarterly basis based on the cash flow. At the end of the year, because it is an LLC structure they have to distribute K1's. In the traditional way, they either have to mail those out or if they get electronic consent they can e-mail it out with a password protection. But e-mail channel is always not always the most secure and so one of the ways that CrowdStreet not only makes it more secure but also more efficient is by having what they call an investor room when they log into CrowdStreet.  When log into their investor room investors can see the performance of their investment they can see all of their executed documents and then when the sponsor comes to that wonderful tax season where they are trying to distribute hundreds if not thousands of K1's they can simply drag and drop and the K1's which get uploaded automatically into each individual's investor room. The individual investor will get an email communication, not with an attachment because of security concerns, that if they log into their secure investor room, they have access to a secure K1 document.   This minimizes security concerns caused by sending a PDF document over an unsecure channel, and improves communication by sending documents to many with literally one click of a button instead of having to do individual one to one communications.

Alleviating Concerns

Many times when sponsors were raising capital the ‘traditional’ way, they were faced with a lot of email exchanges and a lot of phone calls so they come from a world where investor relationship management could be pretty cumbersome because it was usually a manual process.  One concern sponsors have is that when they bring their offering online that now they will be fielding calls by vastly more investors and going to have to answer a lot more e-mails.  Tore understands this concern from his perspective of having brought industries online to seeing what can happen in those circumstances.  The consumer that comes to a site and gets exposed to a brand and a company through an online channel, does not generally want to take that relationship offline. Consumers do not go to Amazon.com to buy a product because they want to call the company and learn more about the product; they want to go review and see everything and read about everything about that product online and be able to make a best educated decision without dealing directly with the company.

Part of CrowdStreet's responsibility is to make sure that when they take all of a sponsor’s offering materials, they digitize them and put them into a Web environment that is really easy for an investor to access whether it is the sources and uses information, or the table of the deal economics or other due diligence materials.  Many times before questions even start coming in via email, the CrowdStreet investment team helps to coach sponsors to think of all the Q and A things that are going to happen and prepare ahead of time to put the answers at fingertips of the investor from the outset. Of course, this does not guarantee that investors will not pose questions, but what CrowdStreet does is to run webinars so that for every offering, investors get invited and can register to join a one hour webinar with the sponsors talking about their deal.  During this time the sponsor fields questions and when you have 100 or 200 investors participating, part of that community aspect is that an investor can pose a question during that time and the other investors have the benefit of listening to the response.  This, Tore sees, as being an enhancement compares to the off-line world where usually that would have to be done many times in a one on one relationship that investors used to have with the sponsor.  Not only is communicating with so many investors simultaneously beneficial to sponsor, but it benefits the investor also.  Here you have created a community where other investors can get better educated and they can learn by hearing from other investors. So, there are lots of benefits; sponsors can minimize the noise factor by spending an hour talking about a deal that is recorded for other investors to listen to later; and investors learn from the crowd of other investor questions. 

Confidentiality and Privacy

Sometimes sponsors express concerns about confidentiality of information and there is a fine balance between how much a sponsor wants to publish and how much is behind a firewall.  CrowdStreet implements a confidentiality agreement that investors have to agree to click through which adds that extra degree of security and comfort about what a sponsor might want to expose.

Direct Contact

One of the criteria CrowdStreet looks at when determining if a sponsor is proper for the marketplace is have they worked with investors in the past. How have they done from a performance perspective for those investors from the perspective of demonstrating experience in fielding questions.  That said, the CrowdStreet investor relations team functions like a concierge service where if they can play air traffic control and if a question comes in that they know is contained in a particular document, they can point that out to the investor so that it does not even have to go across to the sponsor. But obviously there are questions that they are not in a position nor legally can they field about the deal.  If it is not a factual document piece, they will escalate to the sponsor only those questions that are required. CrowdStreet also allows investors the ability, through the online channel if they have feedback or key questions, to submit that question directly online. Then the sponsor can choose at their leisure when they have time available to respond to it or ask CrowdStreet to send them a document or other information. 

Crowd Sourced Questions

Sharing these questions and answers in an open forum is something CrowdStreet has looked at: How to further expose these community aspects for the betterment of the investor community but also for the sponsor. There is a little bit of concern for all of this to be open in a complete forum environment. Today the questions that get posed by the investors are going directly through the channel directly to either CrowdStreet’s Investor Relations team or the sponsor's Investor relations team and there are some privacy concerns with making all questions fully open. One has to be very cautious about for both the investor as well as for the sponsor, but if CrowdStreet gets consent on both sides perhaps full exposure is possible and the platform is looking at how can they provide a more forum environment that both sides feel comfort in and that they can gain more benefit by exposing more.   It is a is a sensitive matter. People are investing and it is not as easy as looking at a review on Amazon about a product, for example. You are talking about people spending thousands of dollars investing into deals. It's a whole different level.

Deal Structure

Since the advent of crowd funding real estate, from a deal structure perspective on the distribution of capital on a current basis, CrowdStreet has not seen sponsors change the structure of their deal to align with online investor requirements for having cash flow. Most sponsors have already come up with their waterfall structure before them come to the platform. They have come up with what their anticipated current yield is on a particular investment and that has not changed much. Maybe sponsors have become more conscientious about the fact that that the online investor with whom they have yet to build a relationship does like a current yield, but investors do understand that certain deals will not have a current cash flow to it –  whether it is a ground up development or whether it is a redevelopment.  Sponsors are very clear from the onset that it could be maybe an 18 month timeframe or 12 month timeframe until there is any current cash flow from a project. Investors know that maybe on that redevelopment there is no current cash but that there is a higher IRR potential that is maybe over two years instead of over seven years. What CrowdStreet has seen is that investors like to create a diversified real estate portfolio where they can pick and choose from projects that are cash flowing currently versus those that might be more realized on the back end.

