CrowdStreet Review 2020: Is This Platform Right for You?

By: , Contributor

Published on: Jun 25, 2019 | Updated on: Mar 23, 2020

Learn more about this crowdfunding platform.

73

CrowdStreet

3.6 / 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.

3.6 / 5 stars

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

Bankruptcy Protection 8/ 10

Deal Flow 9/ 10

Deal Transparency 5/ 5

Diversified Fund Options 3/ 5

Due Diligence 6/ 10

Ease of Use 9/ 10

Fees & Commissions 8/ 10

Investment Minimums 3/ 5

Investor Resources 10/ 10

Leadership 4/ 5

Non-accredited Investor Offerings 0/ 5

Platform Financials 4/ 5

Skin in the Game 0/ 5

X Factors 4/ 5

Total 73 / 100

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What is CrowdStreet?

Founded in 2013, CrowdStreet is one of the higher-volume marketplaces for standalone crowdfunded real estate deals. It has a highly-integrated investment management platform that's extremely user-friendly for both investors and project sponsors.

More than 215 large commercial real estate developers and operators have used CrowdStreet technology to raise capital online and manage their investors and investments. CrowdStreet reports that more than 100,000 subscribers have registered to use their platform to get direct access to a broad range of institutional quality commercial real estate assets.

Summary: Is CrowdStreet a good investment?

CrowdStreet is one of the largest and most experienced commercial real estate crowdfunding platforms. With excellent deal flow and an early track record of impressive returns, CrowdStreet offers accredited investors access to a variety of deals that were once only available privately. In comparison to other platforms, CrowdStreet has a lot of pros and a few limitations.

Crowdstreet screenshot

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CrowdStreet pros and cons

Pros

  • Company longevity and sponsor success: 19 closed deals surpassed initial offering projections. CrowdStreet is completely transparent about the results of all deals.
  • Direct investment: You invest directly with the deal sponsor.
  • Robust, user-friendly platform: Superb technology and smart programming are definitely a strength of CrowdStreet.
  • Deep, very thorough pre-screening: Sponsors are vetted on many levels including their ability to provide a high level of service and responsiveness to investors.
  • Sponsor and deal transparency: CrowdStreet provides a plethora of documents and due diligence research on each deal and significant track record history on every sponsor.
  • IRA accessibility: CrowdStreet makes investing with a self-directed IRA (SDIRA) easy by actually integrating their platform with some of the largest SDIRA custodian companies.

Cons

  • High minimum investment: $25,000 in one deal is a sizable chunk to risk if the deal goes sour. The minimum investment for the Opportunity Zone Portfolio fund is $100,000, and to open an Advisor Service account, you need a minimum of $250,000.
  • Limited liquidity: On the marketplace, you're investing in specific commercial projects and must wait for the deal to mature. This isn't a place to invest money you'll need for an emergency.
Crowdstreet screenshot

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Is CrowdStreet legit? How strong is it?

CrowdStreet performance

CrowdStreet is legit and is arguably one of the stronger companies in the real estate crowdfunding space.

The CrowdStreet marketplace is one of the biggest in terms of deal flow, with over 367 commercial real estate offerings since the company launched in 2014. The majority of these deals are working through their intended holding periods. Of the 19 offerings that have been fully realized, 18 surpassed their expected returns at initial offering while one experienced a loss.

CrowdStreet's marketplace 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.

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.

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.

CrowdStreet management

CrowdStreet was co-founded by Tore Steen and Darren Powderly. Tore has a deep background in technology and Darren was President of Compass Commercial, a leading Pacific Northwest full-service commercial real estate company, where he spent 13 years. He also holds the CCIM (Certified Commercial Investment Member) which is a designation that recognizes expertise in commercial and investment real estate.

Rounding out the management team is Ian Formigle who serves as Chief Investment Officer and also has substantial real estate experience. Each deal is vetted by a team of investment managers and real estate analysts, a due diligence manager and an associate who screens sponsors.

Crowdstreet screenshot

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How CrowdStreet works: How are investments sourced?

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.

Simply put, CrowdStreet excels when it comes to providing a marketplace that both investors and sponsors 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 investor management much easier, which allows them to dedicate more resources to what they're best at: developing real estate.

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.

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. 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.

70% of CrowdStreet's revenue is from deployment fees which sponsors pay to post their investment opportunities on the marketplace. Sponsors also pay an "annual solution" fee to CrowdStreet for continued access to the marketplace technology.

CrowdStreet's compensation model creates some potential for a conflict between its vetting and how it makes money -- more sponsors and more deals create more revenue for CrowdStreet. As with any other real estate crowdfunding solution, make sure you understand the risks and take ownership to thoroughly review any investment you're considering.

Ways to invest on CrowdStreet

On the platform, you have three investing choices:

  1. Invest in diversified funds, either with the Blended Portfolio with a target investor internal rate of return (IRR) of 18% and an investment period of five to 10 years or with the Opportunity Zone Portfolio with a target investor IRR of 10% and an investment period of 10 to 12 years. Minimum investment is $25,000.
  2. Invest directly in a plethora of individual deals from a variety of sponsors to choose from with typical target investor IRR of 12% to 21% over two to five years. Minimum investment varies by deal, with $25,000 being typical.
  3. Invest via CrowdStreet's advisory services. CrowdStreet offers private managed account services providing diversified real estate holdings selected by professional managers. Minimum balance is $250,000.

