I've known the crowdfunding firm Fundrise for a while now, but never really looked into it:
https://fundrise.com/
Basically you go to their website, select a deal you like, and invest cash ($5,000 minimum), without physically meeting the sponsor/operator/developer. It's like buying stocks online but in this case you are buying a piece of real estate.
Anyone has any experience investing with them? Thoughts on thier busines model?
| +57 | Major Decisions | 11 | 6h | |
| +46 | LP coming into deal at higher land basis. How to model returns to GP? | 14 | 4h | |
| +33 | Yes Another Comp Thread | 29 | 18h | |
| +28 | Niche down to an operator or stay an allocator | 9 | 23h | |
| +24 | Target Return for Spec SFR Development? | 8 | 3d | |
| +24 | Breaking into CRE late 20s | 7 | 1d | |
| +22 | Self Storage ECRI | 9 | 14h | |
| +20 | Doom Loop or Creative Urban Reemergence? | 3 | 4d | |
| +18 | 3 Hour Condo/Rental Excel Test - What Can Be Expected | 2 | 2d | |
| +17 | Increasing RE Industry's Cash Compensation, Collectively | 10 | 27m |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
I've got an account as I signed up on behalf of my company's owners who are qualified investors. Pretty much any decent investment sells out in literally hours so it is pretty tough to discuss a deal, review due diligence and get comfortable with a deal before it becomes totally funded.
I believe they only do debt-structured (usually mezz) transactions and the LTVs are nothing special. Site strongly prefers experienced and successful principals to bring deals, but I've been really struggling with the "why," as in why would some of these guys need such expensive capital? An email from fundrise on June 1 said that only 5% of submitted deals get approved by the fundrise staff for public consumption. Again that begs the question why? Deals are thoroughly underwritten, are expensive, and carry fairly normal loan terms (other than maybe guaranties).
Seems odd to me but apparently they've found a niche of rich, successful real estate investors who are willing to pay for expensive capital.
Also, this is not real crowdfunding. Not yet.
My question is why does it make sense as an investor?
Their advertised annual income return of 10-15% is comparable to the average and median returns for US REITs for the last 30 years, so it looks like slim to no advantage there,
While they advertise like a 50 bps AM fee, some articles say there are a lot of imbedded fees in the underwriting that go to the crowdfunders that amount to c. 7% of annual income... That doesn't sound like cutting out the middleman to me.
Also, looks like most of their structures simulate an exit (accrue x% annual return per year of the investment and pay it out at the end) for their (preferred) equity investments so you have no upside exposure.
So as an investor, why invest in crowdfunding with less liquidity, better diversification and a similar return than a REIT? The allure of investing in "direct real estate"? OK, sure, less volatility but is that really a benefit? Yes, direct real estate has better diversification compared to public equities and fixed income than REIT investments, but how relevant is that for a retail investor?
I've ask some real estate crowdfunding people this question and have gotten no compelling answers. I see what's potentially in it for the developer (gap-filling capital) and definitely what's in it for the platform (get those fees) but for the investors? Novelty?
10%-15% average returns for 30 years for US REITS? Let me know where I can sign up.
I've got some interest because it gives me an element of "control." I want to own a few businesses and some real estate because these investments give some element of control. It's not really a valid investment reason, per se (i.e. there's nothing mathematically to "prove), but when I know the address of an investment, the asset class, and the short- and long-term goals then I feel like I have an element of control that I can't get with an investment in, say, a REIT. I would say that that's the reason a lot of people are interested in these deals.
As far as the hidden fees, never heard about that--gotta look into it.
That's why I like real estate as a whole. You can add value and your active investment in real estate (what you do or don't do) affects the entity's value. You have control. You can't say that for stocks/bonds.
As someone who works in REPE the reputation of these upstarts from PE guys is that of "This is the poor man's private equity."