One of the structural changes that is very significant and could not have happened if we had not moved to the online world is the ability for sponsors to take a lot lower investment size because again this goes back to the education when CrowdStreet was first working with the sponsors in 2013 and 2014. Typically, sponsors were taking $100,000 or $250,000 checks from their high network investor network in the off line world.  When Tore talks to sponsors about bringing their project online, he requests that their minimum investment size be $25,000 which is, well, a 10x difference in many cases to what a sponsors usual minimum investment might be.  You can imagine, again going back to that conversation about the customer experience and how much contact would a sponsor have with investors, because now they are looking for $25,000, sponsors are concerned that they cannot be on calls all day with these investors. So, it took a little bit of time for sponsors to understand that this does not happen.  Indeed, at a CrowdStreet sponsor conference, someone talked about how he had 30 new investors come in through the CrowdStreet marketplace, and there was a little gasp at the implied additional work this amount of new investors might burden a sponsor with.  But their concerns were ameliorated with the sponsor told them that he had conversations directly with only two or three new investors and these were putting in a lot higher than the minimum amount. This sponsor’s personal experience was that he did not have to have one on one conversation with many investors and so adjusting their perception of the impact on their time of crowd funding that sponsors have to get used to. Once they try to fund this way once or twice they realize the huge advantage of growing their investor base, this way, beyond their local markets.

Aspects of Education

Another aspect in the education process is to really let investors and consumers across the country understand, number one, why this way of investing was suddenly available for an industry that for decades they could not get access to. Before, investors had to get a personal invitation to meet the sponsor from somebody who had invested with that sponsor, possibly many times.  And then, even if they got invited, they didn't want to put in $250,000 dollars, perhaps having $25,000 or $50000 to put to work or wanting to spread it around to many deals.  The second big question from investors is often how do sponsors get on the CrowdStreet platform.  So Tore and his team are very up front with their investor community about the vetting process that their investments team employs.  They have a team of eight people who come out of the private equity real estate space for a real reason; because they are used to screening sponsors and they are used to screening the deals themselves.  CrowdStreet does not underwrite the deal, but they do have a detailed process around the vetting so that investors know more about the sponsors.  To be clear, CrowdStreet is not doing due diligence per se in the traditional sense but they are very clear about the vetting and the background checks that go on behind the scenes on the sponsors before they actually show up and they have found that investors appreciate that.

What Tore is seeing is that once someone has invested in one of the projects and they have become accustomed to the process, over 60 percent of investors become repeat investors on the CrowdStreet marketplace.  Of that repeat investor base the majority of those have three or more projects in which they have invested.  They are starting to realize that they can now create a diversified commercial real estate portfolio through the online channel. Traditionally the only way they could get diversification was either investing locally with a developer they knew or they could go through a REIT get that diversification.

CrowdStreet primarily has single assets in their marketplace but also have funds, special focused funds, that can be in a specific asset type, as well as having full blown REITs that are listed.  CrowdStreet likes to offer investors that type of choice because they might want to put some capital into a REIT where they can automatically get diversification even if it is focused on a particular asset class like senior housing or multifamily or office; they are getting some diversification across the assets in that fund. However, sometimes because of the fund structure there might be a higher fees structure and consequently also lower potential returns, but the portfolio is de-risking some of that by buying diversification and that is the tradeoff.  With the single asset investment the investor has more exposure to maybe a specific geographic region or specific asset type as well as obviously the specific sponsor who is managing the deal.

Challenges

For Tore, coming from a tech background and migrating into the real estate world also had its own learning curve. Having worked in many different industries and coming at it from a technology perspective, whether it was health care education publishing world he had worked with many different verticals and industries. Figuring out where their biggest frustrations are and what are the biggest obstacles that industry participants are facing was the first step because it is always unique across the industries.  Dealing with investor and sponsor adoption of and trepidation with leveraging the Internet there was this early concern that the offline consumer is not going to take online. Initially, Tore took things for granted and had to back up a little bit and understand better about the world that sponsors come from, learning about their pain points on investor relationship management and in the fund raising processes.   He also spent time with Darren and with customers understanding more about their world and how CrowdStreet could solve problems for them because at the end of the day the ultimate objective is to help both the investors as well as the sponsors and to do better for both of them.

Employee Investments

The policy at CrowdStreet is that anybody who is qualified can invest in any of the projects on the marketplace. There is no special treatment given because it is the open internet out there, and people can register so the company does not want to say no to an employee – but there is no special treatment given and they make sure that there is nothing extra that they get.

Prefunding Deals

To date, most of the sponsors have not asked CrowdStreet to prefund a deal. The company took a different approach from other platforms some who did go that Special Purpose Vehicle model where investors are pooled into an SPV, usually an LLC., and take balance sheet capital to supplement that fund raising. CrowdStreet took a very much a road less traveled approach.  It is also a road that takes longer until there is investor base that has thousands of investors. You cannot stand up straight with a sponsor and say that there is a high degree of confidence of selling the equity portion without that investor base.  In many cases, sponsors will explain that they are listing a sliver of the equity because they have their own current base of investors. That said, CrowdStreet did take a pretty significant pivot as a company back in early 2015. They learned from those sponsors that were using the marketplaces that not only did they love the capability to instantly get in front of thousands of investors across the country but they also saw the capability of the technology platform.

