EquityMultiple Review 2020: Is This Platform Right for You?

By: , Contributor

Published on: Feb 26, 2020 | Updated on: Mar 17, 2020

69

Equity Multiple

3.4 / 5 stars

Summary

Offering investments in all three capital structures (debt, preferred equity and equity) in wide variety of types of commercial projects including multifamily, hotels, condos, offices, industrial, and mixed-use buildings. They also offer private placement into qualified opp…

3.4 / 5 stars

Highlights
    • Company only profits if investors profit
    • Each investment is a deal-specific LLC
    • Must be accredited investor to participate however minimum investment is $5,000

Bankruptcy Protection 9/ 10

Deal Flow 8/ 10

Deal Transparency 2/ 5

Diversified Fund Options 2/ 5

Due Diligence 8/ 10

Ease of Use 7/ 10

Fees & Commissions 6/ 10

Investment Minimums 3/ 5

Investor Resources 8/ 10

Leadership 5/ 5

Non-accredited Investor Offerings 0/ 5

Platform Financials 2/ 5

Skin in the Game 5/ 5

X Factors 4/ 5

Total 69 / 100

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What is EquityMultiple?

EquityMultiple is a commercial real estate crowdfunding platform. Their differentiating platform positioning is that they offer all three capital structures (debt, preferred equity, and equity) in most types of commercial projects including multifamily, hotels, condos, offices, industrial, and mixed-use buildings. They also offer private placement into tax-advantaged commercial real estate investments: qualified opportunity zone funds and 1031 exchange properties.

EquityMultiple's deal acquisition focus is on:

  • Commercial properties in thriving markets with current cash flow.
  • Short-term loans and preferred equity investments, where investors are entitled to a strong APR or current preferred return.
  • Value-add projects with construction components and more aggressive business plans, with a priority on investments that have a clear path to stabilization and cash flow to investors.

EquityMultiple is a smaller platform with between two and five offerings active at any given time.

The deals on EquityMultiple are transparent, and investors have invested more than $135 million in EquityMultiple offerings. Unlike some crowdfunding platforms where investors have direct communication with deal sponsors, EquityMultiple's management is the go-between for investors and sponsors, lenders, and operators, with EquityMultiple providing dedicated in-house portfolio management.

EquityMultiple screenshot

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Summary: Is EquityMultiple a good investment?

The hallmark of EquityMultiple's deal platform is "offering direct investments in high-quality commercial real estate with as little as $10,000." This smaller minimum investment than most other platforms makes it easier to build a diversified portfolio, as compared to most other crowdfunding sites where the minimum is $25,000 or more.

Deal screening is a two-part process. The initial screening is done by a team of professionals with commercial real estate experience and includes a pro forma analysis, sales and rental comp data, local market fundamentals, cap rate sensitivity and deal dynamics. If a deal passes the first screening, a deal team further analyzes the terms and other criteria.

Sponsors are reviewed and go through due diligence along with each deal. EquityMultiple claims that only 5% of deals pass final screening by the investment team and make it onto the platform as an offering.

If you want to invest, you will need to prove you're an accredited investor. It's quick and easy to set up your account to receive cash distributions through ACH bank transfers, view quarterly updates on asset performance, and invest in offerings. At the same time, EquityMultiple provides easy access to ask questions and interact with a real person through a chat pop-up on just about every page and constant invitations to call if you have a question.

EquityMultiple has significant access to opportunity zone deals. They have also offered a diversified fund -- an opportunity zone fund that spans 14 states.

EquityMultiple screenshot

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What are EquityMultiple's pros and cons?

Pros

  • Low minimums: Some of the lowest minimum investments for standalone real estate deals we have seen.
  • Wide variety of deals (debt, preferred equity, and equity) across many commercial real estate markets are available to investors on one platform.
  • Wide variety of opportunity zone offerings.
  • 1031 exchange offerings.

Cons

  • New offerings tend to sell out quickly.
  • Investors pay fees -- annual asset management fee of .5% to 1.5%.
  • Only accredited investors can participate.
EquityMultiple screenshot

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Is EquityMultiple legit? How strong is it?

EquityMultiple performance

EquityMultiple raised $850,000 in seed money in 2015 and $3 million in bridge funding in August 2018. It appears that they are seeking additional funding in 2020. To date, 18 of EquityMultiple's offerings have been realized for an investor-level internal rate of return (IRR) of between 12% and 17%. Since 2016, EquityMultiple states that $20.3 milion has been returned to investors.

EquityMultiple management

EquityMultiple was co-founded by Charles Clinton and Marious Sjulsen, who act as CEO and CIO respectfully. Clinton was a real estate attorney who worked on a variety of major transactions for private equity clients including Blackstone and KKR. Sjulsen's background is in commercial real estate development. EquityMultiple was developed in partnership with an existing real estate company (Mission Capital). EquityMultiple continues to add seasoned industry veterans in key senior leadership positions.

Management indicates they are seeking to increase the number of offerings as new deals sell out quickly when listed on the platform.

