CrowdStreet and Real Estate’s Brave New World of Investment
“I certainly think this is the year in which both sponsors and commercial real estate developers, operators, and investors have fully embraced the online investing capability of commercial real estate,” said Tore Steen, CEO of CrowdStreet.
CrowdStreet, a platform that gives individual investors access to vetted, institutional-quality commercial real estate opportunities, has seen a great deal of promising growth in the investment space this year. Further, 2018’s investment revolution holds implications for the larger real estate industry, especially as we turn the corner on the new year.
“Our marketplace has seen 356 million dollars invested across 230 projects,” added Steen. “That’s still a fraction of the 200 billion dollars of equity every year in commercial real estate, but it’s still a significant jump from what we’ve seen in 2014 through 2017.”
The firm, like many others, has capitalized on the Internet’s ability to democratize information and opportunities. While previously only a select few had access to commercial real estate opportunities, now thousands of individual investors can throw their hat in the ring—in some cases seeing returns that exceed 22 percent.
Of course, that’s not to say that CrowdStreet and akin platforms haven’t seen their fair share of industry road bumps. While Steen and his team expect the online investment sphere to continue to grow exponentially as time goes on, there was a time when commercial real estate was not so welcoming of digital’s promise.
“The move to online is not completely turning everything on its head, and we do our best to educate sponsors and have a conversation with them about that,” said Steen. “It’s really more of an extension of what they have always done. The online way is just going to help them to do more of what they are doing—and do it more efficiently.”
But while 2014 through 2016 were largely years of education for the real estate industry, now the conversation has shifted—and Steen and the CrowdStreet team have taken notice.
“Operators and developers are now asking ‘how do I do this’ rather than ‘should I do this,’” noted Steen. “That’s a clear indicator that sponsors are now keenly interested in coming online, expanding their investor bay, and making the fundraising process more efficient.”
Moreover, the competition is now leaving real estate’s technophobes behind. CrowdStreet’s platform is both more efficient and allows investors to share information regardless of geographic constraints—gamechangers that will put industry players behind their competitors, should they remain stuck in their pen-and-paper ways.
“When we look at the marketplace, we’re looking at 12 million accredited investors and countless sponsors and transactions in the U.S.,” said Steen of the potential CrowdStreet unlocks. “We don’t need to capture all of that market, but even at 20 or 30 percent, we’re talking billions of dollars per year.”
Of course, CrowdStreet is far from the only firm tapping into the unlimited potential of online investing. But the company prides itself on its transparency and its attention to both the investor and the sponsor.
“We need to listen to our investors and learn from them, and we’ve done that since 2013,” said Steen. “Our investors like the fact that we are creating transparency and diversity in all of our CRE offerings.”
Sponsors, on the other hand, have two primary drivers: Growing their investor base and efficiently managing their current investor base. In light of this, CrowdStreet offers a white label software that helps sponsors manage their investors effectively.
“Just as in other industries, an online consumer now has more of a say as to not only what products are available, but how these offerings are being presented,” Steen noted. “The investor community is actually voting with their wallet, so we at CrowdStreet put a high degree of importance on offerings that help us drive up our quality.”
As a result of CrowdStreet’s very stringent vetting process, less than five percent of sponsors actually make it on the marketplace. After all, CrowdStreet has a very discerning investor community, especially the 70 percent who invest directly in offline commercial real estate.
Furthermore, Steen and CrowdStreet believe that the industry is past the tipping point of crowdfunding being just an interesting sidecar way of raising funding. CrowdStreet alone is now comprised of 60 percent of repeat sponsors—indicating that this branch of real estate is becoming a core part of what sponsors are doing, and a core part of their business.
And on the investor side, investors are demonstrating that, when given access and when given the transparency, they are building a diversified commercial real estate portfolio. The average repeat investor on CrowdStreet has five investments and an average 250,000 invested.
But above all of the numbers and dollar signs, CrowdStreet is also dedicated to creating a community via its marketplace. By bringing individual investors together with sponsors and educating individual investors on commercial real estate, the company is creating more impassioned investors—aligning interests and creating a collaborative environment.
“It’s one thing to create that online capability and to meet up with investors in a virtual environment, but we also believe that it’s important to not lose sight of the fact that we still live in a physical world, and hosting key investor events can allow investors to meet sponsors directly and gain access to a wealth of new knowledge,” said Steen.
“Our biggest hope is that more and more individual investors come to realize that this is a strong option for them to diversify their investments,” he concluded. “More and more sponsors are recognizing that the appetite exists from investors, and that going online is the next step in advancing their business.”
At the intersection of this is CrowdStreet—with a singular goal in mind: to create a community that builds wealth together.
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