If the starters of this fundrise had enough experience, quality education and reputable reputation shouldn't they stop wasting their time trying to attract your 5,000 dollars and try to go out and get 10 mil. checks from family offices and fund of funds.
The tax and legal ramifications associated with these platforms are confusing and many believe unsafe.
As a rule if smart money i.e. 1 Billion family offices, foundations, Etc. would not invest in this platform why would you?
REPE8 crowd funding sites HAVE attracted family offices and private equity funds in the form of direct investments within the business. Fundrise, the site mentioned by @Chinese RE Guy" has raised $31,000,000 from Ackman-Ziff and Silverstein Partners (see http://www.forbes.com/sites/groupthink/2014/06/10/real-estate-crowdfund…). I HIGHLY doubt that is sites like Fundrise were a fluke that they would be raising funds with reputable firms.
I personally enjoy looking into and investing in crowd funding sites because it offers a broad range of investment opportunities. If I want to invest in small businesses such as convenience stores I have REAMERGE for that. If I want to invest in a student housing project I can do so via Fundrise. REITs from my understanding go after large commercial developments and would generally not be interested in smaller developments.
I'd also argue that real estate crowdfunding investments also offer greater transparency than REITs. REITs are invested in huge blocks of developments and it makes it difficult to determine the types of properties within an individual REIT. Via crowd funding I can select a handful of individual property developments and do the due diligence and effectively create my own pool of selected investments rather than invest in a REIT where the properties are chosen by the REIT instead of investor input.
REITs have also been sensitive to market volatility whereas crowd funded investment opportunities are less sensitive to short-term market volatility and I can choose properties that are not necessarily correlated to stock market returns.
In closing its a matter of personal preference and crowd funding is another opportunity for investors who have the risk appetite for it and want niche investment opportunities. Check out this interview and QA with the founder of Fundrise: http://knowledge.wharton.upenn.edu/article/is-crowd-sourced-funding-for….
NOTE: (in case anyone is wondering) I am not nor have been affiliated with Fundrise. This post is in no way a means for Fundrise to drive traffic. Just a guy who wants to join in on an online discussion.
RedRage I hear your points. Although I am wary that the choice offered on these platforms is really the illusion of choice since the platform is selecting the opportunity set that you can then choose between. I also watched the interview and QA with the founder of Fundrise but honestly I wasn't convinced that they are creating real cost savings for investors by "cutting out the middleman". Feels like they are replacing the middleman. I think that Disjoint 's two points are on point but agree with you that its a matter of personal preference and there is traction there and the Fundrise bros are probably going to make a solid amount of cash, so good for them.
REITs are more volatile and have a higher correlation to both equities and fixed income than direct property investments. I'm not going to debate this point but A) with direct property, valuation is carried out on a twice a year, once a year, or only when you want to sell basis, which smooths movements in value out a TON and B) volatility is not risk and not necessarily a bad thing (unless you're too highly leveraged, which is a trap that many Real Estate investors fall into).
As a practitioner, I'm not super excited about REITs. But as an individual investor thinking where I'd rather put my 5k, 10k, or whatever amount it is, I am still not sold on the crowdfunding in Real Estate value proposition to investors.
I think what makes investing in a crowdfunding platform appealing is that people who like investing in this way really like it. People fund these projects in hours and basically every project gets funded.
It feels like crowdfunding is a business that is selling investing as an experience--look at a project, weigh the risks and rewards yourself then YOU get to decide to invest in the project or not. It offers all the excitement of why we (or at least I) enjoy working in private real estate. And the margins for the platform look like they knock those of brokers out of the water.
It sounds like you have know idea who they are.... Ben and Dan Miller's dad (Herb Miller) was a huge developer and founder of the Mills Corporation. The two brothers also run and operate WestMill Capital. They've got a great experience, reputation, and are smart guys who went off and worked in PE before working with their family.
Trust me, they have plenty of access to "10 mil checks from family offices and fund of funds." They can do bread and butter REPE if they really wanted to but for some reason they see something in FundRise and I'm sure they're having fun building it.
