What Is CrowdStreet?
CrowdStreet is an online platform focused on commercial real estate investing. Established in 2014 in Portland, the platform has facilitated over 732 deals, comprising both individual properties and broader funds. Major sponsors, like Greystar and Harbor Group International, have partnered with CrowdStreet for capital raising.
The platform has seen over $3.9 billion in investments from its user community. Users can opt to invest in specific properties or choose a fund that encompasses several projects. Though individual investments have historically shown better performance than the combined portfolio, they come with higher risk, potentially leading to a complete loss of the invested capital.
Primarily, CrowdStreet caters to accredited investors, offering them institutional-level commercial real estate investments without any registration or listing access fees. The investment options range from individual deals and diversified funds to tailored portfolios. Some investments even accommodate a self-directed IRA. However, potential investors should note that most investment terms last between three to ten years, with the invested capital being largely illiquid during this period. Although CrowdStreet doesn’t have a dedicated mobile app, users can access the platform via web browsers using their Google or LinkedIn accounts.
External Crowdstreet Review & Ratings
|The Millennial Money Woman||4.8|
Here are some reviews from traders who have experienced the platform firsthand:
“I have found great investment opportunities here in income producing real estate in growing parts of the country. I like that these deals are reviewed by seasoned real estate professionals as I don’t have time to do a deep dive into each sponsor and each deal. They have been very responsive, easy to email or talk on the phone with questions, they provide updates each quarter on each investment. All investing involves risk but I find that income producing commercial real estate in growing areas makes real sense as many of these deals are entered into at a discount and as the asset increases in value, so should my investment.”
“Great education on commercial real estate and informative webinars. I have been investing on the platform for over four years. There seems to be a good amount of deal flow with great variety. I especially like the funds that are offered by CrowdStreet. Great way to passively invest in the commercial real estate world.”
“Crowdstreet is a game-changing offering for both investors and sponsor’s alike. The company has totally democratized the process of investing in commercial real estate for investors and has dramatically simplified the fundraising process for sponsors. There are other crowdfunding platforms, but none of these come close to the quality and efficiency of Crowdstreet, and no other platform offers an unbiased marketplace in the way that Crowdstreet does. At the core is an excellent team of professionals who make all of this work. Great company. Great product. Great Team.”
“Crowdstreet has given me, an average investor, the opportunity to invest in Commercial Real Estate. They provide a variety of equity deals with vetted sponsors that have a strong track record. I love diversification and the access to many sponsors, deals, and low investment minimums are right up my ally.
They have educational resources for everyone from a beginner to experienced investors.All of my CRE investments are located on their easy to navigate platform.
Results – After 3 years I’ve had 11 realized deals averaging a 49.1% IRR and a 1.78 Multiple.I will continue to use Crowdstreet for its ease of use and vetting of Sponsors!!!”
What Does CrowdStreet Offer?
CrowdStreet is an innovative real estate investment platform that offers a wide range of investment offerings to cater to different investor preferences and objectives. By providing diversified funds, individual deals, and tailored portfolios, CrowdStreet ensures that investors can find the right fit for their investment needs while benefiting from the platform’s extensive real estate expertise and resources.
Diversified Funds: Quick and Easy Diversification – For those seeking a simple way to diversify their investments into commercial real estate, CrowdStreet offers diversified funds. These professionally managed funds allow investors to access a portfolio of multiple private real estate deals with just one investment.
CrowdStreet features both in-house managed funds and single-sponsor funds, ensuring investors have access to a variety of real estate opportunities. With similar minimum investment requirements as individual deals, diversified funds provide a convenient and cost-effective way to build a diversified real estate portfolio.
Individual Deals: Direct Investment Opportunities – CrowdStreet’s Marketplace allows investors to take control of their real estate investments by providing direct access to individual real estate deals. Investors can browse and select from a diverse collection of investment opportunities based on property type, investment profile, and other factors.
By investing directly into the equity of the chosen project, investors can design and build their own commercial real estate portfolios while benefiting from CrowdStreet’s rigorous quality control process and support from the Investor Relations team.
Tailored Portfolio: Professionally Managed Real Estate Investment – For those who prefer a more personalized approach, CrowdStreet offers Private Managed Accounts through its subsidiary, CrowdStreet Advisors.
