CrowdStreet Review - Commercial Real Estate Investing
Looking to up your investment game in an easy way? If you have the money, the CrowdStreet platform is a foot in the door of commercial real estate investing.
- High return history
- Portfolio diversification
Launched in 2014, and based in Portland, Oregon, CrowdStreet is a real estate crowdfunding platform that invests in commercial real estate. Since its founding, its investor community–which numbers over 100,000–has invested over $350 million in 250 offerings, secured by real estate with the value of more than $8 billion. The platform combines commercial real estate investment expertise with technology, enabling management to fully vet institutional quality investment opportunities.
The company claims some investors have earned returns in excess of 22%. It also claims to be the largest and most diverse direct investment marketplace for commercial real estate opportunities. That means while the platform is an intermediary, your investment is directly with the project sponsors.
Real estate crowdfunding platforms are peer-to-peer (P2P) marketplaces, that bring both real estate developers (sponsors) and those who want to invest in their projects together on the same website. By eliminating the middleman–the banker–developers pay lower interest rates, while investors get higher returns on their money.
Though the company is not Better Business Bureau accredited, the agency nonetheless gives CrowdStreet an A+ rating on a scale of A+ to F.
To invest with CrowdsSreet, you need to be an accredited investor. This is true of most–but not all–real estate crowdfunding platforms.
The requirements to be an accredited investor are as follows:
- You must have an income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expect the same for the current year, OR
- You must have a net worth in excess of $1 million, either alone or together with a spouse, and that amount cannot include the value of your primary residence.
This requirement restricts participation to larger investors. (Three real estate crowdfunding platforms that don’t require being an accredited investor include Rich Uncles, Fundrise, and Realty Mogul. You can get started on those platforms, then move onto CrowdStreet if and when you reach accredited investor status.) But if you are an investor who qualifies as accredited, please read on.
Learn more: Real Estate Crowdfunding with Fundrise
When you sign up for the CrowdStreet platform, you’ll have access to professionally vetted investment offerings. That will make it easier for you to engage in commercial real estate investing, even if you have no experience doing it in the past.
CrowdStreet puts each deal through a rigorous 26-point review process before making it available to investors on the platform. For example, less than 3% of the deals reviewed are accepted for investment. CrowdStreet is serious about participating only in the highest quality investments.
The vetting process works like this:
They then do an investigation through Thompson Reuters, verifying business address, bankruptcy and lien search, criminal and lawsuit record search, UCC filing search, and professional licenses search.
They review each individual deal to make sure that it’s consistent with the sponsors background, and that they have a track record of successfully managing that type of deal. They also make sure the deal itself is compatible with CrowdStreet marketplace investors preferences.
They perform a number of other reviews, including whether or not the deal assumptions are supported by market data. That includes analyzing rent rolls, lease and sale comparables, appraisals, and other data.
This saves you the trouble as an investor of having to go through these complicated review processes.
CrowdStreet is somewhat different from other real estate crowdfunding platforms that may invest in single family properties, such as fix-and-flips. Instead, the deals offered are strictly in commercial real estate.
Criteria for investment deals is as follows:
- Property type: Retail, office, industrial, mixed use, multifamily (apartment houses), hospitality, senior housing, and storage facilities. Some investments are in individual properties, while others are real estate investment trusts (REITs) that invest in a group of similar properties.
- Property value range: CrowdStreet looks to invest in projects with a value range of between $5 million and $30 million, but there is no set maximum property value. Against those property values, they typically look to provide total funding of between $500,000 and $3.5 million.
- Minimum investment: Each deal has a required minimum investment ranging from $10,000 to $50,000.
- Expected investment returns and terms: Targeted investment returns range from 7.6% to more than 23%. Investment terms range between two years and 10 years, with most falling right around five years.
- Target markets: CrowdStreet targets primary, secondary, and tertiary markets in all 50 states. Each market must demonstrate positive economic and demographic trends. This means you will be able to diversify your holdings geographically, as well as between different property types.
