How do you guys feel about the crowdsourcing sites for raising equity? Sterling Bay just closed a $175m construction loan using around $50m from CrowdStreet and another $25m in mezz debt. Do you all see this being an actual source for developers to tap for equity in the future?
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Who knows, but it figures that Bank OZK is the lender on this project on this environment. Because....what could go wrong?
Can you please elaborate on this comment regarding crowdfunding and bank OZK?
I just mean that it would take an agressive lender (like Bank OKZ) to do this loan, especially during this economic time. A Retail, Hotel, and High-end multifamily construction project is not top of the list of projects lenders are seeking right now. Also, the LTC on the loan is 70%, which is on the high side given the times. It's using Mezz, so the equity contribution is only 20%. Of the 20%, some amount is crowdfunded. This is not an easy conservative deal for a lender.
I think you will see it from time to time going forward as an alternative capital raising strategy. It won't be mainstream, but I think it is a legitimate strategy from time to time.
I also think you'll see a rise of crowdsource funds by that democratize real estate LP investment. Jamestown recently started one with a minimum investment of $2,500 I think.
the downside of crowsourcing the capital stack is it is just like using a placement agent, they will charge fees. Fees you can;t charge to your investors
I work in D/E brokerage and we have had a couple smaller deals ($10-30mm) with crowdsourcing as 95% of the equity and it was very difficult to find lenders. Many wanted an additional guaranty from the GP equity or wouldn't touch the deal at all.
I doubt they raised all $50mm of the equity from CrowdStreet.
agree - seems like a tall ask
The challenge with ground up development is what happens when there is a dirt issue and a $2MM change order comes?
Institutional equity and even HNW RE investors understand the risks and are ready to pay up when a big change order comes. By using crowdsourced capital, the ability to raise additional capital, is risky at least. If I am the lender I want some serious GP equity contributions, guarantees, and liquidity, therefore if I’m the GP I’m looking for capital elsewhere.
Hah, I'm picturing all of these random people who invested $2000 having to buck up $2 a piece for a capital call.
I may be wrong here but from what I've understood / heard the demand on these platforms is so strong that capital calls get funded on the platform really quickly by people looking to put more money into the projects.
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