CrowdStreet's diversified portfolio investment options may be appealing to investors looking to limit how much capital they concentrate in a single asset or who simply don't have the time or expertise to fully vet every single deal.

Investors who understand how to evaluate and perform due diligence often prefer to invest directly in individual deals on CrowdStreet. Of course, like with any investment, what best suits you is determined by a lot of factors including your risk tolerance, size of investment, long-term goals, expected investment timeframe, and intended exit strategy.

Who can invest with CrowdStreet?

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

What is the minimum CrowdStreet investment?

The marketplace regularly features deals with minimums of $25,000 (and more) and shortened project lengths of two years compared to the more typical five-plus years on other platforms.

CrowdStreet's Blended Portfolio requires a $25,000 minimum investment that will be spread across 30 to 50 investments and makes it easier to diversify your real estate holdings. And the Opportunity Zone Portfolio requires a minimum investment of $100,000 with a holding period of 10 to 12 years.

Crowdstreet screenshot

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What are CrowdStreet's fees?

CrowdStreet doesn’t charge investors any fees. Sponsors pay a fee per investor which can vary on a case by case basis. Typically, the total fee amount equates to around 3% of the amount raised. Rather than a percentage of capital raised, sponsors pay a solution fee for the services and technology involved with administering their fundraise and the post-raise investor management fee for each deal. CrowdStreet makes it easy to identify sponsor fees for each real estate project with a "sponsor fees" tab that breaks these costs down clearly and succinctly. They also show how the fees reduce the overall return. Transparency is obviously an ideal to which CrowdStreet adheres.

Of course, real estate assets and projects cost a lot of money to develop, manage, and operate, and sponsors have to recoup these expenses and cover their costs. Also, sponsors need to charge fees to recoup these costs as well as all the other typical expenses associated with managing a real estate asset and project. CrowdStreet makes it easy to identify these fees on the deal page for each real estate project -- a plus when it comes to transparency.

Looking beyond standalone deals, CrowdStreet does offer some products for which investors pay a fee. This includes the CrowdStreet Blended Portfolio with a 0.25% quarterly fee -- working out to 1% annually based on net asset value -- to manage this portfolio. CrowdStreet's Opportunity Zone Portfolio charges 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.

CrowdStreet returns: What should you expect?

CrowdStreet's project offerings are widely diverse. You'll find:

  • All property types -- multifamily, industrial, office, land, hospitality, residential, retail, senior housing, multi-asset, office, and storage.
  • Many investment structures to choose from -- debt, equity, portfolio, preferred equity, debt funds, equity funds, and REITs.
  • Various investment profiles to match your risk level -- core, core plus, value add, opportunistic, and development.
  • Regional choices -- East, West, Midwest, South, and multiple regions.

Their search function lets you sort opportunities by whichever of these qualifiers are important to you, which means there's a good chance of finding appropriate investment opportunities to meet the goals of a wide variety of investors.

Funds returned to investors from the marketplace to date total $90 million, and funds which have been invested in deals on the marketplace total $919 million to date.

Risk and returns vary with the sponsor's recent track record and years of experience. CrowdStreet assigns sponsors a level -- emerging, seasoned, tenured, or enterprise -- based on the size of their portfolio, the length of time they've been in business, and the specific experience they have in the geographic region and specific asset type. This ranking helps investors assess deal risk before delving into deal specifics.

Many investors are drawn to investing in commercial real estate because the deals are structured to deliver steady cash flow and passive income. These distributions can be paid out monthly, quarterly, or annually, depending on the deal and investment. With equity investments in hard assets like office buildings, high occupancy and rising rents tend to deliver steady or rising cash flow over time. With debt investments, participants are investing in a real estate loan and receive portions of a fixed interest rate payment dependent on the terms of the loan. In either case, investors have generally seen consistent cash flow from their CrowdStreet investments.

When (and how) can you sell CrowdStreet investments?

Currently, there is no secondary market for your CrowdStreet investments. You’re in it for the duration of the investment term when you invest.

Going mobile: Is there a CrowdStreet app?

There is not a mobile app, but the website functionality on my smartphone is great and likely all you need to stay on top of your investments if you're on the go.

Crowdstreet risks: Is CrowdStreet safe to invest with?

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, however, potentially disturb the flow of information between investors and the sponsor. This is because 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.

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 and investors with capital.

Investors may have questions about the safety of the underlying investments offered on CrowdStreet. As of this writing, 19 deals have been fully realized with only one resulting in a loss, while the other 18 have all generated positive 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 more or less 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.

A combination of things make CrowdStreet stand out among the crowdfunding real estate companies, including its:

  • Highly usable deal pages and investor dashboard.
  • Consistent deal flow across a range of commercial real estate types and project lengths.
  • High transparency with fees and past deal performance.

Yes, some investors on its platform recently experienced a deal gone bad, wiping out more than half of their capital, but CrowdStreet gets credit for making the realized results of all of its offerings public. This commitment to transparency should be lauded.

CrowdStreet's due diligence is comprehensive and transparent. Brandon Burns, a sponsor from San Diego, commented, "I have listed deals on CrowdStreet and their due diligence is super deep. It took me three months to get my last deal listed. It was a pain, but it props them up."

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