CrowdStreet Review- Commercial Real Estate Crowdfunding

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CrowdStreet

3.7 / 5 stars

Summary

Crowdstreet is one of the largest and most experienced crowdfunding portals. With excellent deal flow and an early track record of impressive returns, they offer a lot for accredited individuals who only want to work in one platform.

3.7 / 5 stars

Highlights
    • Excellent deal flow
    • Impressive early track record
    • Diverse exposure to real estate classes

Due Diligence 10/ 15

Fees & Commissions 12/ 15

Investor Access 3/ 10

Deal Transparency 10/ 10

Investor resources 10/ 10

Fund diversification 7/ 10

Bankruptcy / Financial Protections 6/ 8

Additional Considerations (X-factors) 3/ 5

Deal Flow 7/ 7

Fully Realized Offerings 4/ 5

Platform Financials 2/ 5

Total 74 / 100

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Summary

Another of the largest, most-popular real estate crowdfunding platforms, CrowdStreet is only suitable to accredited investors at this point, but for individuals who meet the income and/or net worth qualifications, it could be an excellent fit.

So what makes CrowdStreet an excellent choice? It starts with a platform that both sponsors and investors find appealing. For investors, it’s very simple to find relevant information about the real estate offerings in its marketplace, and the dashboard is a powerful tool to keep you informed about every real estate deal you invest in. Sponsors say it makes it investor management much easier, which allows them to dedicate more resources to what they’re best at: developing real estate.

So what makes CrowdStreet an excellent choice? It starts with a platform that both sponsors and investors find appealing.

This is a big reason why CrowdStreet has featured nearly 300 deals in its marketplace, and typically has 10 or more real estate offerings open for new investment at any given time. Moreover, those offerings are often diverse in the type of real estate, the length of the deal (with many as short as two years) and the experience level of the sponsor, meaning there’s a higher chance of finding appropriate investment opportunities for different individuals. CrowdStreet also features multiple diversified portfolio investment options that may be appealing to investors looking to limit how much capital they concentrate in a single asset, or simply don’t have the time or expertise to fully vet every single deal.

Like other top real estate crowdfunding platforms that feature standalone real estate asset deals, CrowdStreet’s due diligence is comprehensive. However, investors should note that, as with other platforms compensated for each deal it adds to its marketplace, there is the potential for a conflict of interest. The big takeaway is, it’s your responsibility to review the details of any deal you choose to invest in, and not to assume that every deal on Crowdstreet is appropriate for you.

What is CrowdStreet?

CrowdStreet is a real estate crowdfunding platform that’s one of the higher-volume marketplaces for real estate deals, and a highly-integrated investment management platform for both investors and real estate project sponsors.

In addition to the standalone real estate projects available to investors on its marketplace, CrowdStreet also offers the CrowdStreet Blended Portfolio, giving investors a way to diversify their capital across 30-50 real estate deals. It also recently launched the Opportunity Zone Portfolio for investors looking to take advantage of this program. Both of these investing opportunities come at a cost, with asset management fees of 1% and 1.5% annualized respectively. CrowdStreet also offers private managed account services, with a fee based on the size of your portfolio.

While CrowdStreet does offer some diversified portfolio and private managed account services, and its platform is the primary tool sponsors will use to communicate with investors, it doesn’t actively participate in managing any aspects of the real estate projects or their operations. That means it would have a minimal -- if any -- impact on the individual real estate assets you are invested in, if CrowdStreet were to experience any financial problems or even fail.

How does investing on CrowdStreet work?

Once you’ve verified with CrowdStreet that you’re an accredited investor, it’s just a matter of picking an investment and then funding your transaction or setting up your self-directed IRA, (CrowdStreet says its is agnostic to which IRA custodian you choose to use), and then identify real estate deals to invest in.

Simply put, CrowdStreet is one of the best when it comes to making it simple and easy to review deals. Deal pages follow uniform formatting, and it’s easy to find relevant information and documentation, and to communicate with the sponsor or CrowdStreet if necessary. Once you’re familiar with the layout, you’ll be able to more-efficiently review every deal you’re considering for your portfolio.

As with the other top real estate crowdfunding platforms, CrowdStreet’s due diligence is in-depth at the sponsor level and at the deal level. Sponsors must demonstrate substantial history and expertise, and those that are given the thumbs-up to submit deals for consideration are then grouped according to their track record, success, and experience. Investors can then filter deals by these criteria. When it comes to reviewing individual deals, CrowdStreet’s initial screening turns away about 75% of submitted deals, while further vetting results in approximately 95% of the offerings submitted not making the cut. With that said, CrowdStreet’s due diligence is relatively in-depth, but there are other platforms that go a little deeper at the project level, including in-person vetting of the local market and conducting in-person visits of the proposed project or asset.

