In-Depth Real Estate Investment Reviews
CrowdStreet aims to make provide a way for accredited investors commercial real estate deals previously reserved for private or institutional investors, but does it live up to the hype? We dove deep into their offering to find out.
Pros & Cons
Makes it easy to invest in real estate with a well designed platform and low entry costs
Detailed business model and financial support documents, along with profiles on the project principals
They've been around since 2014 and has acquired billions worth of real estate
Most offerings require a $25k commitment, preventing diversification for all but the wealthiest investors
Expected investment time window is at least 5 years
CrowdStreet reports their past performance before taking fees into account, making it hard to compare to other options on the market
Each offering has a different structure and fee schedule, making them hard to compare for all but the most experienced investors.
Figuring out where to invest your money is hard enough. Stocks, bonds, and even crypto all have their places in the modern portfolio, but the most misunderstood asset class has always been real estate.
Over the last few years, several companies have appeared claiming to make it easier for people to invest in real estate by removing down payments, increasing liquidity, and breaking properties up into fractions. In such an environment, knowing who to trust and what you're really agreeing to when you invest is more difficult than ever.
by digging into key areas investors need to know about before going all in: How easy it is to invest, how much you can earn, and how you can get your money back once you've made the gains you wanted.
Full disclosure - we're Lofty, and we're one of those fractional real estate investment companies. We believe that a rising tide lifts all ships, and that providing an unbiased look at other fractional real estate companies through the lens of our industry expertise will help serve both investors and the companies serving them.
CrowdStreet is a real estate crowdfunding platform. It allows accredited investors to access new build commercial real estate deals previously only available to institutional and private investment organizations.
It works similarly to other well-known crowdfunding platforms like Kickstarter. Real estate developers or fund managers (referred to as "Sponsors" in CrowdStreet parlance) bring plans for real estate projects to CrowdStreet, and CrowdStreet lists them on their marketplace. Once listed, willing investors come together and pool capital to fund the project.
CrowdStreet offers two core types of investment. Investors can invest in individual real estate projects or funds brought to CrowdStreet by outside real estate professionals, or they can invest in CrowdStreet's managed REIT (real estate investment trust) which compiles interests in 20-25 of the real estate projects they offer as individual investments. This is meant as an easy onboard ramp for newer investors who are unsure how to property analyze a full-fledged real estate project.
Only accredited investors can invest in CrowdStreet projects currently. To become accredited, individuals need a pre-tax income of at least $200k (or $300k per couple) and a net worth of more than $1 million among other requirements. You'll have to verify your accreditation to CrowdStreet before they'll allow you to invest in any project.
Since CrowdStreet is a crowdfunding platform for real estate developers, they don't do any deal sourcing themselves. Instead, their name attracts developers and investors who want to utilize CrowdStreet's network of investors to help them raise capital for their build, purchase, or fund.
This means that offerings listed on CrowdStreet are all brought to CrowdStreet by the developers, the "Sponsors". Once vetted, CrowdStreet then launches and lists the property to help the Sponsor raise money from CrowdStreet investors.
CrowdStreet itself has been around since 2014, and in that time has facilitated the funding of 600+ deals worth over $4 billion dollars. However, the property deals they offer their investors are managed by external "Sponsors", not CrowdStreet themselves.
Even so, CrowdStreet does vet Sponsors and the deals they offer prior to listing them on their marketplace in an effort to ensure investors are only dealing with developers and operators with the proper relevant experience. Prior to listing, CrowdStreet will do the following:
• Sponsor Vetting: Evaluation of the commercial real estate developer or operator (aka the “sponsor’s”) background and track record to ensure that they have demonstrated the capability to execute their business plan and provide investors with a high degree of professionalism.
• Asset Review: Evaluation of the sponsor’s proposed asset or fund to ensure that it aligns with the sponsors’ background and with Marketplace investor preferences. They look into feasibility assumptions relevant to the business plan, and performs sensitivity analysis to plot out how the investment might perform in both a downside and upside scenario.
• Offering Terms Review: Review and analysis of the terms of the proposed offering and associated documents. CrowdStreet may then provide their analysis to the Sponsor to give them a chance to adjust the offering if issues are uncovered.
Sponsors are also assigned a "Designation" label which corresponds with their level of relevant experience. Investors can weigh this designation against the deal's terms by assigning a premium to any additional risk posed by a less experienced developer.
Ease of Use
Before investing, it's crucial to ask yourself what you're really investing in. It's not always as clear-cut as you might think.
There are two core ways to invest with CrowdStreet – in individual projects & funds, or in their C-REIT fund.
