Here on the CrowdStreet blog, we’ve written dozens of articles about how online fundraising is changing the game in commercial real estate.
Investors are going online to participate in a greater variety of opportunities, invest directly with 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 across the United States, and avoid exorbitant broker fees by cutting out the middleman. Commercial real estate firms, meanwhile, are benefiting from a system that allows them to attract and build relationships with a vast and growing network of high net worth investors.
We’ve seen the promise of online syndication realized through the success of CRE offerings on the CrowdStreet Marketplace. We’ve also heard directly from investors about their reasons for investing with sponsors online. What we haven’t witnessed yet is unequivocal buy-in from the industry’s biggest players.
Until 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.
KBS is offering the KBS Growth & Income Fund through both the CrowdStreet Marketplace and KBSDirect.com, the firm’s own recently-launched direct-to-investor platform, which is powered by CrowdStreet technology. The new fund provides investors with direct access to institutional quality real estate from a firm that is the 11th largest owner of office properties globally with $36 billion of total portfolio activity. The KBS Growth & Income Fund 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.
To maintain its commanding footprint, KBS makes a point of innovating by continually adopting new technology. Indeed, the firm uses cutting-edge tech in nearly every way imaginable, from aggregating data from blogs to overhauling the use of spaces within buildings and parking lots. This technology influences operating decisions down to the granularity level, driving energy efficiencies, security, heating, and more.
Still, KBS knew a fundamental technology piece was missing. Namely, the firm recognized that online capital raises (which changes to federal regulations only recently made possible) were the wave of the future, and that the ideal approach to the market would be an omnichannel strategy that incorporates online syndication.
With that in mind, 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, and an ideal vehicle from which to launch the online component of its multichannel approach. 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 sponsors and investors.
So, KBS approached our company with a simple request: to bring their offerings online. We collaborated with the KBS team to develop KBSDirect.com, one of the first direct-to-investor platforms backed by a recognized leader in the industry. The platform gives investors access to institutional-grade growth and income properties, with no upfront fees or commissions.
The first offering on the platform? The KBS Growth & Income Fund. Soon after launching the 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 on KBSDirect.com, the firm realized it would easily translate to CrowdStreet Marketplace, creating synergies between the two platforms.
The Role of the Fiduciary Rule
It wasn’t technology alone that led KBS to Leverage is the use of various financial instruments or borrowed capital to purchase and/or increase the potential return of investment. Assume a buyer puts 20% down on a $5M property. Essentially, they paid $1M to own something worth $5M. Assuming the property appreciates at 5% per year, the sponsor’s net worth would grow to $5,250,000 in a year. Had they... More CrowdStreet’s Marketplace and online syndication platform. Despite several delays, the DOL’s fiduciary rule is beginning to go into effect, fundamentally changing how broker-dealers and their representatives do business.
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.
By imposing new standards of transparency on broker-dealers, the fiduciary rule effectively eliminates this incentive. As a result, market conditions now make it financially sound for a large real estate business such as KBS to offer a no-load, publicly registered non-exchange traded REIT directly to investors online.
What KBS’ Vote of Confidence Means for Sponsors
The introduction of KBS into our marketplace represents a significant shift in the way institutional CRE firms are raising money in 2018 and beyond. As Peter Bren, chairman of KBS Realty Advisors and KBS Capital Advisors, said in a press release, the world of CRE investing “is going through a dramatic transformation”:
“For individual investors and the trusted advisors who serve them, real estate investing is moving from a fee-laden, high-load broker/dealer environment to one where online platforms support institutional-quality investments and aligned interests among the investor, the advisor and the fund, with lower fees, commissions and administrative costs.”
We see KBSDirect.com and the KBS Growth & Income Fundas an unmistakable vote of confidence in the technology platform and Marketplace we have built. Since the launch of CrowdStreet, we have worked with numerous sponsors of all sizes. This offering stems from the success of those relationships, and represents the next stage of development for our Marketplace.
We expect that the KBS Fund will bring a number of new investors to the CrowdStreet Marketplace. If our 2017–2018 Investor Report is any indication, many of these investors will be looking for additional opportunities to build a diversified investment portfolio. Sponsors seeking to tap into this pool of capital would be wise to bring superlative offerings to the Marketplace and develop continuous engagement and communication strategies with new and existing investors.
Fortunately, we have an extensive library of educational content to help you do just that. Click here to visit our Resource Center.