I agree with the control / active management point... But you don't get that in crowdfunding real estate. The majority of the investments are debt anyway and the equity is preferred and minority positions at that.
You can choose which of their projects you invest into in theory but at the moment projects put up are fund pretty much immediately so its really a binary between fund the next project or don't fund at the moment. And once you're in, you don't have any control based on how things are structured at the momemnt--just along for the ride.
As for 10-15% average (that's a big qualifier obviously) total returns from REITs: https://www.reit.com/investing/index-data/annual-index-values-returns
My 30 second unscientific analysis gives simple average total return of 12%, median of 15.5% for the FTSE NAREIT All REITs index. If you bought and held in 1971 through 2014 you'd now be 58x your money.
I'm not trying to bang the drums for investing into REITs over direct real estate investing, I just don't see how crowdfunding real estate is a better deal for an investor than REITs.
Industrial/Office Retail Residential Diversified Health Care 13.54% 14.54% 13.99% 11.07% 15.26%
Lodging/Resorts Self Storage Timber Infrastructure Mortgage 12.19% 18.20% 15.28% 18.29% 11.17%
This is from your link. How is "diversified" the lowest total return at 11.07% when nothing is lower than 11.17%?
With regard to average returns from REITs, I don't think it's fair to start in 1971 for two reasons: 1) REITs didn't become ubiquitous until 1993 and didn't even become popular until the 1986 tax reform act that changed depreciation rules for privately held real estate; 2) there was gigantic inflation in the 1970s, which distorts all asset appreciation metrics that start in the early 1970s.
Frankly, if I were looking at REIT returns, I'd probably look at the last 15 years. Since March 1, 2001, the RMZ is up 7.7% per year (caveat--not sure if the RMZ includes dividends or not--if it does then you're in the neighborhood of 10+%). That's good, but it's also common equity. If you invest in a crowdfunded project, you probably have preferred equity or mezzanine debt, which gives you higher security than common equity, thus should require lower returns.
Finally, assuming REITs will approximately track NAV over the long-term, one has to ask himself if it's fair to expect real estate asset appreciation at the same gangbuster levels the next 25 years that we've seen in the last 25 years. I could be 100% wrong, but my guess is that, in this case, past is not prologue.
With all that said, I'm a REIT buyer--I like REITs. But I don't think the last 45 years of REIT performance is necessarily a good reason not to buy a crowdfunded real estate deal. They aren't even the same asset class. REITs are largely stabilized real estate common equity; crowdfunded real estate is generally primary market development with preferred equity or 2nd lien debt.
What nobody really discusses when it comes to RE crowd funding is capital calls.
Seems like a solid idea. I worry that with rates rising and this type of 'excitement' it may be a sign of a pending top. Not a doomsday prediction by any means, but I'm always weary when ideas hit mainstream. Obviously not a lot of precedent for this type of capital flows, but looking across REITs recently makes me a bit hesitant right at this moment.
There was an idea like this on the show Shark Tank.
That was brutal and annoying to listen to--even Cuban.
I did some work on this recently, although I can't share too much of my brain shattering findings as NDA bs etc... Here is all of it in a nutshell:
1.25% equity raised fee? Is that really that bad?
Na that's absolutely fine 1.25% - From what I remember it was nastier than that. They had something like 20 to 50% of the performance. 10% management. 3% introduction. Etc... Fees were just staggering when you were getting into the small prints. All of this was for equity participation - which did NOT sound attractive at all. For debt participation some projects seemed a bit more kosher.
No thanks. Id rather not put my business model online for everyone to see
Crowdfunding has been accepted and a blend of tech meets real estate. Is that true? I don't know but it's selling itself as that. This isn't about them having better ties, education, etc. This is about going public. Who cares if you can raise a billion if you can get some crazy valuation on an IPO and raise $10bil in your pocket...