Investing in individual projects on CrowdStreet requires investors to search their marketplace for projects that meet their investment criteria, completing due diligence on the project themselves, and attending a project launch webinar to ensure there will be space for them at the cap table (if the project is in high demand).
Less experienced investors can instead invest in CrowdStreet's REIT fund called C-REIT. Similarly to investing in other REIT funds through a traditional brokerage account, CrowdStreet's REIT is a single fund managed by CrowdStreet Advisors. Access to this fund also starts at a $25K minimum investment.
Property developments available for investment on CrowdStreet are sourced from across America, and most of their funds contain projects in multiple locations across the U.S.A. This opens up the possibility for a diversified investment while only investing in a single CrowdStreet project since the fund itself is invested in multiple projects and locations.
CrowdStreet's investment minimum starts at $25,000. Minimums vary across various funds and projects, however – some may be over $25,000, and occasionally the minimum could be lower. Investors can find the minimum investment amount for a particular offering on that offering’s detail page within the CrowdStreet marketplace.
Due to the nature of their marketplace and their very high investment minimums, documentation is central to the CrowdStreet experience.
Projects & funds go through an initial review with the CrowdStreet team prior to listing. This helps ensure only deals with reliable executives makes it to the marketplace. Once listed, CrowdStreet publishes an in-depth prospectus on the opportunity in question, complete with details on the investment, the project's business plan, property & location details, and a profile on the Sponsor.
Detailed financial models are also provided, helping investors understand why the Sponsor is raising capital and what they propose to spend it on. They also provide details on expected returns and timeline, assuming everything goes according to plan.
Deals already live will have a recording of the launch webinar, and some provide a production-quality video outlining the project as well.
Fee structures are also outlined in detail on this page. Pay special attention here, as they're different for every offering and some provide convoluted fee structures based on project dependencies like construction costs.
Assuming you are already an accredited investor, investing with CrowdStreet is fairly straight forward. Simply create an account, upload your identifying information, and you're ready to participate in your first real estate deal.
If you're not yet accredited, you'll have to become so before being able to invest with CrowdStreet.
There's really one core reason for investing in real estate: to leverage your current capital to create more capital. When it comes to choosing investing platforms, their expected yield and fee structure are the two core levers that determine how well they do that for their customers
CrowdStreet doesn't split out their return reporting between cash flow returns and equity returns. Instead, they combine all returns under the label of IRR (internal rate of return) and report all-in cumulative investment returns.
As of September 2022, CrowdStreet has funded 600+ projects, and realized (sold) 138 of them. They publish a running summary of their performance to help prospective investors better understand what might happen to their money once they invest.
To date, CrowdStreet claims their investments have returned an average of 17.% IRR before any fees are calculated, with an average hold period of 2.9 years.
It's important to note, however, that 6 of those 138 projects ended up going to zero, losing their investor's money. It's unclear what happened here any why the properties in question were unable to recover at least some of their capital in their sale.
CrowdStreet ranks their projects on a sliding scale of riskiness. Opportunistic deals like ground-up developments open up the highest returns, but also carry the most risk. Value-Add deals are Crowdstreet's most common, aiming to increase cash flow and the value of the property over time by making dramatic improvements to the property. Core-Plus deals are high-quality properties that are mostly occupied, but have set aside some of the monthly income for future maintenance and upgrades, meaning there is less stable cash flow for investors.
Generally, if a project is cash-flow positive, sponsors pay distributions on a quarterly basis. But since CrowdStreet doesn't control any investment opportunities on their marketplace, they state that investors will receive their return on investment "when the [Sponsor's] company distributes money".
CrowdStreet allows deals that finance equity, debt or hybrid investments, and the timing of investor distributions depends on the financial structure of the deal in question. Each offering's detail page provides details on distributions on the Investment section, along with a tab providing detail on the sponsor's Distribution Strategy which outlines how net operating proceeds and capital event proceeds could be split between investors and the sponsor.
Typically, cash flow distributions are made to investors as a share of monthly profits for equity investors and at an agreed upon interest for debt investors, and final returns are distributed to all investors whenever a property is sold.
Due to the magic of compound interest, real estate investments perform better in the long term when cash flow (or "Dividend") yield is paid out more frequently and reinvested by investors. Quarterly dividends like the kind most CrowdStreet projects pays mean that investors miss out on a bigger portion of compounding interest than they could if they received their payments more often, like monthly or daily.
As Einstein said, "Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it."
CrowdStreet's fees are of utmost importance, since all of CrowdStreet's reported returns are calculated before fees are applied. Sponsors charge investors whatever they see fit on CrowdStreet, so it's important for Investors to read the "Fees" section of each offering before making an investment.