This service provides a custom-built, diversified real estate investment portfolio tailored to the investor’s financial goals and objectives. With a minimum starting account balance of $250,000, investors receive a dedicated representative, a custom investment strategy, and robust online tracking through CrowdStreet’s Portfolio Center.
While there are no fees involved to sign up to the platform, CrowdStreet does command a pretty hefty minimum sum of around $25,000 (depending on the project), so it makes sense that you want to know what you can get out of the platform.
Aside from having a help guide to get you started, CrowdStreet also offers an abundance of educational resources. Get expert insights with helpful articles and instructional videos that answer questions about reviewing projects and understanding returns. The knowledge you can get from the resources can also be applied to other forms of investments.
Thorough Vetting Process
CrowdStreet takes the hassle out of real estate investing by performing an extensive vetting process for every project and developer. This comprehensive process ensures that investors have access to all the relevant information at their fingertips.
The vetting process consists of three main steps:
- Sponsor Review: Evaluating the Firm – CrowdStreet works with reputable, high-quality partners and conducts an objective review process for each new sponsor. This includes an in-depth background check on the firm and its principals, a track record review to confirm the sponsor’s experience, and a sponsor designation based on their background and expertise.
- Deal Review: Evaluating the Asset – The CrowdStreet team assesses potential deals by asking four key questions that focus on the sponsor’s core competencies, professionalism, deal assumptions, and alignment with investor preferences.
- Document Review: Evaluating Deal Materials – CrowdStreet’s goal in reviewing legal documents is to ensure there are no issues or discrepancies between the documents and the information provided by the sponsor. Any concerns are addressed with the sponsor prior to launching the project on the platform.
To gain further insights into a specific project, investors can access videos and webinars that provide detailed information, helping them determine if the project is a good fit. CrowdStreet encourages active participation and transparency, allowing investors to ask questions to the project sponsor during live webinars or view recorded sessions at their convenience.
Access to Complex and Diverse Real Estate Investments
Yes, there is a threshold you must meet in order to enjoy the perks of the platform (being an accredited investor), but if and when you do, the opportunities in real estate can be very lucrative.
The platform provides access to different property types and asset classes, including commercial, residential, and mixed-use properties. This allows investors to tailor their investment strategy according to their risk tolerances and preferences.
Investing in a variety of real estate deals and projects helps to reduce the overall risk in your investment portfolio, as it reduces the impact of a potential deal going south. Additionally, you can benefit from the various types of investments available on the platform, such as equity, debt, and preferred equity investments, offering you different levels of risk and potential returns.
How Does CrowdStreet Handle Project Failures?
Like all forms of investment, real estate investing involves risk, including the possibility of project defaults or failures. The nature of real estate crowdfunding platforms like CrowdStreet involves the pooling of resources from many investors, each of whom assumes a share of the risk.
CrowdStreet has mechanisms in place to manage the risk of project defaults or failures, but it’s important to note that as with any investment, there are no guarantees of returns and investors could potentially lose part or all of their invested capital.
Proactive Risk Mitigation
Before a deal is even listed on the platform, CrowdStreet performs a rigorous vetting process to evaluate the project and the sponsor. This includes a review of the sponsor’s track record and an analysis of the deal itself to ensure it aligns with industry standards and investor preferences. While this doesn’t eliminate the risk of default or failure, it mitigates it by ensuring that only high-quality, well-planned projects make it onto the platform.
Management of Defaults and Failures
In the event that a project goes into default or fails, CrowdStreet’s role is primarily as an intermediary between the investors and the project sponsor. They facilitate communication between the two parties and provide support in the form of resources and guidance.
The exact steps taken when a project defaults or fails depend largely on the terms of the deal and the nature of the default or failure. For example, in some cases, the project might be restructured or refinanced to try to recoup as much of the investment as possible. In other cases, the property may be sold and the proceeds distributed to the investors.
While CrowdStreet takes measures to reduce the likelihood of project defaults and failures, it’s important to note that CrowdStreet does not provide a guarantee or insurance against losses. The nature of equity real estate investing means that the investor’s capital is at risk, and they could potentially lose their entire investment if a project fails.
As an investor, it’s important to perform your own due diligence before investing and understand the risks associated with each investment. A diversified investment strategy can also help mitigate the risk of losses by spreading your investment across multiple projects.