I know some guys at Fundrise. Their upper brass has incredible experience. Their long term play is to go public. Why raise $300mil in PE when they can become a REIT. Which they already are now.
Just a week or two ago they formed an e-REIT. It's small but they are still working on figuring all this out. I commend them for not going full on Silicon Valley stupid.
At the moment they're really only churning about $50mil annually or so. They have hundreds of millions of VC dollars moving them to the next tier with regard to company structure.
I'm not too impressed with all the other crowdfunding sources out there. Most have just become mortgage bankers/brokers. Whatever...
Pac, how would you say they differ from Asset Avenue or Realty Mogul?
I interviewed with Realty Mogul months ago. They were starting a PE division but at the time I interviewed with them in the summer they were just a mortgage lender offering Freddie Mac Small Balance MF loans $1MM - $5MM. They had a bridge program that was just ok and they offered some hard money. My guess is the hard and bridge debt is where a crowdfunding investor would have put their money with them at that point.
In lending many put together some basic products in order to get all their state licensing and operations together. My guess is they have evolved since then. Their founder doesn't eat and sleep real estate and is known to be difficult.
Fundrise has a desire to more development and be a PE player. Most of their deals are in the $1MM - $3MM range. They see a massive number of deals given their internet presence. So they cherry pick, as they should. This is also why they just started a private lending division with investors sourced through their site. I know tons of people who love real estate but would rather lend on it then own it.
Crowdfunding is catching a lot of attention – and for good reason. It creates new opportunities for investors to diversify into real estate. It additionally creates a new source of capital for developers. If you’re a developer curious on how you might leverage this new source of capital for your next deal, you may find this advice helpful.
Fundrise Income eREIT (Originally Posted: 03/09/2016)
https://fundrise.com/reits/income-ereit/view
Curious as to this community's thoughts on the "Income eREIT" by Fundrise. It'll be available today at noon (EST?) for anyone to invest at as little as $1,000 in a mix of senior debt and preferred equity across multiple regions, asset classes and development phases. Does anyone work in this new sphere of the industry? How are the larger firms reacting (or not) to these developments?
Not an expert in REITs, but my guess is that the major firms couldn't care less. Regulators limit the crowdfund raise to $50 million, which in the context of a REIT is a rounding error--literally a rounding error. So I doubt the regular REIT industry is worried or even really taking notice. Good REITs can raise equity in no time flat via the normal public offerings.
With that said, I still have no idea what an eREIT is supposed to be. What is the business model here for Fundrise?
EDIT: So they say they are investing in commercial real estate debt and state that Fundrise will make no Asset Management fee unless the portfolio returns at least a 15% annual return. Looks like they are trying to do that via small investments, something that would not be worth it to most large companies. So they are using their small scale to return outsized returns.
It's not publicly traded I believe. Still a private raise.
The idea is interesting, the laws make it pretty useless. As @Virginia Tech 4ever" said you can only raise 50MM that way. In the context of a local investing group that is huge, in the context of a REIT they will get eaten alive with transaction costs. REITs have different rules that make it pretty much impossible to grow the fund without new outside money coming in constantly or selling properties, which as I noted above on a 50mm equity pool will be eaten alive with transaction costs. Plus 50MM isn't even enough for a consideration in any major transaction.
Their pipeline is deals under $3mil. Major, no way. I'm not writing off FinTech or diminishing their value. Keep in mind there is the Fundrise equity platform and the Fundrise company. Fundrise as a company has raised over $500MM to expand the platform. The key to the crowdfunding is the pipeline and heavy deal flow. Institutional investors are putting money in to FintTech for this reason. The Board with this firm is very experienced. This isn't about the fund you see now, but the fund you'll see in five or 10 years.
I know of the other folks on the crowdfunding side. These guys are passionate about real estate yet have the tech folks to drive them. It's gonna be interesting.
