CrowdStreet, one of the largest real estate crowdfunding platforms, announced it is launching its latest fund called the CrowdStreet Private Equity REIT I (C-REIT).
I’m pleased the C-REIT finally launched because I like investing in private funds. Since first meeting the personnel at CrowdStreet in 2018, I have encouraged them to launch more funds to complement their individual offerings.
This is an overview of the CrowdStreet Private Equity REIT I (C-REIT). CrowdStreet plans to launch a new C-REIT on an annual basis to help investors diversify over the years.
At the end of the overview, I’ll share my personal thoughts on this new fund.
CrowdStreet Private Equity REIT I (C-REIT) Overview
Below are the basic details of the new CrowdStreet Private Equity REIT I (C-REIT). Everything is pretty standard.
What’s unique is that the minimum investment is only $25,000. For private equity funds and REITS, the usual investment is $250,000 or more. First offers are due March 29, 2022.
|Target Investor IRR:||15%|
|Target Equity Multiple:||1.8 – 2.3x|
|Target Hold Period:||5-7 years|
|First Offers Due:||March 29, 2022|
|First Funds Due:||April 1, 2022|
|Targeted Number of Deals:||20-25|
CrowdStreet Private Equity REIT I (C-REIT) Investment Overview
The Fund intends to provide accredited investors with easy access to a diversified portfolio of growth-oriented private commercial real estate projects through a single fund managed by CrowdStreet Advisors.
In addition to a substantially lower minimum ($25K) than many other institutional private equity investment funds, the Fund has also elected to be treated as a Real Estate Investment Trust (REIT) to enable simplified 1099 tax reporting.
The Fund offers a low-cost entry point for new investors looking for a simpler way to invest in multiple CrowdStreet deals. It also offers experienced investors to further diversify their holdings through a single investment. The fund intends to give investors exposure to approximately 20-25 private opportunistic and value-add commercial real estate projects.
The Fund’s Investment Manager intends to select investments from CrowdStreet’s proprietary deal flow with the following attributes:
Deals supported by demographic and social trends that CrowdStreet’s investment team believes will be long-term drivers of demand.
Large institutional investors are generally unable to participate in this attractive market at scale—given the smaller asset values range from $40-$100 million—leaving inefficiencies and opportunities for experienced, specialist investors.
LOCATED IN IDENTIFIED GROWTH MARKETS
Secondary metro markets like Austin, Nashville, and Raleigh-Durham have strong market fundamentals, ranking above national averages in critical areas such as job and population growth, offer attractive, risk-adjusted investment opportunities.
In other words, the C-REIT will continue to focus on where CrowdStreet has been focused since its founding in 2014: 18-hour cities. 18-hour cities tend to have lower valuations, higher yields, and higher growth rates.
Though the Fund intends to focus on value-add and development opportunities, the Fund may also consider investments in core-plus and core opportunities. There is no assurance that this strategy can be achieved.
Key CrowdStreet C-REIT Characteristics
High-Conviction Thematic Investing:
The Investment Manager will select opportunities by utilizing its extensive proprietary research and real-time insights from CrowdStreet’s experienced team of investment analysts. They have identified key investment opportunities that are being driven by demographic and social changes that are transforming specific segments of the commercial real estate market.
- An aging U.S. population creating opportunities in life sciences and other healthcare properties
- Growing share of e-commerce over traditional retail sales driving a rapidly expanding need for ‘last-mile’ industrial space
- A U.S. housing shortage driving a need for build-to-rent and multifamily housing
- An ongoing migration to the Sunbelt driving an increase in population and job growth, creating opportunities across multiple sectors and regional markets
Deal Selection Using Propriety Market Insights:
Due to the significant volume of deals CrowdStreet evaluates every year, the team continuously gathers data in nearly every major market throughout the U.S. This distinct advantage creates proprietary insights into unrecognized market trends, allowing for early access to strong opportunities.
Out of the thousands of deals reviewed, CrowdStreet selects only those which it believes may have the opportunity to produce strong risk-adjusted returns for its Marketplace investors. As an added level of scrutiny, every single proposed opportunity will be hand-selected by a dedicated Portfolio Management team after a secondary screening.
This Portfolio Management team is composed of industry veterans, including CrowdStreet CIO Ian Formigle and Jack Chandler, former Global Head of Real Estate at Blackrock, the world’s largest asset manager with $8.7 trillion in assets under management.
