The internet has reshaped our relationship with technology, transformed industries, and democratized access to information and opportunities for billions of people around the world.
Until very recently, however, commercial real estate investing was left out.
That all changed with the passage of the Jumpstart Our Business Startups Act (JOBS Act), which allowed commercial real estate (CRE) and other securities firms to solicit to accredited—and eventually, non-accredited—investors online. In the years since the passage of the JOBS Act, we here at CrowdStreet have witnessed the birth and exponential growth of the online fundraising market, and have seen the market’s potential realized through the success of CRE offerings on the CrowdStreet Marketplace.
Now, we are pleased to announce that KBS, one of the largest and most respected commercial real estate companies in the United States, has launched a $1 billion growth and income properties fund on the CrowdStreet Marketplace.
This new fund provides investors with access to institutional quality real estate from a firm that has managed $36 billion of income-producing real estate. It is the firm’s first offering in which investors are able to directly buy shares online.
And here’s the best part for investors: this is a no-load fund, meaning KBS is selling shares without a commission or sales charge. This was virtually unheard of before the passage of the Department of Labor (DOL) fiduciary rule. Read on to learn how that law coincided with the maturation of our Marketplace to bring one of the world’s biggest real estate investment firms to CrowdStreet.
How the KBS Growth & Income Fund Began
KBS has been in business for over 25 years, and is one of the largest global owners of office real estate. The firm has managed more 1,700 assets in the US. As of September 2017, it was invested in 136 properties (approximately 39.5 million square feet) valued at an estimated $11.31 billion.
Following the passage and implementation of the JOBS Act, and the subsequent rise of online syndication, KBS looked to partner with a CRE technology leader. The firm identified CrowdStreet as the best platform for offering real estate online to accredited investors with transparency and efficient management. According to KBS’ leadership, CrowdStreet differs from competitors in that we have deep expertise in the market and our platform focuses on building relationships between In commercial real estate, the sponsor is an individual or company in charge of finding, acquiring and managing the real estate property on behalf of the partnership. The sponsor is usually expected to invest anywhere from 5-20% of the total required equity capital. They are then responsible for raising the remaining funds and acquiring and managing the investment property’s day-to-day... More and investors.
With that in mind, KBS approached our company with a simple request: to bring its offerings online. Their first offering is the KBS Growth & Income Fund.
Details of the Fund
The KBS Growth & Income Fund currently owns four assets totaling $197.8 million in gross value—all located in high job-growth markets:
- The Offices at Greenhouse, a 203,221sq ft Class A office building in Houston, TX
- The Commonwealth, a 219,742 sq ft Class A office building in Portland, OR
- Von Karman Tech Center, a 101,161 sq ft Class B office building located in Irvine, CA
- 213 W. Institute, a 157,166 SF Class B office property in Chicago, IL
With KBS’s first no-load approach, the company will not receive any of its incentive compensation until its investors have received a 100% return of their gross investment amount, plus 6% on their investment. The targeted average annual investment return is 10–14% at the property level, and the investment period is five to seven years, with a low minimum investor amount of $10,000. The fund intends to generate both growth and income, and includes a monthly distribution paid to investors equal to a 5.5% annual rate of return on their investment.
We see the fund as a rare opportunity for CrowdStreet Marketplace members to participate in a low-beta investment with an established firm. (If you are not familiar with KBS, be sure to read about the firm’s extraordinary history and leadership.) Offerings such as the KBS Growth & Income Fund, have a low correlation to the stock and bond markets, which investors may see as a benefit during this particularly volatile economic period.
Additionally, the offering stands out for its low fees: for each dollar invested, 96 cents goes directly to real estate. Contrast that with an exchange-traded Modeled after mutual funds, a REIT (real estate investment trust) is a company that owns, operates or finances income-producing real estate. They allow individual investors to buy shares in commercial real estate portfolios.... More, which, in terms of operating costs alone, typically carries a load in the neighborhood of 10–15%.
How New Laws Made This Offering Possible
As you might imagine, this type of offering is typically traded among elite, exclusive networks of investors, and almost always carries higher fees.
How is KBS able to offer it to the CrowdStreet Marketplace? The answer lies in a new DOL regulation. The so-called fiduciary rule is beginning to go into effect, fundamentally changing how broker-dealers and their representatives do business1. Although it would be beyond the scope of this blog post to analyze the details of the law, the upshot for investors is that the rule imposes new standards of transparency on broker-dealers and prevents them from charging exorbitant fees.
Historically, publicly registered non-exchange traded REITs have been seen as an opaque investment category. Because of the way these offerings are structured, end investors have virtually no way of knowing what percentage of their investment is being used for real estate and what percentage covers a broker’s fees. As such, broker-dealers had an incentive to take substantial commissions, which firms would need to recoup through double-digit asset gains.
The fiduciary rule effectively eliminates this incentive, causing a paradigm shift in the market and making it possible for a large real estate business such as KBS to promote an offering directly to investors online.
How You Can Participate
We’ve made it as easy as possible to invest in the KBS Growth & Income Fund. All an individual has to do to participate in this accredited, private offering is join CrowdStreet, create a profile, and invest. Registration takes about 5 minutes, and the minimum investment is set at a low $10,000.
Of course, the fund is just one of many offerings currently available in our Marketplace. Our platform has raised more than $240 million of equity to date, with nearly 200 total projects funded. This year, we expect to fund an additional $300 million in equity on the CrowdStreet Marketplace.
To learn more about the CrowdStreet Marketplace and how get started, click here.