Each offering is a distinct and separate corporate entity, set up as LLCs to ensure bankruptcy remoteness. That means investors are primarily exposed to the real estate risk of their chosen investment, and not at risk if EquityMultiple were to fail. It also means EquityMultiple's creditors have no recourse to the deals, because they are entirely owned by the deal investors.

EquityMultiple's dashboard is easy to use and has the information investors need to evaluate deals at the ready. The platform uses a scroll-down feature rather than being organized by tabs. Sponsors are contractually required to provide tax documentation, performance reports, distribution details, and other documents pertinent to deal progress, and investors have access to these documents. Investors can easily find detailed information about deals and drill-down into reports as needed to perform deal due diligence. Self-directed IRA investments are allowed and assisted by EquityMultiple's Investor Relations team.

Account sign-up is easy -- answer a few questions and fill out contact info to get approved. Making an investment seems straightforward. A pop-up box offers assistance via chat, and investors can filter deals by type (debt, preferred equity, and equity).

Who can invest with EquityMultiple?

In order to see the offerings available to investors, you need to self-qualify as an accredited investor by providing basic details regarding your financial situation and investing experience.

Being an accredited investor requires you to meet at least one of the two following requirements:

  • An individual net worth (or joint net worth with a spouse) exceeding $1 million, excluding your primary residence.
  • An individual income of more than $200,000 in each of the two most recent years, or a joint income with a spouse exceeding $300,000 in those years. You must also have a reasonable expectation of reaching the same income level in the current year.

What is the minimum EquityMultiple investment?

The stated minimum investment is $5,000, although most offerings require $10,000. Investment terms range from as short as one year to as many as 10 years.

What are EquityMultiple's fees?

On debt and preferred equity investments, EquityMultiple assesses a flat 1% fee. For common equity investments, investors pay a recurring asset management fee for ongoing monitoring of the investment, payment distributions, tax reporting, and services. The fee ranges between 0.5% and 1.5% of the amount invested on an annualized basis, and is paid from the gross cash flows from each deal. For common equity investments, EquityMultiple also takes a 10% carry on profits at exit of the investment, once all principal has been returned to investors. 

EquityMultiple is transparent about their fees and makes it easy for you to account for them. Projected returns listed on projects already take the platform's fees into account. So, if you're browsing through projects to invest in and see a return of, say, 12%, this is after -- or net of -- EquityMultiple's fees and management costs.

Sponsors pay an upfront origination fee of 1% to 4% of the purchase amount of the deal to EquityMultiple to host their offering.

EquityMultiple returns: What should you expect?

Since inception in 2015, a total of $133 million has been invested and over $20 million has been returned to investors from 18 fully-realized deals.

EquityMultiple says the target rates of return vary by type of investment and associated risk:

  • Senior debt: 7% to 12% annual rate of return.
  • Preferred equity: 7% to 12% current preferred return, 10% to 14% total preferred return.
  • Common equity: IRRs of 14% or higher.

At the time of this writing, EquityMultiple eight open offerings and over 80 fully-funded offerings. While each deal differs and income distributions are not guaranteed, there are typically either monthly or quarterly distributions.

EquityMultiple offers quite a few opportunity zone investments in a variety of assets including hotels, multifamily, retail strip malls, industrial, office, self-storage units, student housing, and car wash facilities. It also lists 1031 exchange qualified deals as well.

EquityMultiple screenshot

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When (and how) can you sell EquityMultiple investments?

There is no secondary market for your investments on EquityMultiple; however, the company indicates that you may be able to transfer ownership to another EquityMultiple investor. In general, you should go into any deal on the platform with the expectation that you won't be able to exit that investment before the deal is expected to complete.

With this in mind, one of the nice things about EquityMultiple is that it does feature more short-term deals than other platforms, such as construction or other bridge loans with durations of one year. This could be a better way to invest short-term capital than counting on selling an investment early.

Going mobile: Is there an EquityMultiple app?

EquityMultiple does not offer a mobile app at this time. However, their website is mobile browser-friendly, and you shouldn't have trouble setting up an account, confirming your identity/eligibility, and browsing investment offerings from your phone or tablet.

EquityMultiple risks: Is EquityMultiple safe to invest with?

Each investment offered on EquityMultiple is set up as a deal-specific LLC. LLCs have the advantage of being separate entities, which ensures bankruptcy remoteness. The LLC continues to exist independently even if their parent company goes into bankruptcy. As mentioned, in the event EquityMultiple were to declare bankruptcy, each investment remains ongoing and remote from EquityMultiple, and EquityMultiple's creditors have no recourse to the real estate deals owned by investors.

That's not to say that a bankruptcy would not cause headaches for investors. Since EquityMultiple is the go-between for investors and deal sponsors, a disruption in business as usual would be a disruption for investors as well, at least until a new asset manager could be found. That could mean a delay in you receiving cash distributions, important documents, or return of capital depending on the timing. However, these would likely prove to be short-term hiccups, not permanent problems that caused losses to investors.

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