In response to this, in 2015, CrowdStreet launched a software as a service product. It is a white label version of the same software they use to run their our marketplace.  As of today’s podcast, CrowdStreet has 85 customers using the software on their own Web site under their own brand to manage their own investors and to create a more online innovative way of fund raising and investor relationship management.   Of these 85 companies, fully two thirds of them solely license the software, called Sponsor Direct, and they are going it on their own; they are perhaps not quite ready to try a marketplace and, for the time being, want to keep their deals private. But a third of our SaaS clients today do put select deals of theirs on the CrowdStreet marketplace in order to grow their distribution. These clients are open to more general advertising and they are seeing the benefit of adopting both approaches.  They are using the software on their website and are running their investors through it. They have one dashboard and they can see their fundraising process both how it is running on CrowdStreet marketplaces as well as how they are doing with their own investors.

Back to the Future

When Darren and Tore got together in 2013, the passion, the vision of democratizing access to commercial real estate investing was baked into their idea of how they could transform real estate investing to make it accessible to make it transparent to make it efficient.  Right now they are just scratching the surface and one thing that particularly excites Tore, is the that the market has not opened up yet for the non-accredited investors to participate. This is a stair step thing; it does not happen overnight but one sees a lot more sponsors being receptive to doing a Reg A plus filing, or a Tier II where they can raise up to $50 million and they can do it through a general advertising and they can make it available to non-accredited and accredited investors at the same time.  Tore thinks that is one of the one of the phenomena that is going to happen over the next three to five years where people will be able to put in as little as $1,000. You cannot do that without using automation as technology.

Tore also sees another potential major shift in the market.  At the end of the day commercial real estate is still an illiquid asset; in many cases there is no current cash flow. You could be in an asset for the next three or five years before realizing gains. Tore thinks it will be interesting to see how taking what has  traditionally been an illiquid investment and turning it liquid – and this is why publicly traded REITS have an advantage.  But because they also might have a lower return because you have a liquidity premium built into that investment because you can you can trade it on a daily basis. Tore sees things like block chain that might create an ability to securitize commercial real estate holdings and make it easily transferable and mark to market in a way that makes this investment type more liquid.

Jan 22, 2018

From Single Family For Sale, to Senior Housing

Global Senior Housing, the company that Nick Walsh co-founded with his father, develops senior living projects in the western United States. Before forming the company and moving to San Diego, they had developed residential subdivisions in Idaho. Despite being relatively new to the to the senior housing space and having only a small company, they currently have projects in Texas, Arizona and Idaho.

Listen to this episode in the shownotes, here.

Nick’s path brought him from the last downturn when they started looking at what asset classes they could get into to develop projects that was less cyclical than the residential industry – that they had been involved in in Idaho.  Through an associate who developed smaller senior housing projects like cottage type products or projects where there are multiple smaller buildings on a site, they were introduced to the space.

They figured that senior housing is a lot like the hotel industry in that it is operations intensive and felt that as long as you get a good site and line up good financing partners, the operations really is what makes and breaks the success of a project. So going into the senior industry they wanted to partner with a successful experienced operator who knew what they were doing and leverage off their experience versus trying to start a new operating team themselves.

Their Idaho based operating partner had a building prototype that they had built before and were confident operating.  Nick came on to partner with them to raise the capital and to find and acquire sites so they generated parameters that they use to look at demographics in the supply and demand in certain areas.  They started by focusing on Texas and canvassed the whole state looking for the right markets that were underserved for Assisted Living and Memory Care and that had the right demographics for a project to build.   That is how they found their first project and that project, which is in Houston, they funded by crowdfunding the finance.

Nick had not done a CFRE deal before having adopted more traditional financing routes in their residential subdivision business in Idaho.  There it was really localized and they knew a group of investors that understood the residential market and were happy to finance their deals.  Going down to Texas to do senior housing, they knew that they needed to expand their pool of investors and preferred private syndications for projects of this size where they were raising equity under $5 million.  Under that level they feel like syndication is the best option and so wanting to expand their investor based, they started looking at the crowdfunding platforms as the quickest way to achieve that goal.

Initially, Nick came across the idea of crowd funding when he was talking to a few attorneys at real estate conferences who were starting to put together PPM Reg D crowdfund deals at the time that the JOBS Act was getting approved and they were formulating the rules for that. There was a lot of buzz in the industry about crowdfunding as a way to raise money. 

Selecting the platform that they were to use was a process even back then when there was probably 20 or 30 companies out there already.  Nick started his search process by looking at who was doing ground up development. A lot of the platforms were in their infancy and most were doing deals with existing income streams so finding those doing ground up narrowed the field down to just a handful.  Adding the extra layer of wanting to do a senior housing deal narrowed things down even further.  Nick looked at each platform and who had raised done a successful raise on a senior housing project before, and that is how he landed on the company that they ended up partnering with , CrowdStreet.  They had just completed a successful raise for a larger skilled nursing developer that Nick had read about in a senior housing publication and that is what prompted him to call them.