Moreover, as we touched on in the summary, CrowdStreet’s compensation model creates some potential for a conflict between its vetting and how it makes money. In other words, make sure you understand the risks, and take ownership to thoroughly review any investment you’re considering.

What are CrowdStreet’s fees?

If you’re investing in individual real estate projects, or REITs offered by third-party sponsors on its marketplace, CrowdStreet doesn’t charge investors any fees, making money from sponsors who utilize its platform. Of course, sponsor do charge fees to recoup these costs as well as all of the other typical expenses associated with managing a real estate asset and project.

Crowdstreet makes it very easy to identify sponsor fees for each real estate project, with a “sponsor fees” tab that breaks these costs down clearly and succinctly.

Looking beyond standalone deals, Crowdstreet does offer some products it charges fees for. This includes the Crowdstreet Blended Portfolio, an investment vehicle diversified across 30-50 individual real estate projects with a 0.25% quarterly fee -- working out to 1% annually based on net asset value -- to manage this portfolio. Crowdstreet also offers an Opportunity Zone Portfolio with a 1.5% annual management fee. Lastly, CrowdStreet also offers Private Managed Account services through its CrowdStreet Advisors subsidiary, with fees that vary, depending on the size of your portfolio.

Of course, real estate assets and projects cost a lot of money to operate and develop, and sponsors have to recoup these expenses (or pay third parties for their services) and cover their costs. CrowdStreet makes it easy to identify these fees on the deal page for each real estate project, a plus when it comes to transparency.

Who can invest on CrowdStreet?

While it says it is “... actively exploring novel approaches..” to open up offerings for non-accredited investors, at present CrowdStreet only offers deals for which accredited investors can participate.

Beyond that limitation, it regularly features deals with lower minimums -- often around $25,000 -- and shorter project lengths -- often two years compared to more typical five-plus years -- that expand the pool of potential investors. Moreover, its CrowdStreet Blended Portfolio offering, with a $25,000 minim investment that will be spread across 30-50 investments, makes it easier to diversify your real estate holdings.

How can you use CrowdStreet?

If you’re just there for the real estate offerings marketplace, Crowsdreet is one of the best, with information-rich deal pages that make it very easy to determine if a particular offering is right for you.

CrowdStreet also regularly publishes articles and videos, and offers webinars to help investors learn about various aspects of real estate investing across a broad range of topics.

One of CrowdStreet’s strengths is its investor dashboard. Once you’ve made an investment, this is where you’ll find the latest information from sponsors on real estate projects you’ve invested in, including quarterly reporting, tax documents, performance reporting, and just about anything else you’ll need to find including the ability to communicate directly with a sponsor.

What makes CrowdStreet unique?

A combination of things make CrowdStreet stand out from the crowdfunding real estate crowd, including its highly-usable deal pages and investor dashboard, consistent deal flow across a range of real estate types and project lengths, and high transparency with fees and past deal performance.

Yes, investors on its platform did recently experience a deal gone bad, wiping out more than half of investor capital, but CrowdStreet gets credit for making the realized results of its offerings public. This commitment to transparency should be lauded. Moreover, 10 of the 17 realized offerings to date have outperformed their target returns, evidence that its due diligence process is working.

How safe is CrowdStreet?

As with other platforms, this is a multi-part answer. The first part deals with the risk of a CrowdStreet failure and the implications for any investments made through its platform.

Well, there’s good news in this regard. Since your investments are made directly with the sponsor and not CrowdStreet, a CrowdStreet failure wouldn’t have any direct impact on the real estate asset you’re invested in. It could potentially disturb the flow of information between investors and the sponsor, as the CrowdStreet dashboard serves as the communication tool today, and this would create some administrative headaches for sponsors, while also leaving investors in the dark until alternative communications tools could be put in place.

However, since CrowdStreet doesn’t play any role in managing the real estate assets or projects directly -- i.e. construction or property management -- a worst-case scenario of CrowdStreet going out of business should have minimal impact on the underlying investments in the long-term, though there would be some short-term headaches.

With that said, CrowdStreet doesn’t strike us as a business that’s at risk of going under. We independently verified that it has been able to raise capital multiple times to fund its growth, and revenues have consistently grown at high rates over the past several years due to the success of its platform at connecting sponsors with great projects with investors with capital.

Investors may have questions about the safety of the underlying investments offered on CrowdStreet. As of this writing, one of the 17 deals CrowdStreet has reported as fully realized, resulted in a 52% loss, while the rest have generated positive returns, and 10 of the 17 have outperformed the targeted returns.

Considering this, it’s probably best to describe the relative safety of deals featured in its marketplace as being, on average, not necessarily any less or more safe than most of its high-quality peers. It practices standard due diligence that serves as a starting point, but it’s the responsibility of you, the investor, to study each real estate offering and decide if the risk/return profile is appropriate for you, while also accepting that the risk of a permanent loss of capital comes with the territory.

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