User-Friendly Real Estate Investment Experience
One of the main factors that make CrowdStreet stand out among real estate investment platforms is its ease of use. The platform is designed to provide a seamless, user-friendly experience for both novice and experienced investors, making it simple to navigate and participate in various real estate investment opportunities.
- User Interface: CrowdStreet’s website is clean and easy to navigate, with a clear structure that allows investors to find information quickly. The platform features a detailed search function, allowing investors to filter projects based on property type, investment profile, location, and other parameters. This streamlined approach enables investors to find suitable investment opportunities efficiently.
- Getting Started: Signing up for CrowdStreet is a straightforward process. The platform requires basic personal information, and once the account is set up, investors can access the Marketplace to browse available investment opportunities. The platform provides clear instructions and guidance, making it simple for investors to get started with their real estate investing journey.
- Investment Process: When it comes to investing in a project on CrowdStreet, the platform has made the process as intuitive as possible. Investors can review comprehensive details about each project, including the sponsor’s track record, project financials, and the expected rate of return. Once an investor decides to invest, they can follow a step-by-step process to complete the investment, guided by clear instructions and explanations.
- Investor Dashboard: CrowdStreet’s Investor Dashboard is designed to make portfolio management and performance tracking a breeze. The dashboard provides an overview of the investor’s investments, including the invested amount, projected returns, and investment status. Investors can also access detailed information on each investment, receive updates on project progress, and access tax documents and other essential files.
- Customer Support: CrowdStreet offers responsive customer support to assist investors with any questions or concerns they may have. Investors can access a comprehensive help center with a wealth of articles and videos on various topics. Additionally, the platform provides a dedicated Investor Relations team to address any questions or issues that may arise during the investment process.
What is The Exit Strategy for CrowdStreet Investments?
The exit strategy for real estate investments is an essential part of the investment plan. It outlines the way an investor will get their money out of a property investment, typically via a sale or refinance, in order to realize a profit or reduce losses.
CrowdStreet investments typically come with defined exit strategies, which vary depending on the nature of the project. The investment’s business plan will detail the projected exit strategy. Here are some common exit strategies employed in CrowdStreet deals:
Sale of Property
The most common exit strategy for CrowdStreet investments is the outright sale of the property. This is often the case with value-add projects and opportunistic deals where the sponsor seeks to improve the property, increase its value, and then sell it at a profit. The timeline for this kind of strategy typically ranges from 3 to 5 years but could extend up to 10 years depending on the specific deal.
Another exit strategy used in some CrowdStreet investments is refinancing. This is often used for projects where the sponsor plans to hold the property for a longer period, such as with certain buy-and-hold or core-plus strategies. After making improvements and increasing the property’s cash flow, the sponsor might refinance the property, pulling out equity while locking in lower interest rates. The proceeds from the refinance might be distributed to investors, or reinvested back into the property or another project.
In some cases, a sponsor might use a 1031 exchange as part of their exit strategy. This involves selling the investment property and then using the proceeds to invest in another property, deferring capital gains tax in the process. This can be an effective way to maximize returns and grow an investment over time, though it involves a more complex process and strict timing rules.
It’s important to note that while these exit strategies are projected at the outset of the deal, circumstances may change over the life of the investment that require the sponsor to adjust the exit strategy. For example, changes in market conditions, interest rates, or property-specific issues could impact the timing and method of exit.
Before investing, it’s crucial for investors to understand the projected exit strategy for the deal, including the timeline and potential return on investment. This information is typically detailed in the investment’s business plan available on CrowdStreet’s platform. Keep in mind that all real estate investments carry risks, including the risk that the actual exit may differ from the initial plan.
When setting up an account, it’s free. However, if you opt for specific services like Tailored Portfolios or funds managed by CrowdStreet Advisors, you’ll be charged an annual fee of 1% to 2%.
Sponsors, who list the deals on CrowdStreet, have their set of fees:
- Acquisition/disposition fees: This one-time fee is about 2% of the purchase price, covering the costs of finding and brokering.
- Property management fees: This is a recurring fee, usually 3-4% of the gross revenue monthly, for daily property operations.
- Construction management fees: For any renovations or design work, there’s a one-time fee, typically 5% of the construction cost.
- Development fees: Before construction begins, there are pre-construction costs. This one-time fee is usually between 3% and 5%.
- Asset management fees: This ongoing fee is charged monthly or quarterly, and it’s typically between 1% and 2% of either equity or gross revenue.