Early discussions addressed the inexperience of Nick and his father in the senior housing space and that is where their joint venture with their operator partner came into play.  They were able to leverage off their partner’s experience in the industry and bring land development and construction as their role in the joint venture.  At that point in time they already had a project entitled now so they were raising equity for an entitled project and their role for the rest of the project was to manage the financing and manage the construction of that building and rely on their operator’s resume in operations which helped with their approval with CrowdStreet, as well as with the equity investors they reached out to.

Interestingly, when Nick first approached CrowdStreet he approached them with a different project that they turned down because the market was a tertiary market in Texas and they explained investors would not likely be interested in such a location. This allowed Nick to bring another in a major metro; something more attuned to what investors were looking for.  Most investors were looking for a city that they knew that they felt comfortable and that is why the project in Houston met the criteria.

The underwriting requirements that CrowdStreet looked at, of course, included the sponsor group; who the operator was and who the developer was.  They had a third party market study that justified the demand in the market for the building that they were going to build. Beyond that, one thing that they really liked about CrowdStreet was that they looked at the deal structure and did not really mandate the  deal structure like some other platforms do, but instead guided them through what would be successful.  Nick had to put up the fees for the raise whether they were successful or not, and they found that CrowdStreet did not want a blemish their reputation with a raise that was unsuccessful.  After the upfront fee, there is an annual maintenance fee for use of the software which sits on the Global Senior Housing website under the investor link.

From the investors perspective,  they are dealing directly with Nick and his company and not with CrowdStreet.  This was a differentiating factor from a lot of platforms that appealed to Nick.  Some platforms operate like equity shops where they will actually fund a deal and then backfill all the raise with investors and sell it later on. CrowdStreet is more of a marketplace where they are really just a middleman between developer and investor. They are exposing a project to their pool of investors but when it comes down to it, investors are calling the developer to ask questions that help them decide whether they want to invest or not.  It was the direct investor contact that Nick was looking for. He wanted to build his company’s investor pool and build those relationships with the investors direct so that when they went and did the next deal they would be there.

The process with CrowdStreet was as follows.  Nick’s company was given a checklist of documents that they needed to submit for the raise before they went live.  They were assigned a designated investor relations person as well as customer relations person who checks in from time to time to make sure thes sponsor has everything that they need to communicate with investors effectively and to make sure everybody is happy.  If an investor has a question sometimes they contact CrowdStreet and CrowdStreet will connect the sponsor, but sometimes they may just connect with the sponsor directly by either email direct telephone call.

CrowdStreet’s role with Global Senior Housing was solely that of a middleman marketplace that gets paid a fee to broadcast the project to their investor network.  They had no input into the agreements or structure of the deal that Global was proposing, and no rights to intervene should the project falter at any point for any reason.  The operating agreement, inside a private placement memorandum with a subscription agreement, was one that Global generated and then put out to investors on a take it or leave it basis.  Investors dealt solely and directly with Global in this regard.  In some cases, investors would say ‘hey, I like this deal if you had a higher preferred return’, or ‘I'd like this deal if you were putting in more sponsored equity,’ and they would still invest, even without modifications, and some would go in a different direction. Most understand that at the point the deal is being syndicated and is posted on the marketplace, it is really a take it or leave it proposition.

Once the deal went live, the total raise took about 75 days before the last dollar was deposited into escrow. Total amount raised was $1.2 million on top of which they had about another $300,000 in sponsor equity that Global principals were placing into the project.  The $1.2 million of outside equity came from 44 investors.  There was a range of investments sizes and this was one thing that CrowdStreet helped structure.  Global initially wanted to come in with a $50,000 minimum but CrowdStreet said that they thought the deal would be a lot more successful if the minimum was set at $25,000. In the end their investors ranged from some at $25,000 and up to $100,000.  While Nick did a little marketing on their own primarily to investors in Idaho who wanted to get into the senior living space, the majority of investors came from CrowdStreet's marketplace.  There were many investors from Texas since the project was in Houston, but overall there was a wide range of geographical dispersion with most from the West coast or the western states and a few from the northeast and East coast.

Every investor was accredited and CrowdStreet ran all of the accreditation processing for the investors. Of the investor pool, probably half were real estate professionals who understood the background and the real estate industry and who just wanted to diversify into crowdfunding projects. The other half were other professionals and family trusts who were taking their money from stocks and diversifying into real estate through crowdfunding.

The biggest challenge, Nick found, was the way the timing worked on the raise.  It started really quickly after launch, with probably half the money they needed raised in the first 20 days or so.  Then it slowed down because when a project is placed on the marketplace it comes up first so everybody sees it at the top of the list.  Once more projects get posted, Nick found that his project dropped down and he thought that perhaps it took someone a little bit longer to find their deal.  He felt that an important consideration when selecting a site to list a deal on was to look at how many deals are posted.  If there are none, that might indicate inactivity; but if there are too many there might be a concern that one’s own deal might get caught up in the wash and not really get the attention that it needs to complete the raise.

Another challenge to raising from the crowd was that Nick found himself spending a lot of time on the phone with potential investors; a lot of time answering e-mails; a lot of time with each potential investor so they could vet out the projects.  It took up a lot of time and energy and so Nick advises sponsors that that if they do not have someone in their company who is fully devoted to investor relations to the raise to field those calls, then the process could probably bog you down. 

