More than half of new investors who use CrowdStreet’s marketplace make more than one investment at a time. In fact, many invest in 4 or 5 projects simultaneously.
Writing it out now, that metric seems almost absurd. The conventional wisdom for commercial real estate investors is to practice caution to the point of skepticism, particularly if you’re inexperienced or using an online platform for the first time. Countless articles warn newbies of costly mistakes and potential hazards—that no deal, no matter how compelling on paper, is risk-free.
So, why do we frequently see first-time CrowdStreet investors deploy their capital across numerous properties? For starters, we take our sponsor screening and evaluation process seriously, and endeavor to present investors with great deals and detailed information upfront. But we can’t give our platform and direct-to-investor model all the credit. Rather, I’d like to challenge some notions about how so-called novice investors think and behave.
First, it’s clear that investors do their homework—not just about specific offerings and sponsors, but about companies like ours and the industry as a whole. They spend hours reading articles and books, watching videos, listening to podcasts, and talking to other investors about what to expect and look out for. (There’s a reason “is CrowdStreet legit” pops up if you Google our company.)
Second, it’s important to note that there’s no such thing as a typical online CRE investor. Individuals come to our marketplace from all over the world and all walks of life. Some are veterans who have spent decades in the industry, while others have never really invested in anything and are looking to transform a sudden windfall into lasting wealth for their families. Still others have made fortunes building their businesses, and see a portfolio of passive CRE investments as a smart and relatively stress-free alternative to more active kinds of investment.
While each of these groups’ needs and backgrounds differ, all are ultimately seeking the same thing from sponsors: transparency. This is the secret to that multiple investment metric I opened with. When individuals see how easy it is to do business with a sponsor, they tend to think, “This company knows what they’re doing. Why should I wait 5 years to start building my portfolio?”
As CrowdStreet co-founder Darren Powderly recently wrote on this blog, trust is what turns investors into re-investors. Let’s explore what trust looks like for three archetypes of investors who may be using an online investment platform for the first time.
The Self-made Millionaire Investor
Who they are: High net worth individuals who have made their money outside of the real estate world, often in technology, engineering, or a related field. They’re shrewd, strategic investors with a worldly, business-driven perspective.
What they’re looking for in a sponsor: Responsiveness. Investors who fit this archetype are conditioned to do everything online. They want to be able to check on the status of their investment as quickly and easily as they can pull up their bank statements or update their LinkedIn profile. They expect a sponsor to act like a financial services company (think PayPal or Intuit), and be able to respond to a call or email at a moment’s notice.
How to communicate and build trust with them: Give them as much access as possible. This type of investor trusts sponsors who treat them like VIPs. Show them that you recognize their expertise and respect their time: provide them with answers promptly, but don’t pester them with unnecessary updates if they don’t seem to care.
The Seasoned CRE Professional
Who they are: Investors with firsthand CRE knowledge and experience. They’ve invested in numerous properties, but may have primarily worked through a broker (or may have worked as a broker themselves) and may be new to online investing. They may not be tech-savvy, but they’re real estate-savvy.
What they’re looking for in a sponsor: A stellar track record. Seasoned CRE professionals know what they’re doing and they expect the same from sponsors. They like working with people who are personable and consistent. They know how complicated distribution waterfalls can get, and for them, personality can be a stronger motivator than yields. We’ve noticed, for instance, that sponsors such as Alpha Capital Partners, who have completed more than 10 deals, have many repeat investors—even if the offerings in question are imperfect. In fact, these investors sometimes consider themselves strategic partners and mentors to firms, and appreciate having the opportunity to add value.
How to communicate and build trust with them: Focus on building relationships. Meet with these investors one on one, and face to face, if possible. Let them know about issues early and often, especially during a natural disaster, e.g. the hurricanes that hit Texas and Florida last year. Finally, follow up regularly, even after the deal’s closed.
Who they are: An individual or married couple who knows there’s money to be made in real estate, but only have some of the details and lack real-world investing expertise. Like the first archetype, they may be new to CRE, and like the second archetype, they may be new to online marketplaces. They’re learning about specific projects at the same time as they’re learning about the overall market, and they may become overwhelmed early on.
What they’re looking for in a sponsor: Leadership. They’re looking for sponsors who instill confidence. They want sponsors who set the tone and deliver on their promises, while explaining some of the finer details along the way. That doesn’t necessarily mean constant updates or complete transparency: there’s a thin line between responsible communication and oversharing, and a sponsor who seems frantic or overeager can make them skittish the same way a 6-month period with no updates would.
How to communicate and build trust with them: Make them feel smart. Give them opportunities to learn through articles, webinars, and other pieces of educational content. It’s not just about information, but presentational style. One firm that uses CrowdStreet, Nicholas Residential, embodies this: the first time you hear Paul N. Panza, the company’s president and CEO, speak, you think, “Why didn’t this person end up in Hollywood?” Paul has a great voice and sense of humor, as well as a knack for breaking down complex ideas in intuitive terms. It’s this type of accessible, polished, and charismatic demeanor that investors tend to respond to.
These are just three archetypes, and they don’t come close to encompassing the various kinds of investors out there. At the same time, not every individual who fits a profile has the same needs or expectations. One seasoned investor may want weekly updates where another would balk and think, “leave me alone.” A newbie may know much more—or much less—than you anticipate. It’s another reason to take advantage of CrowdStreet’s investment management tools, which allow sponsors to personalize their communication with investors without taking on more overhead.