As someone who has personally invested $953,000 in real estate crowdfunding since 2016, I'm bullish on real estate. This article is a comprehensive CrowdStreet review after meeting people at CrowdStreet and spending dozens of hours on their platform.
Because I have over $10 million dollars of exposure in San Francisco and Lake Tahoe real estate, I decided to diversify my real estate holdings to higher cap rate, lower valuation cities in the heartland of America.
So far, so good as my Internal Rate of Return (IRR) is averaging about 12%. Over the course of five years, my real estate crowdfunding investments should turn into $1,200,000 – $1,500,000, depending on the final exit prices.
My plan is to reinvest 100% of these proceeds back into multiple non-coastal city real estate crowdfunding deals across two or three platforms, instead of just one platform.
One of the platforms I've zeroed in on is CrowdStreet, a Austin-based crowdfunding platform. Due to its core philosophy of investing in 18-hour cities versus 24-hour cities, CrowdStreet is one of the most attractive real estate crowdfunding platforms today.
I met up with a handful of CrowdStreet personnel in Palo Alto for a couple of hours before the lockdowns of 2020. Then I met them again in 2022 once the pandemic subsidized.
Let me share my CrowdStreet review after speaking to a half-dozen CrowdStreet management personnel. As someone with a significant amount of capital in real estate crowdfunding, I take this space very seriously. CrowdStreet is the main Fundrise alternative for accredited investors.
CrowdStreet General Review
After the Jumpstart Our Business Startups (JOBS) Act passed in 2012, more than a hundred online real estate investing marketplaces have emerged.
Real estate investing marketplaces had one goal: to democratize access to commercial real estate opportunities across the country. In the past, these deals were only available to ultra high net worth individuals or institutions. No longer.
As with any new initiative, there will be winners and losers. As an investor in real estate, you want to work with the largest, most funded, and smartest platforms around.
CrowdStreet is one of those leaders. It was founded in Portland, Oregon in 2014 after observing how other platforms stumbled and bumbled their way in 2012. In 2021, it moved its headquarters to Austin, Texas. This move really signified to me the company's belief in investing in 18-hour cities.
CrowdStreet has the capital, experience, and expertise to thrive in this new frontier. Let's take a look at more details.
CrowdStreet Review: Quick Snapshot
Minimum Investment: $10,000, with most deals having a $25,000 minimum.
Account Fees: None for investors in individual deals, as the fees are borne by the Sponsor.
Accreditation: Need to be an accredited investor, those with income over $200,000 or net worths over $1 million excluding primary residence.
Offering Types: Mainly equity and preferred equity deals.
Property Offerings: Mainly commercial real estate and apartment complexes.
Regions Served: All 50 states.
Secondary Market: None.
Self-Directed IRA: Available.
1031 Exchange: Available.
Pre-vetted: Yes. Every investment opportunity applying for inclusion to the CrowdStreet Marketplace is subjected to a rigorous, objective vetting process. Only 2% of all applicants successfully pass this process and appear on CrowdStreet’s marketplace.
Special Feature: Investors invest directly with Sponsors. CrowdStreet is a rare marketplace to operate under a direct-to-investor model, whereby investors are able to invest directly with the sponsor instead of through a special purpose vehicle. As a result, the direct-to-investor model may result in lower overall risk to the investor. However, it is still vital to thoroughly screen each sponsor and diversify your investments, as highlighted by the Nightingale debacle where the sponsor misappropriated funds.
It removes the platform risk of a marketplace insolvency and any associated disruption to the administration of funds contained in special purpose vehicles.
CrowdStreet Review: Sponsor Vetting Process
One of the absolute most important value-adds a real estate marketplace can provide is a thorough vetting process. Ideally, only the best-of-the-best real estate deals make it. Investors then do their own research and individually choose.
CrowdStreet’s vetting and screening process includes vetting the sponsor, the specific real estate property and the sponsor’s specific offer. Here is their vetting process:
1) Analyze the sponsor's background and results with corresponding designations:
- Emerging — 2–5 years’ experience with portfolio activity up to $100M, experience in both geographical region and proposed asset class.
- Seasoned — 5+ years’ experience with portfolio activity over $100M, with an existing network of repeat investors and established banking relationships.
- Tenured — 10+ years’ experience with portfolio activity of over $500M, with principals who have invested together through multiple real estate cycles, and the company has a dedicated staff for investor relations and accounting.
2) Screen the sponsor based on fundamentals.