One handicap Nick found with the process was due to the compressed timeline from launch to completion of the raise; it was a very condensed period of time. They were unable to post the project until they had entitlements and were ready to start construction – a CrowdStreet requirement.  Their traditional methodology on other projects was that they would start talking to folks throughout the entitlement process, giving them six to 12 months to gather the investor group together.  CrowdStreet, on the other hand, looks for products that are ready to go because they do not want to post a project and have investors commit, only to have to then wait for the entitlements which could be an extra three to six months down the line.  Investors want to place their money immediately; they are not going to be around in six months or have those funds to invest in six months.

Most appealing to Nick about the process was in their ability to increase their investor pool and work directly with investors. They have now talked to some investors who have already told them that they want to invest in more deals together. It was a good way to expand their investor pool and Nick liked the idea of giving people, through crowdfunding, the idea that no matter where they are they have the ability to do their own research and invest in a real estate project.  Perhaps they did not have any experience in senior housing but they were still able to own a piece of a project.

While the project did require that Nick devoted considerable time to it, he understands the attraction of going to a private equity fund where there is just one person to deal with who is asking all the questions. Crowdfunding real estate deals may not be for everybody.  Global found, however, that for raises of under $5 million in equity, it is hard to catch the private equity fund manager’s attention.  Even if they could, another issue with private equity is that the capital is more expensive.  With CrowdFunding, the sponsor can get less expensive capital in terms of both the kinds of payouts that investors expect, but also with the deal structures where control remains more firmly in the sponsor’s hands. Remember, there is no negotiation with crowdfund investors; the sponsor can structure the deal however they like, and investors have a choice to invest or not invest. With private equity groups they are going to negotiate with the sponsor, take more of the project through a larger percentage of the backend and in the operating agreement they want certain management controls that the crowd does not demand.  These kinds of controls range from more stringent reporting requirements or audited financials for instance, all the way to management decision making controls on certain things like when the sponsor can sell or refinance, or restricted budgetary controls.  In short, compared to the crowd, a private equity group takes more of the management out of the sponsor’s hands.

Another difference, Nick found, was that whereas private equity funds will not require distributions until the deal has been completed, with crowd funding Global has to distribute every quarter and preferred interest check.  This, CrowdStreet explained to him, was very important and started from the very inception of the project.  Indeed, Global had to raise a little bit more money to begin with in order to be able to make these distributions.  The strategy on the Houston crowd funded deal is for a a three year recapitalization and a five year sale. The most advantageous exit for Global, however, would be to develop and sell a portfolio of these cottage style product across Texas, way 8 smaller projects versus just trying to go out and sell one-off as each are completed.

Those in the Houston deal may be the only ones crowd funded.  Subsequent to the CrowdStreet raise Global Senior Housing partnered with a Dallas based equity group who syndicates their investors. It is a similar situation with where the money is coming from private investors, but their partner did the syndication work and came in as a co-owner.  They brought their own money and so the distinction between them and CrowdStreet was that they are syndicating in a similar way but they are also putting some risk equity in the deals as well.  The money was more expensive and while the benefit of not having to do the syndication work themselves cost them quite bit in ownership, Nick felt it was worthwhile.  This has allowed Global to scale more rapidly.  They were able to partner with a group that provides programmatic equity for multiple projects as well as one that understands the local markets they are active in.  For example, they have been supportive of the project that Global originally took to Crowdstreet that was not approved because it was in a tertiary market. Their new equity partner is in Texas, understood the market; the manager was able to drive down to take a look at the site and approve the investment. 

Going forward, however, Nick does have at least one crowd fund project on the horizon.  They are looking at an acquisition, a reposition project in Austin, Texas. They found that when investors looked their other project and/or sign up on CrowdStreet, they indicate which markets they have in interest investing in.  Austin popped up on a lot of lists for a lot of investors and so that is one potential deal that has in place cash flow and that is in Austin.  Deal size is $1.3 million of equity so maybe that will be the next crowd fund raise that Global decides to do.

Jan 14, 2018

Humble Beginnings 

Chris Loeffler graduated Cal Poly, San Luis Obispo, and started his career at PricewaterhouseCoopers as an accountant going down the corporate path.  An opportunity came to him, during the 2007-2009 economic downturn, to start buying and selling auction properties at trustee sale auctions and basically flipping homes.  He would go to auctions on a daily basis and bid on properties every day.  Together with his partners, Chris would drive the properties in the mornings from 4:00 or 5:00 o'clock until 10 o'clock when the auction started.  They would inspect the properties to make sure that they were not gutted or had cracks in the foundation or other critical deal breakers. And then he bid on them at auctions all day long.

Find this episode in the shownotes here.

Using his own small remodeling company, he would then do all of his own remodeling in-house and would renovate the properties, before listed them for sale via his in-house retail brokerage.

At the time Chris’s financing came from anybody who would talk him.  He did not have any family money or any startup capital or formal venture funding or anything like that. He literally would meet people through the random circumstance of life and tell them what he was doing and ask them if they wanted to flip a home and tell them how it worked and go from there.

Chris tells of a time when he had put a non-refundable, $10,000 check down as a deposit on a property at auction.  He had 24 hours to pay for the property in full, in cash, or lose the deposit.  As he had bought two or three homes already, and only had enough money to fund two, he found himself in a bind with $10,000 on the line.  That afternoon, he met somebody at a Starbucks at 4:00 o'clock, told him the story, and the next day had a new investor who wrote a $50,000 check that helped close on the third home.

