Updated April 2020
CrowdStreet posts institutional-quality commercial real estate investments with defined business plans from reputable and proven sponsors.
The following is a guideline of our screening criteria:
- Sponsor Vetting: First, we evaluate the commercial real estate developer or operator’s (aka the “sponsor’s”) background and track record to ensure that the sponsor has a demonstrated capability to execute their business plan and provide investors the highest degree of professionalism. This includes deep background checks on sponsor entities and principals using industry leading platforms – CrowdStreet uses CLEAR® | Thomson Reuters to conduct its background checks. In the event bankruptcies or lawsuits are discovered, satisfactory explanations are required prior to moving forward in the screening process.
- Asset Review: Second, we evaluate the sponsor’s proposed asset or fund to ensure that it aligns with the sponsors’ background and with Marketplace investor preferences. CrowdStreet analyzes assumptions pertinent to the feasibility of the business plan and performs sensitivity analysis to understand how the investment performs in a downside scenario.
- Offering Terms Review: Third, we review the terms of the proposed offering and associated documents against our “standard investor deal terms criteria” matrix and provide the results to the sponsor to either adjust to comply or reject any offering that does not match the criteria.
Step 1: Sponsor Vetting
Minimum Criteria: To be approved for the CrowdStreet Marketplace under any designation, sponsors must, at a minimum, demonstrate stewardship of investor capital. In addition, because CrowdStreet’s Marketplace provides a direct connection between sponsor and investor, it is critical that sponsors who are approved to appear on CrowdStreet desire direct relationships with individual investors and possess the necessary company infrastructure to service investors for the entire life of the investment period. CrowdStreet validates the sponsor’s stewardship by conducting due diligence, which includes:
- Deep background checks on sponsor entities and principals using industry leading platforms;
- Online news and social media research;
- Track record and portfolio review;
- Review of quarterly reporting;
- Interviews, and reference checks with both investors and professional contacts. Assuming that no bad actor issues are found in the background checks, we apply one of the following designations:
|Entity Longevity||May be <5 years||Must be 5+ years||Must be 10+ years||Must be 15+ years|
|Principal Experience||5+ years (at least 2)||10+ years||10+ years||30+ years|
|Portfolio Activity||May be <$100M||Must be $100M+||Must be $500M+||Must be $5B+|
|Additional Required Qualifications||
Step 2: Asset Review
Once CrowdStreet has approved a sponsor, we then conduct a screening process on the underlying asset or fund.
- Is the project within a core competency of the sponsor?
- Do materials demonstrate professionalism?
- Are assumptions supported by market data?
- Does the project match stated investor preferences?
CrowdStreet will provide the sponsor with a Quality Control List that outlines all materials required to review and approve a deal for the Marketplace. Examples of materials requested include:
- Project overviews
- Pro formas
- Historical operating statements
- Rent rolls
- Market data
- Lease comparables
- Sales comparables
- Feasibility studies
- Appraisals and
- Third party reports
CrowdStreet will also utilize third-party market data through the use of CoStar to verify a sponsor’s underwritten assumptions.
Typical Investor Preferences:
Target Markets: Investors target primary, secondary and tertiary markets across the United States that demonstrate positive economic and demographic trends.
Project/Property Type: Commercial and investment real estate in the United States including retail, office, industrial, mixed-use, multifamily, hospitality, senior housing, and storage.
Single Asset Property or Fund: CrowdStreet accepts both real estate funds and single asset opportunities. In both cases, we require a complete Business Plan. Investors may prefer different terms and returns depending upon the investment structure.
Property Value Range: The typical property value range is between $15,000,000 and $50,000,000. There is no maximum property value.
Business Plan: We will consider the following business plans; however, investors expect the returns to be adjusted based on the risk profile of the business plan.
- Stabilized with predictable cash flow
- Value-add, redevelopment or repositioning
- Ground up development or build to suit
Fundraising Goal: Given current investor demand, sponsors’ target fundraising goals for the CrowdStreet Marketplace typically range from $5,000,000 to $15,000,000. CrowdStreet will analyze the offering and compare it to historical Marketplace performance to provide an estimated raise amount to the sponsor.
Step 3: Offering Terms Review
Third, we review the terms of the proposed offering and associated documents against our “standard investor deal terms criteria” matrix and provide the results to the sponsor to either adjust to comply or reject any offering that does not match the criteria.
Offering Structure: While CrowdStreet can accommodate a variety of deal structures and offering safe harbors (such as Regulation D, Rules 506(b) and (c), as well as Regulation A offerings to non-accredited investors), the following are currently most suitable for the platform:
- Common or JV equity
- Preferred equity
- Mezzanine or 2nd position debt
Offering Documents and Business Plan: We require the sponsor to provide all legal documents to be signed by the Investors including a Subscription Agreement and partnership documents. Additional Project documentation including a Private Placement Memorandum, Offering Memorandum, Prospectus, Investment Offering, Pro Forma, etc.
Professional Management: All properties featured on CrowdStreet require professional property management. The sponsor may serve the role as property manager provided it possesses demonstrated capability to do so.
Leverage: We require all relevant commercial lender documents related to a Project. Generally, Marketplace offerings are expected to have an LTC of 80% or below, however, exceptions may be made on a case by case basis.
Sponsor Equity: CrowdStreet sponsors or their affiliates are required to co-invest alongside CrowdStreet investors and disclose their co-investment amount to investors. Sponsor co-investment amounts may vary (depending upon numerous factors such as providing recourse debt guarantees) but typically range from 10– 15% of total equity.
Risk: Sponsors are required to fully disclose the risk profile of particular property or fund within their offering documents. A sponsor generated Private Placement Memorandum (PPM) is strongly encouraged or required depending on the Offering.
Investor Reporting: Sponsors are required to provide reports on a quarterly basis to Investors via the CrowdStreet Investor Room. In addition, sponsors are responsible for investor distributions and tax matters.