After the sponsor meets the criteria, the asset the sponsor is funding is screened based on the business plan, market data, operating statements, pro formas, appraisals and other due diligence documents.
3) Analyze the deal based on what type of investment offering.
Finally, the terms of the sponsor’s specific offer are vetted and evaluated resulting in a classification of:
- Common equity;
- Preferred equity; or
- Mezzanine or 2nd position
CrowdStreet's Capital Markets team declines around 75% potential sponsors through their initial screening process. If they approve a sponsor and their potential deal, it then goes to our Investments team where it is run through our quality-control process.
In the end, less than 5% of potential deals that enter their pipeline ultimately launch on the CrowdStreet Marketplace.
Individual Due Diligence Is Vital
Despite CrowdStreet's due diligence, you, the individual investor, must also thoroughly review the sponsors before investing in any deal. Understand the sponsor's track record and management experience.
The fewer individual deals you invest in, the more concentration risk you have. Therefore, the more due diligence you have to conduct on each sponsor.
CrowdStreet Review: The Value Proposition
It is important to understand how CrowdStreet goes about adding value to real estate investors. Therefore, let's see what the CEO has to say.
According to Co-Founder Tore Steen, CrowdStreet's goal is to provide the broadest range of institutional-quality commercial real estate investment opportunities to individual investors. With this goal in mind, they want to make investing in commercial real estate as easy and as transparent as possible and bring the entire process online.
To date, they've had over 367 deals in 40 states on the CrowdStreet Marketplace. The deals range from a broad range of asset classes (multifamily, hotel, office, industrial, etc.) and investment profiles (core plus, value-add, opportunistic, etc.).
One of the things that sets CrowdStreet apart from other online syndicators (aka crowdfunding platforms) is that CrowdStreet provide investors with direct access to the real estate sponsors and developers behind the deal.
You invest directly into the equity stack of a deal, not into a special purpose vehicle managed by the platform. That means you can reach out to the sponsor and ask questions. You can hear from them on the live deal launch webinars. Further, you can receive project updates like other equity investors.
CrowdStreet's online platform makes investing easy–sort and compare individual deals, learn more about commercial real estate, and dig into the background of the sponsors.
The CrowdStreet platform makes tracking the performance of your investment straightforward and simple.
CrowdStreet Review: Business Track Record
CrowdStreet is on track to raise $500MM this year on its platform (soon to cross $1B in total capital raised since they started in 2014).
The size and scale of CrowdStreet's platform helps create a wide range of investment opportunities for our investors. As CrowdStreet grows, they will attract more and more top-tier sponsors which ultimately means more investment opportunities for their investors.
Total Number Of Offerings So Far: 200+
Here are the averages per CrowdStreet deal of each datapoint:
- Project Value Per Offering: $36 million
- Equity Per Offering: $16.5 million
- Target Annual Internal Rate Of Return: 18.5%
- Annual Cash Yield: 9.6%
- Member Investment Per Offering: $50,000
Where CrowdStreet Sees The Most Opportunity
CrowdStreet sources deals precisely where I think there is the most opportunity: in the heartland of America. International cities such as San Francisco, LA, New York, and Washington D.C. are great. But they are already very expensive.
An investor's goal should be to look for the NEXT New York City or the next San Francisco. CrowdStreet likes to call these cities: 18-hour cities.
CrowdStreet is primarily focused on secondary metro markets, also known as 18-hour cities. 18-hour cities like Denver, Austin, and Nashville, tend to have above-average population and job growth. Further, these cities have lower cost of living relative to 24-hour cities like New York.
Despite these benefits, projects in these secondary markets can sometimes be overlooked by large institutional investors. As a result, investment opportunities are created for individuals. Filling the equity gaps on institutional-quality real estate in growing secondary markets has become the hallmark of the CrowdStreet Marketplace.
Top Real Estate Markets CrowdStreet Likes
According to CrowdStreet's research report, Market Views, it believes think that Charleston, South Carolina has the best claim as the next big up-and-coming 18-hour city.
One big point in the city’s favor is its economic growth–Charleston’s average five-year job growth of 2.9% is nearly double the national average of 1.6%. CrowdStreet recently raised over $5 million for a 50-key, luxury boutique hotel development in the French Quarter of Charleston.
In addition to Charleston, South Carolina, CrowdStreet also likes other 18-hour cities in Texas. Austin, Houston, Dallas are all attractive. Further, CrowdStreet likes cities such as Memphis.
Sign up for free and explore the existing offerings for yourself.