I wonder if Limp Bizkit is still together/touring
Deals under 3mm? What does the terms look like? I need to call them
Also, I have an explanation about why developers would use crowdfunding. Generally the developers are not owner/operators and are building a project to sell. In many cases, they can get 20+% IRR on projects. To them it makes sense to pay 10-15% in pref equity or mezz debt in lieu of giving up equity in a project that has much higher returns for common equity investors. To them it makes perfect sense to pay 2% fee to the platform and, say, 12% in mezz debt per year to retain ownership interest that is receiving, say, a 30% IRR.
Fundrise eREIT (Originally Posted: 06/16/2016)
Anyone know anything about these guys - working for them, rep in the market, etc?
They're really smart dudes, probably the best in the crowd funding space. No clue about working for them, but I really wish they would tone down the number of emails they send me...
One caveat, I'm skeptical of crowdfunding in general. I believe it can serve an important function in the capital markets, but personally I am wary of it. Also, it wouldn't be my first choice for a career path.
Disclosure - I've got a small amount of money with them.
I've been pleased with their communications and impressed by their marketing (read: pretty colors). You're in blind on the investment though. No due diligence nada.
Anyone have any inside eyes on this https://www.washingtonpost.com/news/digger/wp/2016/03/17/fundrise-cfo-s…
On the other side of the equation --- We spoke to them about funding for one of our deals. What they were offering was basically your standard mezz debt and it was a bit expensive . Overall knowledgeable, but seemed to be a bit scattered / unorganized in getting back to us and touching base (having to submit same documents multiple times, decent amount of time from submitting to hear back from them, etc). I assume that is because they are in crazy growth right now and wading through who was real and who wasn't took some time.
They're seeing a ton of deals on a daily basis. I know a guy that works for them here in Ca. Nice guy. Yes, a bit scattered but knowledgeable team. They do seem a bit expensive.
I wouldn't mind working for them because I do see crowdfunding as a standard product at some point. Lots of things to still work out but it's a platform that's only going to grow. Fraud charges are scary but if it's just one guy one time I'll look the other way. The executive team at Fundrise is top tier.
.
wait Fundrise has an office in CA? or is it just on guy/broker who works from his home in CA and sources deals? Thought they were only in DC.
Plus, if you're a young developer, you might not have access to proper capital. Just like regular people don't usually have the ability to invest in commercial real estate, hence the market for real estate crowdfunding, even experienced developers and investors have trouble raising funds or cash for individual projects.
Especially at this point in the cycle. Not much capital available on the debt side for new development.
Real estate crowdfunding is one of the methods to raise or inviting real estate developers to list their projects on the web portal to generate funding from investors interested in the real estate market through Crowdfunding. In reward crowdfunding you would get rewarded for funding any project, in donation crowdfunding you may get recognition or nothing for donating whereas in equity crowdfunding you would receive an equity share or interest for your investment in the project.
Debitis deserunt ea nemo quaerat eveniet doloremque perferendis. Tempore sapiente ipsa autem officia. Et quaerat dignissimos aut aut.
Consequatur voluptatibus aut excepturi aperiam ut quia quasi. Libero et officia maiores doloremque tempora est voluptatem est. Et a aut molestias quia.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Amet quidem laudantium tempora sed qui qui adipisci qui. Doloremque voluptatem aliquid assumenda hic quia.
Architecto est quisquam animi voluptate. Libero aspernatur voluptas pariatur modi. Vitae est et alias quibusdam. Provident necessitatibus molestiae fugiat eligendi et. Consequuntur numquam accusantium libero dolorem recusandae expedita odio. Doloribus vel provident autem blanditiis. Libero provident sit necessitatibus ut aperiam.
Hic ipsam a et vero neque dicta necessitatibus. Voluptas ipsam harum labore voluptatem nam voluptatibus. Est et quibusdam vero deleniti commodi deserunt. Dolor dolorem pariatur vel voluptates commodi id quo.
Commodi et odit dolor sit. Sunt delectus et voluptatibus consequatur et ipsam praesentium accusantium.