Fast forward nine years later and Chris’s company, Caliber, has become a sophisticated real estate private equity company. They are consistently raising capital into different funds with different profiles; long term for growth, short term for a fixed income, or for the mid-term for a little bit of combination of both. The funds operate independently of the deals so they are always raising capital in the funds because they know that they can deploy it eventually.

Caliber is also a company doing real estate deals across the board.  They do hotels, apartments, office buildings, commercial properties, self-storage facilities, single family homes, and all middle market.  The company has built itself up to about $300 million in assets under management and has learned sophisticated ways to raise capital from accredited high net worth investors and their wealth advisers.

One aspect of that is that they are conducting a Regulation A+ listing where they are permitted to raise up to $50 million per year while being, in contrast to Regulation D offerings, not restricted to accredited investors only.  Indeed, Caliber has found that non-accredited investors are typically a little easier to work with and offer better deal because they have a lower level of expectation for a return on a $5,000 investment than a deeper pocketed, accredited investor.

What makes Caliber especially different in the crowd fund real estate space is that they are operating in many ways like one of the market place platforms, but are actually the sponsor also.  Caliber is the real estate manager, is actively the developer, actively buys the deal and conducts the deal making structure and  finance, the do the construction and construction management; everything.  They are not an intermediary, and not a platform. Caliber is a developer with truly vertically integrated platform.  By taking this broad role, Chris finds that they can get very close to the deals and that sometimes that can give them a competitive advantage in the marketplace.

Finance

Caliber has a $100 million commercial asset fund that is a bigger fund than they could do under Reg A, in addition to a Reg A for the parent company. They are seeing competitors who have started to create child funds for $100 million, $200 million, $billion funds and for which they will create a mini new company.  That company will be taken through all the Reg A requirements, which are not that difficult, and they will raise $50 million into that offering.

The only purpose of that company is to buy a piece of the larger accredited investor fund and so in essence provides the non-accredited investor, for the first time ever, a legal way to invest just like an accredited investor would.  They might pay a small spread in fees or something like that versus what the accredited investor spends, but at the end of day individual investors, who otherwise would not get access to these types of wealth building tools, can now get access.

For Caliber, their Reg A+ offering is effectively turning them into being a public company.  They will file a 10k at the end of the year and a mid-year report; no need, under Reg A+, to report four times a year. The reporting requirements give investors a lot more transparency into the business in comparison with investing into a private company which is something of a tradeoff.  But the cost to maintain that reporting can still be manageable and, either way, running $50 million of other people's money, Chris figures is going to be just the same type of external audits and hard core financial reporting that he would need to do anyway if they remained a private company.

What Caliber is using the Reg A offering for is as a bridge to take the overall company, the parent company and take it public.  This entity acts as the general partner and has their equity and their interest and all of the assets that they own.  It holds all the control positions they have and all of their funds as well as their operating companies; their real estate company, brokerage,  property management, construction, development. All of these businesses are rolled up into a single entity, and that entity is doing the Reg A+ offering to raise up to $50 million to become a public reporting but non-trading company.

As a result, for the first time ever non-accredited investors can own a piece of Caliber. The second phase of this will come at the end of 2018 when they plan to list the stock on the Nasdaq and become a NASDAQ traded company.

Deal Types

Caliber looks only to middle market deals.  These are assets that are typically too big or too complex for a handful of doctors to get together, open an LLC and buy.  They are not typically $2 million, $3 million deals that are small enough that a couple of people can get together and buy.  On the larger side they buy assets that are smaller than $40 or $50 million in check size to do the entire deal which are usually properties that are approaching the size that institutions like a REIT, like a public REIT or insurance company might buy.  Caliber does not want to compete with people who have money that costs almost nothing to deploy, and they don't want to compete at too low of a scale with smaller investors who are really scrappy and can afford the time to be able to work the deals at that level.

 

Criteria

Chris stays away from asset classes that are hyped up, although that can change over time. For example, there is a lot of hype around assisted living and student housing and apartments currently.  Having said that Caliber are doing student housing projects and have looked at assisted living projects, so there are always exceptions that prove the rule.

Caliber has an underwriting model that they think of as being elegant and simple. They want to buy an asset where they are getting better than 20 percent discount to market; for less than they we believe the asset is inherently worth.  In addition, they want to see that after completion, the asset can exit at a 10 cap. What that means is that if they buy an asset for $500,000 put $500,000 renovation into it, by the time they are done with the transformation it will make at least $100,000 a year in profit – or a 10 percent cap rate or a 10 percent rate of return.  Then, last but not least, they look for properties with a story. Every deal with a story has the ability to transform the property in some way shape or form so it it is a real deal you can you execute on the plan.

Challenges

The culture of the real estate industry is that a lot of real estate entrepreneurs are pursuing a lifestyle business. If they get good at it and know what they are doing, even in a very small shop they can make a really nice income.  And as they build a reputation over years and years with about 20 or 30 investors which is pretty easy to manage, you can build into a multimillion dollar business. It is not as easy as it sounds, but it is not so difficult once you understand what you are doing.

The problem is if you want to build a real company into a real enterprise that is going to be something beyond something that is just there to serve your needs and your lifestyle. It is a path that is very difficult. There are no banks that view you especially as a small real estate investment company as a lendable entity.  They might lend you money on your real estate assets but they will not lend you the money to build your business. As you build your business you are going to make bad hires you are going to pick the wrong software, waste money on a strategy that does not work, and will be doing this on a fixed income from fees upfront and along the way, but with most of your money comes from the profit.  And you might not see that profit for three to five years.