Most deals on the platform are set up in the following format:
- Common or JV equity
- Preferred equity
- Mezzanine or second position debt
You start by creating an account. You can register using either Google or LinkedIn, or by providing information on the platform. This includes your first and last name, your email, and a password which you will create. You must then accept their terms of service.
You will have to qualify as an accredited investor, so you may be asked to fill out a certification and provide necessary documentation as proof of your income and or net worth.
Learn More: Calculate Your Net Worth with Personal Capital
Once you’ve registered for the platform, you’ll be able to monitor the investment performance of your holdings by using the dashboard. It will provide project updates, track investment performance versus targets, and download project documents.
Browsing Investment Opportunities
Once you sign up for the platform, you’ll be able to browse the various investment opportunities available. Some are existing, while others are brand new projects.
As you browse through individual deals, you will even be able to determine how much money has been raised for each particular investment, as well as the number of investors participating in funding.
CrowdStreet even has a page that provides marketplace performance of completed deals so you can see the results of investments from start to finish. Notice that many of these investments have easily exceeded the returns on the S&P 500, as well as their targeted returns.
Once you decide on one or more deals you want to invest in, choose a dollar amount, and submit your investment offer. Since CrowdStreet is a direct-to-investor marketplace, you’ll be investing directly with the project sponsor.
You should assume that the deals listed above produced returns that are above the norm for commercial real estate investments, but it is an indication of the returns that are possible with this type of investing.
Customer service is available by both phone and email. You can also contact the company using the online customer contact form. Customer service is available from 8:30 AM to 5:00 PM, Pacific Time, Monday through Friday.
Two of the major reasons to invest with CrowdStreet are common to all real estate investing, including real estate crowdfunding.
The first is diversification. By investing through a real estate crowdfunding platform like CrowdStreet, you’ll be diversifying your portfolio out of strictly stocks and bonds, and into real estate. That will give you a greater level of diversification than you’ll have with a portfolio comprised entirely of paper assets.
What’s more, commercial real estate runs on different investment cycles than stocks and bonds. Where stocks and bonds might fall together, due for example to rising interest rates, commercial real estate can continue to pay income distributions, and even rise in value as investors flee financial assets in favor of real estate.
The second reason is investment performance. There is some evidence that commercial real estate outperforms both stocks and bonds over the long term.
As the graph below indicates, commercial real estate has outperformed both the S&P 500 and the return on bonds at least since 2000. That’s a significant time frame, because it includes two major bear markets in stocks. As you can see, the value of a $50,000 investment in commercial real estate in 2000 has more than quadrupled to over $215,000.
- Signing up is free — CrowdStreet charges no management fees.
- Investments are IRA eligible — You can choose to fund your investment using a self directed IRA account. It’s relatively simple in most cases but if you’re curious how it works, CrowdStreet walks you through this process in their FAQ section.
- Availability — CrowdStreet is available in all 50 states.
- High return history — Returns on commercial real estate investments have shown some evidence of outperforming other asset classes, like stocks and bonds.
- Portfolio diversification — Adding commercial real estate to an investment portfolio will provide a greater level of investment diversity. Since commercial real estate is centered on cash flow, it will often continue to perform well even when stocks and bonds are in a bear market period.
- You must be an accredited investor — Which excludes small and medium sized investors.
- Large minimum investment — The minimum initial investment is $10,000, which is high in the real estate crowdfunding space. However, that’s just the minimum initial investment. Some deals may require a minimum of up to $50,000.
- Commitment time — Investments can run as long as 10 years.
- Limited liquidity — As is typical of real estate crowdfunding platforms, liquidity is very limited. Investments are long-term, and you must generally expect to remain in each deal until it’s completed.
Question: Why does CrowdStreet require that I be an accredited investor?