Access to Off-Marketplace Transactions and First Access to Marketplace Deals:
The Investment Manager has exclusive, early access to projects brought to CrowdStreet for evaluation. As a result, the Fund may negotiate guaranteed capacity in projects with characteristics that have historically been highly sought-after on the Marketplace and tend to oversubscribe.
In addition, the Fund may take positions opportunistically in time-sensitive projects with very limited capacity that are not available to the Marketplace (Off-Marketplace Transactions). 87% of investments made by CrowdStreet-managed funds over the last 18 months have been placed into off-Marketplace or oversubscribed deals.
Diversification across Sponsor, Sector, and Geography:
The Fund intends to invest in approximately 20-25 investments, diversified across Project Sponsors, Asset Types, and Geography. The Investment Manager will focus on sectors that are supported by its high-conviction investment themes, such as Multifamily, Industrial, and Life sciences.
The Investment Manager also intends to launch a new fund each year. This creates a way for investors to build a commercial real estate portfolio over time that is diversified by vintage year and guided by ongoing research conducted by CrowdStreet analysts and published in their annual “Best Places to Invest” report and Investment Thesis.
Private Equity Commercial Real Estate (CRE) in an Accessible Registered Fund Structure:
CrowdStreet developed a unique structure for the Fund that helps make CrowdStreet deals more accessible for investors. 1) The Fund is registered as an investment company under the 1940 Investment Company Act (40-Act), and 2) the Fund has elected to be treated as a REIT.
This combination makes the key features of the Fund possible, an unlimited number of accredited investors, low $25K minimum investment, and simple 1099 tax reporting. But unlike other REITs that typically also invest in a certain percentage of public assets, including cash and cash equivalents, the Fund only invests in Private CRE projects.
As a result, investors in the Fund can increase exposure to Private CRE without significantly increasing their exposure to the public markets.
This also helps eliminate the ‘cash drag’ often associated with investing in REITs or other funds with large cash positions. However, there is no assurance that the Fund will not experience the same cash-drag.
The Fund pays to the Investment Manager an annual management fee quarterly in advance. The Management Fee will be equal to an annual rate of 1.50% of the NAV. There is an Investor Servicing Fee of 0.5% of NAV.
My Thoughts On The CrowdStreet Private Equity REIT I (C-REIT)
One of the biggest challenges investors have faced when trying to choose deals is identifying them fast enough. There is currently way more demand than the supply of deals across many platforms. If you so happen to be busy one day, you might miss out on a deal that fills up quickly.
By investing in a CrowdStreet C-REIT you don’t have to worry about missing out. The CrowdStreet team reviews all the deals on its platform. Then it decides to invest in the ones most appropriate for the fund. As a result, you can go about your business without having to worry about the various opportunities that come up.
For most real estate investors, investing in a fund with multiple positions is the best way to go. The C-REIT plans to invest in 20-25 deals, which provides for a great amount of diversity. Not every deal will do well. However, with 25-25 deals in the fund, you don’t need every deal to go well.
I also like how CrowdStreet CIO Ian Formigle and Jack Chandler, former Global Head of Real Estate at Blackrock are in charge of overseeing the fund. I’ve met Ian before and it’s great to see these two at CrowdStreet for years now.
Finally, I appreciate the REIT structure and simplified 1099 tax reporting versus getting a K-1 for each deal. A 1099 for one fund saves a lot of time during tax time.
Invest In Real Estate During Elevated Inflation
Overall, investing in a diversified real estate fund is a smart way to gain exposure to high-quality commercial real estate across fast-growing parts of the country.
With inflation elevated and mortgage rates still low, investing in real estate makes a lot of sense in this environment. Click here to check out more about the C-REIT.
If you’re looking for more private REIT options, check out Fundrise, a vertically integrated real estate investing platform. Fundrise manages over $2.4 billion in assets under management and is the creator of the private eREIT asset class. Fundrise focuses on single-family and multi-family rental properties in the Sunbelt.
Personally, I’ve invested $810,000 in real estate crowdfunding so far. My intention is to diversify away from my expensive San Francisco real estate portfolio and earn more 100%-passive income.
For more information on real estate crowdfunding, check out my Real Estate Crowdfunding Learning Center. For more information about CrowdStreet, I’ve written a what’s new for CrowdStreet post and their commercial real estate outlook.