In many states, even those with stay-at-home orders, construction is considered an essential business. As our Chief Investment Officer, Ian Formigle, recently said, “Commercial real estate thinks in terms of months and years, not days and weeks.” And while there is no denying the short-term impact of COVID-19 on the industry, both 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 are still thinking about the long-term.
But when the live webinar for Frequency Apartments Washington, DC, sponsored by The UIP Companies, Inc (UIP), started on Tuesday, March 17th, Steve Schwat, the founder of UIP, admitted his team was concerned. Barely 24 hours before, the Dow recorded its worst one-day point drop in history, the S&P 500 finished down nearly 12%, and the Nasdaq Composite ended down 12.3%. Given all the market volatility, would investors tune into the webinar? And even if they did, would the raise be successful?
In the end, 225 individual investors committed $9.3 million in just two hours and six minutes, and the deal ultimately closed at $9.8 million.
In hindsight, and having spoken with several transaction investors, Andrew Akers, a Senior Advisor with UIP, now suspects that investor interest in the firm’s offering–a Class A, stabilized multifamily asset in a major metro–represented investors’ “flight to quality.” Akers believes that the ongoing market uncertainty actually helped solidify the thinking of many real estate investors–buying a quality asset in a quality market, even in a time of stress, can be a good recipe for wealth preservation in addition to income and long-term appreciation.
Ian Formigle, Chief of Investment at CrowdStreet, adds, “Multifamily properties are outperforming most other asset classes at the moment, with values continuing to hold up, generally speaking, and investments pricing well. Frequency Apartments is a stabilized Class A asset. Occupancies should hold up well for stabilized assets, which bodes well for investors.”
Most commercial real estate transactions target at least a five-year holding period, as does the business plan for Frequency Apartments Washington, DC. Schwat added, “As we like to say, our crystal ball is only sometimes better than anyone else’s, and we generally do not think in terms of weeks.” Even with all the current market volatility and unknowns as to what the future holds, CrowdStreet’s Marketplace investors saw an opportunity in Frequency Apartments Washington, DC.
Thomas Annunziato, one of the 225 investors, said he was drawn to the deal in large part because of its location. Frequency Apartments is situated near American University, which leases 88 of the 100 units under a master lease and has the right to lease the remaining units as they become available. It also helped that the transaction was recommended by Millionacres, a Motley Fool company. “CrowdStreet does their initial review of the deal, and then Millionacres does their review on top of that. I liked knowing the project had gone through those two layers of analysis before it ever even got to me.”
Although deal flow has changed–our Investments team has updated their review criteria to better address the current economic situation–the CrowdStreet Marketplace is still launching new offerings. We’re actively looking for sponsors with business plans that address a post-COVID world. We’re checking in with our investor community to get a sense of what they are thinking and feeling during these uncertain times. We remain committed to helping keep the commercial real estate industry moving forward, giving both investors and sponsors the information and tools they need.