4 reasons CRE equity crowdfunding has a very bright future
Recent news about a significant player in the fast-growing and evolving crowdfunding CRE industry no longer accepting new investments frankly surprised us. We had heard rumors of course, but it could not be a more opposite situation from what we are experiencing, so much so that it hardly seemed believable. Suffice it to say that their fundamental approach to the industry was very different from ours, and that was likely a significant contributing reason why their business model struggled. Our business, on the other hand, is going so well, and thriving in every existing channel that we can hardly contain our enthusiasm. So it seems like a perfect time to share why the CrowdStreet community of investors, 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, partners, and employees are so excited.
First of all, the vision is working and we are reaching new milestones: We recently set a new record for the shortest amount of time for a sponsor offering hitting their funding goal at about 90 minutes from accepting offers on the marketplace to hitting their funding goal. Now, of course, this is not typical but it shows that a very attractive offering has an audience ready to invest. And the investor audience has the scale and the confidence to commit quickly. This is a testament to the scrutiny we place on deals (we only accept about 3% of possible deals, so yes, the bar is high), but also the returns we have already seen delivered back to investors equates to an The Internal Rate of Return (IRR) is the rate at which each invested dollar is projected to grow for each period it is invested. It differs from other metrics in that it accounts for the concept of the “time value of money”, or the fact that a dollar received and reinvested elsewhere today is worth more than a dollar expected... More over 35%.
Secondly, investors are flocking in and ready to put their money to work in smarter ways. With a volatile stock market, and massive amounts of baby-boomers retiring every day, the investment landscape is evolving and expanding rapidly. More people are finding the time to explore alternative investment options and want to diversify from stocks, bonds, and typical housing investments into the often obscure world of CRE. Now that we are democratizing this opportunity, investors are discovering it, and want to participate. This is a movement that shows no signs of stopping. And when sponsors can fulfill their investment amounts in shorter periods of time, with less hassle, they want to use this new model even more. So it is a virtuous cycle that will keep on moving faster and more efficiently.
Third, the investment options are getting more diversified and appealing to even more types of investors. We recently just announced our CrowdStreet Blended Portfolio which allows investors to spread their investment across a vetted basket of CRE properties with a variety of geographies, asset types, sizes, and timeframes. For some investor types, this gives them the comfort they need to make that first investment with instant diversification.
And lastly, there is a lot more to come! This is still the very early days of a rapidly evolving industry revolution. Just as stock investing now is done with a few mouse clicks, this industry will continue to take advantage of the modern way to invest and to raise money for quality projects. Once both sides of the equation experience this convenience and transparency, it is very unlikely they will want to go back to the old ways. We are on the verge of announcing even more products and options to more investors. So stay tuned. This bright industry will shine even brighter, and yes, some companies may stumble in this fast-moving revolution, but others are driving the future, and we certainly plan to be in the front seat.
-Tore and Darren