In my endeavor to stay on top of the commercial real estate market, I've interviewed Marious Sjulsen, EquityMultiple Co-Founder & Head of Real Estate.
EquityMultiple is a real estate investing platform for the self-directed accredited investor. They offer a diverse array of rigorously vetted, professionally managed commercial real estate investments.
Their per-investment minimums are as low as $5k, and they offer debt, preferred equity, equity, and fund offerings, enabling each investor to tailor their real estate portfolio to their investment objectives and risk tolerance.
EquityMultiple also offers robust in-house underwriting and asset management, as well as a dedicated Investor Relations Team. Their goal is to make real estate investing simple, accessible, and transparent for individual investors. EquityMultiple is also a sponsor of Financial Samurai.
EquityMultiple Interview On Commercial Real Estate
What are you seeing in real estate markets right now, and what should individual, self-directed investors take particular note of?
COVID-19 continues to take a huge toll on the economy overall, and we are observing various geographies handle reopening differently. Generally speaking, this kind of enormous shakeup will create winners and losers, both as far as geographic markets and types of real estate investments – property types and strategies.
Office operators and developers will need to build in new safety, air filtration, occupancy systems; reevaluate floor plans, employee density; and consider flexible leasing and space to accommodate shifting tenant preferences.
Multifamily developers may need to put a premium on home office space and consider alternative layouts for common spaces to facilitate social distancing.
We expect alternative property types like data centers, self-storage facilities, and medical offices will see a surge in demand. There has been an exodus of knowledge workers out of gateway cities like New York and into suburbs and exurbs, and employers are already beginning to follow suit.
We believe that the “18-hour city” still has plenty of potential, and the traditional office is not dead – humans are social creatures, and we thrive on collaboration and energy.
Capital Is Patiently Waiting To Invest
New opportunities have and will continue to emerge, but the timeline and geographic specifics are hard to predict, especially as many owners are holding onto assets hoping for the best. Further, a huge pool of equity capital seeking distressed opportunities remains on the sidelines.
We believe that individual investors, just like institutional investors, are best served by a diversified approach to portfolio construction – with respect to geography, property types, and transaction timing.
Our low investment minimums and broad array of private real estate investments help facilitate ongoing diversification as the crisis unfolds and the economy moves toward recovery.
Has anything changed in the past couple of months since I last spoke to EquityMultiple as far as your strategy or outlook?
Along the same lines of my prior response, we think that investors are going to position themselves best by pursuing different structures of real estate investments – debt, preferred equity, common equity, and fund structures.
As always, we strive to provide a range of investment types as this provides the best set of tools to construct a diversified portfolio. Targeting individual investments with both equity exposure and more contractual senior exposure is a foundational element to pursue.
Also, we have a couple of private fund products live on our platform right now which provide immediate and future diversification on a more programmatic basis. Most importantly, all from high-quality Sponsors in their respective fields.
As far as current deal flow, anything you are especially excited about?
All of the offerings that make it onto our platform have the unanimous support of our Investment Committee, so I would say that we’re excited about every deal that makes it to the EquityMultiple platform!
From a high level, I am excited about the diversity of the current set of offerings – usually the stars align over a quarter or so for investors to holistically construct a diverse portfolio.
Perhaps given some pent up demand in the world due to the pause in transactions during the height of COVID, we’re seeing activity across investment types and asset classes with a focus on multifamily.
I am also very excited to be presenting several different Fund products to investors, each alongside experienced, national or multinational investment firms and reflecting several different strategies. These Fund products offer our investors “temporal diversification” – the ability to diversify capital deployment over time and mitigate the risk.
It’s also a nice way for investors to attain another level of diversification to supplement our ‘single-asset direct’ offerings, which offer investment into distinct properties across the country.
What sorts of return targets is EquityMultiplee pursuing with current deals?
Because of regulatory reasons and how our deals are structured, I can’t provide public-facing return info for specific offerings. However, anyone who is interested can create a free account and see all details of our return forecasting, risk factors, and other key aspects of each offering.
Several of our current offerings are focused on “core-plus” investment strategies. These involve stabilized, well-established, income-producing properties which, with some marginal investment in improving the physical product, will operate at their highest and best level within the marketplace.
Within the capitalization of these properties, we pursue a wide range of risk/return profiles – from senior debt offerings that entitle our investors to a fixed annual rate of return of 6-12% to common equity investments that target potential IRR objectives of 20%+.
On every transaction, our investment team is focused on finding an attractive balance between risk and return, weighing where the investment strategy meets up best with the subject transaction’s capitalization.
EquityMultiple invests quite a bit in in-house underwriting on deals. Can you tell me a bit more about your diligence measures and underwriting standards?
Sure thing. We do both extensive vetting of sponsors and lenders (with whom we partner on origination), and a thorough underwriting of the individual deals.
This means that not only will we closely examine a sponsor’s track record and experience within the deal type and geographic region that we’re evaluating, but we’ll also stress test the sponsor’s underwriting of the investment, layer on our own data, and conservatively model our own scenarios.
For every transaction that gets through our rigorous process there are a great many more which we pass on at various stages of examination and underwriting. This process of vetting opportunities is a collaborative one between members of our investment team and, ultimately, with our Investment Committee.
Without getting too technical, here is a list of some of the key items that we examine as part of our offering-level diligence.
In short, we analyze the sponsor’s assumptions and business plan relative to their experience and wherewithal. We then analyze property specifics to confirm it all. With that, we layer on industry and proprietary data sets and forecasting to create our internal view of valuation and forecasted return targets to weigh against risk.
As mentioned above, this final internal process is a collaboration amongst our Investment Team and then ultimately with our Investment Committee and the offering Sponsorship. Deals on the platform make it there over weeks and sometimes months of back and forth as it aligns with the ultimate closing of the transaction.
The Latest In Commercial Real Estate
Thanks to Marious for providing some of his latest insights about the commercial real estate market. To summarize:
- There is plenty of capital patiently waiting to pounce on any distressed asset opportunities.
- EquityMultiple is seeing activity pick up across investment types and asset classes with a focus on multifamily.
- EquityMultiple has introduced new Fund products that offer investors “temporal diversification” – the ability to diversify capital deployment over time and mitigate the risk.
- Target returns include: Fixed annual rate of return of 6-12% and 20% target potential IRR for Equity investments.
- The Investment Committee is excited about all the current listings on its platform.
To explore the various offerings and research on each deal, create a free account.
Personally, I'm most interested in a Fund to help me invest in promising projects. But I do like subscribing and reviewing the new individual deal flow as they appear.