BUSINESS

What is Crowdfunding in Commercial Real Estate

After stocks and bonds, real estate is the third largest asset class in the U.S and commercial real estate is estimated to be worth $16 trillion. But up until very recently, investing directly in real estate as an individual generally required a personal connection with a real estate developer and very high minimum investments.

However, changes in regulation in the last decade paved the way for online real estate crowdfunding, making it possible for us here at CrowdStreet to open real estate deals directly to individual investors. Unlike more traditional real estate investing, crowdfunding has a lower barrier to entry. This increase in access has made it far easier for the average investor to take advantage of the benefits of investing in real estate.

Since 2014, we’ve raised more than $1.9 billion over 485+ deals, and investors have earned over $197 million in distributions.

Why Commercial Real Estate?

Real estate can be a valuable part of any well-diversified investment strategy and commercial real estate (CRE) offers unique value to investors.

  1. Earn returns
    Commercial real estate investments can earn returns in two ways: ongoing cash distributions and/or a share of the property’s final share price. CrowdStreet investors have earned more than $197 million in distributions.
  2. Portfolio diversification
    The world’s biggest institutions have invested trillions of dollars into real estate. Expanding your portfolio to include real estate can help hedge against inflation and diversify beyond stocks and bonds.
  3. Stay hands-off
    Unlike owning a single-family rental, investors in commercial real estate don’t actively manage the property. With an online CRE investment, you’re a passive investor, not the landlord.

Real Estate Crowdfunding with CrowdStreet

Real estate crowdfunding is a method of raising money for real estate deals. Just like any other kind of business-related crowdfunding, a larger group of people invest smaller amounts of money to quickly raise capital for a project. Real estate developers or “sponsors” create a plan to purchase an asset and make any necessary changes to turn a profit—for example, an apartment complex that needs some updates to attract new tenants. The sponsor lists the deal the CrowdStreet Marketplace to raise the money they need to pull off their business plan from multiple individual investors. Then, as the sponsor enacts the plan and the asset (hopefully) becomes profitable, those investors will get their share of the returns.

Our award-winning online investing platform offers accredited investors direct access to real estate investment opportunities like these across the U.S. This gives investors the ability to pick and choose deals that fit their unique investing criteria, and ultimately create and track a real estate portfolio diversified across a variety of industries, locations, risk profiles, and more.

In early 2020, we officially crossed the $1 billion milestone for total online investments by individual investors. Crossing this threshold for equity invested was a significant milestone for CrowdStreet and the commercial real estate industry overall. As real estate sponsors continue to move their fundraising operations and investment management activities online, and as more investors expect more online investing options, supply and demand feed off each other. Sponsors allocate more investment opportunities to CrowdStreet, and more investors select to participate in the deals, even more sponsors see the value in bringing their deals to the Marketplace. It’s a virtuous cycle that results in CrowdStreet having one of the largest and most diverse online marketplaces for developers and operators to raise capital and individual investors to diversify their investment portfolios

How it Works

CrowdStreet enables investors to submit their offers, finalize their investments, and track the performance of their investments from one easy-to-use online platform.

Our Capital Markets team seeks out best-in-class sponsors nationwide to find potential investment opportunities to list on our platform. Then, our Investments team conducts a 3-step review of each deal to see if it would be a good fit for our Marketplace, looking at the sponsor’s credentials, the deal specifics, and the legal documentation to ensure each meets our standards. Out of every hundred deals we review, only about five make it all the way to our investors.

Once a deal is brought to the Marketplace, investors have the opportunity to review the business plan and documents before investing begins. Each investment opportunity has its own specifics, with target metrics, payout structures, and max allocation amounts varying from deal to deal. We also host a webinar for each deal, allowing the sponsor to present the information directly to potential investors. During that webinar, investment opens and CrowdStreet investors can begin submitting offers.

Because there’s a limited amount of investment money needed for each deal, slots are limited, and some deals will fill up very quickly. Others may be open for offers for a week or more.

Once offers are submitted, investors have some time to finalize the process and transfer the money. At this point, the investment management is fully in the hands of the sponsor, and they’ll carry out the steps outlined in the business plan. Sponsors are required to communicate on a regular basis with their investors, and investors can track the performance of their deals on the CrowdStreet platform.

We also offer private managed accounts through our subsidiary, CrowdStreet Advisors.

Get Started

The first step is to create a free account. CrowdStreet deals are only open to accredited investors, so you’ll need to provide documentation that you qualify before making your first investment. To be accredited, you need to have made more than $200k as an individual or $300k jointly in the last two years or have a net worth greater than $1 million, excluding your primary residence.

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