For Chris, every year for nine years his partners and he have had a look at each other and said, you know, do we want to make money personally or do we want to build the company.  Those, for Chris, are mutually exclusive things. As the company goes public that will allows him to be able to get beyond the main hurdles that stop a company like Caliber from being able to function the same way as if they, for example, manufactured toasters where they would be much more supported in the community in terms of lending relationships and equity capital.  But for his type of business there is really no clearly defined path for growth and a lot of regulatory risk; a lot of execution risk that goes along the way.

Once the company goes public, Chris is confident that the world will change for Caliber. They will become a lendable company and it will be a lot easier to raise capital. But that has been a 10 year process with a lot of risk along the way

Community – The Impact of Crowd Funding

The real estate industry has been due for change for a long time.   If you look at around at our neighborhoods in our communities, there is a reason why you see so many Walgreens in why you see so many strip malls that look relatively the same. And yet when you look at going to these retail outlets where they do look very different is where there are local restaurants and local shops. Why are they these places always packed? 

The answer to that, in Chris’s mind, is that everything in real estate at a large scale has been driven by the public capital markets and institutional capital investing into deals. And what does institutional capital like? They like do the same deal the same way the same time a thousand times across the country so that they can put $2 billion into the strategy to keep it efficient for everybody.

But what real estate is local. It is hyper local. It is one thing on one corner on one street that is different from different corner 1,000 feet away. So what people really want is the local coffee shops. They really want the local shopping experience. And they really want that kind of experience in an office space and in retail etc. and because of that, these crowd funding mechanisms are the thing that will bridge that gap. People are going to start investing in their own communities.  Indeed, 60 to 70 percent of Caliber investors are Arizona residents and they love investing in projects that they can drive by and see that they own a piece of that hotel or the self-storage facility. And in addition to that developers are going to be able to say “you know what, I want to build this really quirky, weird mixed-use type deal here on this corner. I'm going to put a sign up on my property and offer it out to the community to support my project by voting with their dollars. And so all of those things are changing the real estate business because that capital is cheaper than the normal sources of capital. And it is allowing me to build a project that's frankly more profitable.”

Chris thinks it incredibly useful to have local investors for everything. For finding additional investors, for assistance through entitlements, knowledge and support at neighborhood meeting.  When you have somebody who owns another business that is well respected saying that they support the project is fantastic.

Most CEOs of private real estate companies and in the investment business generally avoid talking to their investors pretty much at all costs and when they do they have very structured communications so that they do not have to be in a situation where they said or did something wrong. Chris’s philosophy is the only thing that gets them in trouble with their investors is not having a relationship with them. If something goes wrong and he cannot lean on the fact that they know they are trustworthy people and are just working through a problem because real estate problems occur, then you know that is the big issue.

If you are in the real estate investment business and you think that the most important thing in the business is the deal, Chris thinks you have lost sight of what really matters. It is the relationships; the investors, and it is all about making them happy. If you have good quality equity investors and good relationships Chris Loeffler is confident that the deals will almost always be there.

Jan 9, 2018

The 19th Hole

After graduating Penn State, Adam Hooper started his career as, of all things, a class A PGA golf professional.  Finding that not quite as glamorous as he had initially anticipated, he followed in his family footsteps and, around the year 2003, took up working a regional commercial brokers firm in central Oregon.   It was a really good market and the time and Adam got to ride that wave up, finding that as he was active in a small enough market he was able to gain some experience in little bit of every type of real estate. 

Take a look at the shownotes to this episode here 

In 2008, Adam started his own firm with a partner and focused on single tenant deals nationwide, getting into some of the equity placement transactions, helping developers raise capital for their deals.  Realizing that there was a need for helping people capitalize their projects, in late 2011, he moved down to join a firm in the Sacramento area as a partner where he got a lot more experience sourcing joint venture equity.  The deals he was working on were sub-institutional size i.e. in the $15 to $20 million range, with $5 million to $7 million of equity.

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In one particular deal, he was raising capital for a prolific syndicator with a great track record, great background, and very deep capital relationships.  A sister building came up nearby with very similar project metrics, and of a similar acquisition size. It made sense for the sponsor to capture some economies of scale and this other building also.  The problem was that the sponsor was tapped out of immediate capital sources and reluctant to dedicate time away from his business and his family to go on a roadshow for a month or so, to syndicate another 4, 5, $6 million of equity.

What Adam was noticing was that this was a fairly consistent issue for sponsors and when in April 2012 the JOBS Act was passed, he had a few deals in the hopper with similar fund-raising limitations.  Noticing that sites like Kickstarter and Indiegogo and a lot of other companies were raising capital on a donation basis, it occurred to Adam that there was an opportunity to morph the Kickstarter model to real estate syndication. 

What they realized was the single most important impact that the JOBS Act had was that it lifted the ban on advertising private securities and it allows sponsors to openly advertise their deals online.  While real estate was ever the intended recipient of the legislation, this fact alone has made it one of the biggest beneficiaries of it. 

The way it works is like this.  Ever since the Securities Act of 1933, if a sponsor did not have a pre-existing business relationship with someone, he was prohibited from soliciting an investment from that individual.  You could only offer the opportunity to invest in your deal to people that you already knew. You could not go to a new group of investors that you did not previously know but the JOBS Act lifted that ban completely. 

