Real Estate Crowdfunding
Hello all,
I recently joined a Real Estate Crowdfunding platform on the Acquisition side and would love to share my experience. Anyone have any questions about day to day or the industry in general?
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What kind of deals do you get to work on?
In my experience people who resort to crowdfunding for their deals ran out of other options. This is totally anecdotal and might not be a good representation of the actual market. We had a programmatic JV with a developer. After 5-6 years we felt the strategy was losing steam and opted not to raised a third fund with that developer. Subsequently they had a difficult time finding other capital partners and ended up using crowdfunding mezzanine capital to fund their next two deals. They tried to find other equity partners but when that search was unsuccessful they signed up with a crowd funding platform. Is this a common theme?
How much capital can you put to work with a specific sponsor?
I see deals come across my desk anywhere from $4M - $40M. As of now, we primarily focus on Multifamily ground up type deals, but have done high-end single family residential ground up development.
We used to do a lot of debt deals in the past, usually taking a 2nd or 3rd position. You're absolutely right, sponsors that resort to using a crowdfunding platform to secure financing are usually there because they have been rejected everywhere else.
We are now focusing more on doing equity raises, which i find to be a lot more interesting and lucrative.
Our group also has a debt fund that we use to fill the offering if for some reason we don't raise enough equity. As far as putting capital to work with a single sponsor, i believe we've gone as high as $7M back when we did a lot of debt.
Could you elaborate more on your debt vs equity positions? How does this affect the smell test on your deals?
Also, do you see crowdfunding expanding over the next 5 or so years?
You might not be able to disclose, but what is your fee structure looking like?
What are your thoughts on a sponsor who has done $200+ million in real estate deals with their own money (family office) but there's not really much of a track record because the strategy has been along the lines of buy/build and never sell. We'd also be a GP who is willing to put up 25%+ of the required equity on the deal.
I was thinking of something along the lines of:
1) GP buys a development site for a good basis with 100% equity. 2) Sell all or part of that to LPs for cost or profit (depending on market conditions/how good of a deal we got/how long we've been sitting on it). 3) Charge LPs a promote after they partially buy us out of the deal. We'd like to start doing our own in house development but we'd be willing to partner up with a more well know developer on the first few deals to build a bit of a track record.
Does this sound plausible?
If the family office has done $200M in RE deals, we would look at some of the assets in their portfolio and how they're performing. Also. if the GP is willing to have that much skin in the game, thats always a good sign.
The scenario you mentioned above does sound plausible, but it will come down to the details of each individual deal.
I wanted to send you a PM but you don't have enough posts for that to work. Thanks and I will PM you some more details after you post some more stuff.
How does your firm source new deals? What channels do you use, and what is the proportion of projects that get approved vs. total applications/projects?
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