CrowdStreet Managed Funds
If you're not interested in individually investing in deals, Crowdstreet created the CrowdStreet Blended Portfolio (CSBP). The portfolio has a rules-based investment algorithm that identifies and invests into 25-35 projects (in the most recent series) from the CrowdStreet Marketplace.
Since the launch, CSBP has raised over $40 million in the first four series. A large portion of that capital came from first-time investors. CSBP gives investors a level of diversification across asset class, risk profile, and geography.
Each investor in CSBP will receive a federal K-1 and multiple state K-1s based on where the deals are. However, CrowdStreet will seek to minimize the number of state K-1s through the use of composite returns where possible.
CrowdStreet's charges a 1% management fee to invest in its Blended Portfolio. However, if you invest directly in a deal, there are no fees. The fees are paid for by the sponsor. However, ultimately, the fees are subtracted from the returns. Each investment should disclose the fee structure.
Individual investors can use CrowdStreet's Marketplace to review the background of each sponsor, attend a live webinar where they can ask sponsors questions about the deal, comb through the project’s business plan, and more.
Investors are looking for the best places to invest in commercial real estate and CrowdStreet delivers. Most of CrowdStreet's sponsors have been in business between 5-30 years.
CrowdStreet puts a lot of information about them on the deal details page–an intro to the leadership team, company track record, relevant case studies etc. All that information is public to any potential investor.
New CrowdStreet REITs And Real Estate Funds
In 2021, I was also excited to see that CrowdStreet launched a Build-To-Rent fund and an Industrial fund. This showed my CrowdStreet was flexible enough to focus where demand is the greatest. Owning rental properties and industrial commercial properties has been huge since the pandemic began.
In 2022, CrowdStreet launched its private real estate REIT, also called a C-REIT. CrowdStreet plans to launch a new private REIT every year. This is smart as it enables investors to diversify their holdings.
Further, some investors don't have the time to sign up and understand each deal. The C-REIT puts the entire investing and decision-making process in the hands of a veteran management committee.
By investing in a CrowdStreet fund, you rely on the investment committee at CrowdStreet to pick the best deals on your behalf. For some of the most promising deals, it's hard to gain access since they get taken up quickly. Investing in the fund gains you immediate access to the most popular deals.
CrowdStreet is really doing a good job in listening to what its customers want by providing more investment choices.
CrowdStreet Investment Performance
Since launching in 2014, CrowdStreet has published more than 367 deals on the Marketplace, raising over $919 million in capital. Individual investors have received over $94 million in distributions.
As of 2023, over 30 of these deals have fully realized. Only one of which has resulted in a loss of investor capital. These 30+ deals have averaged a 25%+ IRR, with a 1.6 equity multiple over an average two-year holding period, and many of them exited early (in 1.8 years instead of the targeted four, for instance).
It is important to note, however, that most of the 367+ investments are still in their holding periods. Now in 2023, there have clearly been more deals fully realized. Returns are slightly lower due to higher mortgage rates, but returns are still strong.
Accordingly, the performance information to date may not be an accurate indicator of overall Marketplace performance. Past performance is not indicative of future results.
CrowdStreet Review: A Solid Real Estate Platform
I've been investing in real estate since 2003. Given my experience and results, I believe real estate is a wonderful asset class to build wealth. Real estate is tangible, provides utility, produces rent, and is more stable than paper assets. Currently, roughly 35% of my net worth is comprised of real estate. The rest comprise of stocks, bonds, and private equity.
I'm bullish on real estate due to rebounding corporate earnings, a demographic shift towards lower-cost 18-hour cities, declining mortgage rates, and a strong stock market. I expect real estate to attract more capital as the stock market wavers. Further, foreign investors should start flooding back to U.S. real estate as well.
Thanks to real estate marketplaces like CrowdStreet, investors will be able to take advantage of real estate opportunities more easily around the country.
In conclusion, you can sign up for CrowdStreet here and explore their platform for free. The key is to accumulating great wealth is to recognize multi-decade trends and take advantage. I hope you enjoyed this thorough CrowdStreet review.
About the Author:
Sam worked in investment banking for 13 years at Goldman Sachs and Credit Suisse. Before banking, he received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34. His investments generate roughly $310,000 a year in passive income.
Financial Samurai is one of the most trusted personal finance sites with over 1.5 million pageviews a month. This CrowdStreet review is 100% based off firsthand experience. I have met with dozens of CrowdStreet personnel over the years and have spent hours listening to their webinars and speaking to management since 2017.