Some offerings may charge investors upwards of 20% of invested capital over the course of their investment. The Bozeman Fund, for instance, charges 1.5% on all acquisitions, along with a 1% Asset Management fee every quarter the investment is active.
Many offerings provide convoluted and difficult-to-calculate fees structures. Our best estimates of offerings currently available peg the average fees over the course of an investment to be between 5-20% of invested capital.
On their part, CrowdStreet charges Sponsors between 0.5%-2% to allow them to list their offering and raise capital on their marketplace.
They also earn revenue by selling subscription software to sponsors to help them reduce their costs and increase their ability to manage multiple deals and even more investors online.
Neither of these fees is charged directly to investors, but these fees ultimately are built into a deal since they're being charged to sponsors before-hand.
While we lack a crystal ball that can tell us how real estate markets will act in the long term, we can make some assumptions to help understand the true return of an investment in CrowdStreet funds.
If we take CrowdStreet's historical exit IRR numbers of 18.5% over 2.9 years and spread them to a standard 5 year period, they'd equal 10.73% per year. Then, if we generously assume that the average fees applied to that investment sit at about 10% on average, an investment of $10,000 would compound in the following way if we apply the 10% fee to the principal immediately upon investment:
→ End of Year 1: $9,965.70
→ End of Year 2: $11,035.02
→ End of Year 3: $12,219.08
→ End of Year 4: $13,530.18
→ End of Year 5: $14,981.97
After five years, a 10.73% IRR on a $10k investment with an immediate 10% fee would earn you $4,981.97 in additional yield – only just outpacing current inflation numbers.
If you'd invested that same $10,000 into corporate bonds (which are similarly illiquid) and drawn Moody's long-term average (6.53%), you'd have earned $3,824.59 in yield - about $1,000 less than your CrowdStreet investment.
If you'd invested that same $10,000 into a fund mirroring all 12 equity REIT sub-sectors (real estate investment trusts) over the last 10 years (13.2%), you'd have earned $9,142.84 in yield - over 2x more than your CrowdStreet investment.
If you'd invested that same $10,000 into the stock market and drawn the S&P 500's average yield over the last decade (14.7%), you'd have earned $10,581.68 in yield - 3x more than your CrowdStreet investment.
One of the most important things to keep in mind when deciding which real estate investment platform to use is to ensure you understand how easy it is to sell your stake when you want to.
In short, liquidity is a way to measure how much control you have over your money after you've invested it. Traditional real estate is illiquid because selling buildings is difficult and time consuming. On the other hand, cash is as liquid as it gets since you can exchange it for goods at any time.
Investing with CrowdStreet typically requires holding periods of 3-7 years.
As of April 2022, the average hold period for realized CrowdStreet deals was 2.6 years, but CrowdStreet cautions that investors may be forced to hold for longer than 10 years.
Sponsors are in control of when offerings are sold, and there doesn't seem to be any option available to liquidate before the sponsor decides to sell. There may be an option to transfer an investment to another investor, but it would be out of CrowdStreet's hands.
CrowdStreet doesn't have any control over their investor's money, but the Sponsors have almost complete control when someone invests in one of their offerings.
→ They decide their fee structure
→ They decide when to liquidate the investment pool
→ They're in control with the success or failure of an investment project
Investing with CrowdStreet is fairly hands-off, but investors pay for that convenience with control.
The Final Verdict
CrowdStreet does a good job at providing experienced investors with access to a wide variety of high quality commercial real estate deals. Their sponsor vetting and stringent documentation requirements provide investors with ample resources needed to analyze deals before investing, and their web experience is strong.
That said, CrowdStreet is ultimately still an investment tool built for highly experienced and already wealthy investors. Their $25k minimums make it difficult to diversify without huge amounts of capital to invest, and their highly variable deal and fee structures make it difficult to properly analyze an investment offering without professional guidance or plenty of real world experience. The way CrowdStreet reports their portfolio performance also gives us pause – all performance is reported before fees, giving investors a skewed view into how their investment will return over time.
We rate this opportunity a 3 out of 5. Potentially good returns, but inaccessible for most.
While you're here, here's why you should try Lofty. Lofty makes it easy to invest in real estate more flexibly than ever. Enjoy $50 minimums, daily rent payouts, and easily sell your holdings with low fees & no lock-up periods. Get started today.
CrowdStreet has a Subreddit where investors can discuss CrowdStreet and other real estate investments.
CrowdStreet is always hiring. Their job board features remote roles across the U.S.A. with roles in finance, tech, and marketing.
You can reach CrowdStreet by calling +1-(503) 347-0532 or emailing them here.