It was a fundamental shift in how the capital markets can function and access on both sides of the sponsor, investor equation.  To be able to use the internet in place of what has always been a one on one conversation, or a meeting over lunch or dinner or playing golf, is a radical shift for real estate syndication.

Adam believes, however, that while the need for the one on one conversation has been removed by regulations, the need for a ‘relationship’ has not.  The distinction is that while the law now says that you can simply advertise online to attract investors, the nature of the real estate business mandates that you still have to build that relationship with the investor – just today you have to do it in a different fashion; one dictated by online marketing methodology.

In a real estate transaction of any kind, there is always going to be, always should be, a connection between all the stakeholders; the investors and the manager, the manager and the tenants, the tenants and their customer that they are serving.  When Adam and his partners were thinking about how to set up their platform, they were really trying to think of how they can amplify both sides of any real estate relationship. 

In practical terms, on RealCrowd, it is a direct relationship.  As an investor, when you come in, you communicate directly with the real estate manager.  When you choose to invest, you are executing the subscription documents directly from that real estate manager.  RealCrowd does not block that connection, they do not aggregate people into our LLC, and they do not try to obfuscate that relationship between the investor and the real estate manager – a process that you see on some other platforms.

RealCrowd’s ethos is to make it as easy as possible for a sponsor to raise capital, and one of the ways to do this is to dispel some of the myths that sponsors have.  One of these is the concern that by advertising on the internet, the syndication process will have dramatically changed also. In RealCrowd’s experience, the average investment is around $70,000 per investor per deal.  This can range is high as a $120 to $130,000 on some deals.  They like to explain that what they do is no different from that which a sponsor would otherwise be doing anyway if they were syndicating their own deals.  They are still syndicating, they still get to set whatever minimum investment amount that they want whether it is $25,000, $50,000 or $100,000.  They will still follow the same regulatory processes, form the same subscription documents, with the same structures that they are used to.  It is just that now they have this new avenue to reach 25,000 plus members.  And to address the concern of any sponsor worried about having to deal with too many potential investors; Adam has yet to hear anyone complain that they are getting too much attention and need to dial it back.

Fees

RealCrowd functions solely as a marketplace – and one that is completely free for investors.  They charge real estate companies a flat fee for using the platform and the technology to distribute their deals.  One of the exemptions under the JOBS Act for operating a marketplace such as RealCrowd is that a broker-dealer license is not required provided no performance based commission is charged. 

While crowdfunding real estate deals might be seen as a kind of fringe experiment by some, it is, in fact, becoming a meaningful source of capital.  In the early days RealCrowd would consider deals that raised $500,000 to $750,000 as a pretty good result.  This increased to projects raising upwards of $5 million on a regular basis, and the trend is only upward – including a debt fund that has already raised about $25 million through the platform. 

The biggest challenge that the industry currently faces – and likely will face for some time – is one of education.  There is little appreciation or understanding within the retail investor based of the idea of a risk adjusted return.  What does risk adjusted mean versus just choosing the highest number in terms of total returns.  Since the industry’s inception just four years ago, the market has been only on an upward tick.  It has been hard to lose money.  However, the real estate market is obviously cyclical and we are deep into the current cycle.  If the sole decision point that people are basing their investment decision on is what deal has the highest return, without any appreciation for the risk associated with achieving that return, that is setting the whole industry up for a bad time.  For example, if the expectation is set for a senior debt position that you are going to get a 12 or 13% coupon and it is being billed as an ultra-secure investment, you have to understand that these hard money loans are hard money loans for a reason – meaning there has to be an explanation of the inherent risks.  You must be taking on some risk to get to 12 or 13% coupon into debt instrument.  Unfortunately the expectation on what an acceptable return is has become askew from what a traditional healthy real estate return is and should be. RealCrowd has been in a battle from day one that real estate should be viewed on a long-term basis.  Consequently, one of the bigger challenge that Adam sees, is how can to help people or give them tools for education. 

Another barrier is one of accessibility and the related idea that investors have a certain degree of sophistication.  An investor must have a fairly high level of sophistication to be able to look at a portfolio allocation or to choose between 10 or 12 different deals – or more if one is looking across multiple platforms.  You must have a high level of sophistication to make good decisions as to what is best for your portfolio.  Now that real estate investing has been made available at a scale never before possible, facilitating that level of understanding of the options available is an objective RealCrowd works to meet.  Through providing people with the tools to look at risk is to make that more accessible through education and to help make them comfortable lowering the sense of intimidation with choosing deals.  RealCrowd works to look at how to take the person that does not really know a lot about this asset class to have some fundamental understanding to enable them to make the right decisions towards putting some percentage of their money and to allocating it to this asset class in a responsible risk adjusted way. This educational function, Adam believes, is going to be the key to see large scale consumer acceptance in this industry.

 

The Future

Tapping into the retail investor base has always been seen as the holy grail of capital raising.  If you can efficiently access this phenomenal amount of wealth that is not playing an institutional capital market, and if you have an efficient way to access that, that is a game changer.  RealCrowd, and the broader industry, is getting to the point where they are already seen as a viable source of capital and it is only going to grow.  The game has not even started yet, to coin a baseball metaphor.  In fact, Adam thinks we are still just setting the foundations for what does the industry will look like in 5, 10, 20 years from now.  RealCrowd is setting the foundations today so that when the consumer becomes better educated, they can capitalize on capital flows in the hundreds of millions or billions of dollars through the platform.

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