Each deal’s specific fees can be found on its details page on the platform.
While CrowdStreet doesn’t charge investors for individual deals, sponsors do pay technology and usage fees. Sometimes, these fees may be passed onto investors. Every deal is transparent about its fees, so investors can review them before committing. CrowdStreet generally doesn’t provide investment advice unless you’re associated with CrowdStreet Advisors, a subsidiary that does charge management fees for certain services.
What are the Tax Implications of Investing with CrowdStreet?
Like all investment decisions, investing in a Real Estate investing platform, like CrowdStreet, can have tax implications. The tax consequences of real estate investments depend on a variety of factors, including the type of investment (equity or debt), the structure of the deal, the investor’s tax bracket, and the investor’s overall financial situation. It’s essential to understand these implications before making an investment decision.
In general, real estate investments made through CrowdStreet involve pass-through taxation. This means that the profits or losses from the real estate project are passed through to the investors, who then report this income or loss on their individual tax returns. Typically, the investor will receive a K-1 tax form from the project sponsor, which details the investor’s share of the project’s profits or losses. This form must be included when the investor files their taxes.
One of the significant advantages of real estate investing is the ability to claim depreciation on the property, which can help reduce taxable income. This is usually done on a straight-line basis over a period of 27.5 years for residential property and 39 years for commercial property. Depreciation deductions are passed on to investors and can potentially offset income generated by the property.
Capital Gains Tax
When a property is sold, investors may have to pay capital gains tax on any profit made from the sale. However, the rate of capital gains tax can vary depending on how long the property was held. If the property was held for more than a year, the profit may qualify for long-term capital gains tax rates, which are typically lower than short-term rates.
Certain real estate investments made through CrowdStreet might be eligible for a 1031 exchange. This allows investors to defer paying capital gains tax on the sale of a property if the proceeds are reinvested in a similar type of property within a specified time frame. However, executing a 1031 exchange can be complicated, and investors should seek professional advice before pursuing this option.
Interest and Dividend Taxation
For debt investments or preferred equity investments, investors may receive interest payments or dividends. These are generally taxed as ordinary income.
How Has CrowdStreet Performed?
In recent years, CrowdStreet has emerged as a dominant player in the real estate crowdfunding market. With an impressive track record of funding over 732 deals, the platform has attracted $3.9 billion in investments. Investopedia has recognized CrowdStreet’s outstanding performance, naming it the Best Overall Real Estate Crowdfunding Site for three consecutive years.
CrowdStreet Marketplace Realized Track Record
As of January 27, 2023, CrowdStreet investors have successfully funded 732 deals, with 151 of these deals having reached their realization (sold). The platform’s realized track record boasts an impressive Internal Rate of Return (IRR) of 19.7%.
The IRR calculation takes into account aggregate investor cash flows and utilizes the XIRR function in Microsoft Excel, referencing effective capital contribution dates and distribution dates by the Sponsor (Issuer). This high IRR demonstrates the potential for significant returns for investors who choose to participate in CrowdStreet deals.
Average Hold Period
The average hold period for deals on CrowdStreet is 3.0 years. The hold period represents the time between the acquisition of the underlying property and its sale, followed by the distribution of proceeds to investors. While sponsors typically target hold periods ranging from 3 to 5 years, some deals may extend up to 10 years. It’s crucial to keep in mind that many of the deals listed on the CrowdStreet Marketplace are still in their holding periods, meaning their final returns have yet to be realized.
Is CrowdStreet Right for You?
Investing in real estate and diversifying your profile in a major way sounds amazing, but is CrowdStreet the right one for you?
There are some things to be aware of before making your decision:
- Real estate investments offered on CrowdStreet are locked in for years
- You must still conduct due diligence despite CrowdStreet’s vetting process
- Each project is different with varying periods and returns
- Some projects may fail
- You may take losses, as you would with any type of investment
- Almost all opportunities require accredited investor status
The criteria above can be tough to meet, especially the last one of being an accredited investor, but that doesn’t mean real estate investing is out of reach for you. You have the option of investing in REITs, or real estate investment trusts, which are available to all and have lower thresholds.
REITs are also liquid, unlike CrowdStreet projects which are not. However, the rise and fall of REITs tend to follow the overall market, while CrowdStreet options can sometimes act as a hedge against that and diversify your holdings. Learn more about what CrowdStreet can do for you.