Answer: Investing in commercial real estate is not only more complex than more typical investments, like stocks, bonds, mutual funds, and exchange traded funds, but they also have stiffer investment requirements. For example, you’ll need a minimum investment of $10,000 in any single investment on the platform. Even if you stay with the lowest minimums, you would still need $100,000 to spread your investment across 10 different properties. You would need to have a substantial net worth in order to do that.
Commercial real estate deals are also longer terms of duration, running as long as 10 years. It will be very difficult to liquidate your position early, if you even can. That type of investing is better suited to people who have a larger asset base.
There’s also the fact that commercial real estate does not provide a guarantee of either investment principle or returns. And your funds are not covered by any type of government insurance, like FDIC. Presumably, a larger investor would have sufficient assets to have most of his or her funds invested in asset classes other than commercial real estate.
Question: Why does CrowdStreet concentrate on commercial investments only?
Answer: The platform is looking to be involved in larger deals, that also have the potential to offer greater security, both in terms of the properties themselves, as well as the tenants that occupy them. Investments in smaller properties, like single family properties, are a very different type of investment from commercial real estate, and often better suited for direct individual investment.
Question: How might commercial real estate be a better investment than stocks?
Answer: Stock returns are largely based on price appreciation, which can be unstable during certain times, and sometimes for years. Commercial real estate also holds the potential for future price appreciation. But the primary attraction is that it provides a generous source of stable income through the end of the project. That can make commercial real estate an excellent investment for those who prefer more stable returns, such as income during retirement.
Question: Do I need to have experience investing in commercial real estate?
Answer: Obviously, it will help to have some experience in the field. However, since deals on the platform are so carefully reviewed and analyzed, you hardly need to be an expert yourself. It’s also a perfect hands-off investment, since all you need to do is fund your investment, and CrowdStreet handles all the mechanics of the investment for you. From there, you begin receiving your income payments.
Also, CrowdStreet has a comprehensive FAQ page that will provide you with a wealth of information. Even if you know nothing whatsoever about commercial real estate, you’ll find plenty of information there that will give you the basics.
Question: I get that I’ll be receiving income from the investments. But what happens to my principal?
Answer: Depending on whether a deal is structured as debt, equity, or a hybrid, you’ll receive a payout at the end of the term. On a debt-based deal, your invested principal will be returned. With an equity deal, you’ll receive your principal, as well as any additional investor returns as determined by your investor agreement. With a hybrid deal, you get a return of your invested principal, plus a predetermined share of additional investor returns.
But once again, it is possible you will lose some of your invested principal should a deal not fully materialize as expected.
We mentioned some great alternatives for non-accredited investors at the beginning of this article so for this section, we’ll focus on alternatives for the accredited investor.
First is PeerStreet, where the minimum investment is $1,000 and you can select vetted real estate loans to invest in. Your investment buys a note that represents a piece of a whole loan. So if you have $5,000 to invest, you can put your money in five different loans to further diversify your portfolio. Want to learn more? Read our PeerStreet review.
Or, you could take your $5,000 and put it into EquityMultiple, where you can purchase ownership interests in a commercial real estate project. The minimum investment here is $5,000 and your purchase means you’ll also share the profits or any losses for a project. You can read more about EquityMultiple in our review.
CrowdStreet offers a serious investment diversification away from stocks and bonds. Since it has the potential to perform well when financial assets are in decline, it can improve the long-term performance of your portfolio when it occupies a generous position in your investment mix.
Since it provides a steady rate of return that’s well in excess of traditional safe investments, like certificates of deposit and U.S. Treasury securities, it can be an excellent choice for retirees.
The major downside of CrowdStreet is that it’s designed for large investors. Unless you are an accredited investor, you won’t be able to participate on the platform. However, as noted above, there are other real estate crowdfunding platforms you can invest in that don’t require being an accredited investor, and some have required investment minimums of just $1,000.
But if you are an accredited investor, and you’re looking to spread your portfolio beyond traditional financial assets, real estate crowdfunding through CrowdStreet is well worth investigating.
If you’d like more information, or if you’d like to sign up to begin investing, visit the CrowdStreet website.