Author Topic: Crowdfunding due-diligence. Comparing Realty mogul with CrowdStreet  (Read 16104 times)

oxygen99

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I am/was an investor in RealtyShares; learned a lot from the demise and the apparent "no one at the wheel" situation of which some sponsors appear to be taking greedy financial advantage without immediate legal repercussions.

I am still interested in the space, but looking to see if there are other investment outlets that protect us, the investors, better. I am currently comparing "CrowdStreet" with "Realty Mogul". RM seems an improvement over RS in their avoidance of single-family sponsor, and in their vetting of sponsor background and experience. Still, I believe their structure is similar to RS: they create an LLC where the investors are the members, and another LLC that holds title to the real estate with the Sponsor as members. The "investor" LLC lends funds to the "owner" LLC.  So I, as the investor, only own a piece of a lender. If the sponsor fails or engages in fraud, I have very little recourse beyond my position in the loan stack.

CrowdStreet operates a bit differently. From what I was able to find out so far, the structure they set up consists of a single LLC that includes the Sponsor plus the investors, so each investor does own a small share of the real estate that secures the funds.   CS interfaces in a management role so that the Sponsor is not burdened with having to communicate directly with a large number of individual investors. CS does promote the direct contact of the investor and sponsor.

This appears to have a number of implications: if CS goes bankrupt or if the Sponsor fails to perform, my remedies as an investor/owner are more directly tied to the real estate itself. However, while a 'regular' lender in first position has the right of foreclosure via a First DOT, I am not sure at this point in my due diligence what rights a CS investor would have upon the failure of the sponsor. As an aside, it appears that the model followed by RealtyShares and RealtyMogul means that they are actually dealing in securities. A CS investment is in real estate, so I don't believe is subject to SEC oversight. 

In addition, CS somehow convinced "Equity Trust", an IRA custodian, to directly offer CrowdStreet investment options for IRA accounts thus drastically reducing the paperwork required. Moreover, Equity Trust is allowing several IRA account customers to join capital for the purchase of a single real estate property. See:   https://www.trustetc.com/real-estate-ira/partnering

I have not seen this twist discussed in the financial media. Seems like would be a great stand-alone piece for Sam to publish.    Wondering what level of interest this has, and if anyone else is up to joining forces for due-diligence?

JD

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Re: Crowdfunding due-diligence. Comparing Realty mogul with CrowdStreet
« Reply #1 on: June 30, 2019, 02:20:36 AM »
I find this extremely interesting and had no idea of the structural differences that you've pointed out.

While the very first CRE company I signed up with was RealtyMogul, I've actually never invested with them. Their offerings were really slow to list at the time and the returns weren't all that impressive so once I discovered RS, I went solely with them for several months. RM has never really wooed me back although they do have some interesting listings once in awhile.

I found Crowdstreet shortly before RS folded and had already begun focusing my CRE investments with them and away from RS as their offerings were simply more appealing from a returns and larger market perspective.

So far I've been pretty happy with my 8 or so investments there; only 1 has been underperforming and in fairness it was the one I liked the least from the business plan. Plus, the CS website is far superior to RS and RM. Had I found CS first, I would never have put a penny into RS deals.

As far as how I can help with due diligence, I can say that CS claims to heavily vet their sponsors and rejects something like 9 out of 10 proposed offerings. They also send out a lot more due diligence material to investors by email (as does RM) and also along with the offerings.

Personally, I'm a programmer and not a great businessman so I can hack the website if that helps but I may not be able to offer much from a business analysis perspective.

Either way, more than happy to contribute to this conversation as I think it's a wise one to have.

Cheezus

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Re: Crowdfunding due-diligence. Comparing Realty mogul with CrowdStreet
« Reply #2 on: July 01, 2019, 06:00:45 AM »
This is why I prefer Fundrise.  Similar types of investments, but operated as a general fund.  The returns have been 10% or so which is outstanding.  And I don't care one bit about sponsors and due diligence of individual deals.  I also have PeerStreet investments, which isn't too bad, I like their automated investment strategy where I can put smaller amounts in a ton of deals to spread risk.  PeerStreet also has a pretty solid reporting of current status and delinquency.  But I'm pulling my money out as those deals mature.  The interest is less than Fundrise and still individual deal nonsense.  No point in that.

Sam

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Re: Crowdfunding due-diligence. Comparing Realty mogul with CrowdStreet
« Reply #3 on: July 01, 2019, 07:49:33 AM »
Thanks for bringing up CrowdStreet. I haven't spent any time looking at them, and might do so this summer.

I had lunch w/ Jilliene Hellman, Co-founder of RM. They haven't raised any new funding for her company in 4 years, which indicates to me that they are EBITDA positive and self-sustainable. She doesn't chase every deal. She is focused on long-term sustainability.

Here is her recent guest post on FS: https://www.financialsamurai.com/how-realtymogul-performs-due-diligence-on-their-investments/
Regards,

Sam

JD

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Re: Crowdfunding due-diligence. Comparing Realty mogul with CrowdStreet
« Reply #4 on: July 07, 2019, 11:28:16 AM »
CrowdStreet sent out this email today. Excellent transparency IMO.

Subject: You can't win them all.

"We recently had two more offerings become realized, which brings the Marketplace total to 16. You can view the updated summary performance table here.

One of the two offerings resulted in a great outcome for investors. However, the CrowdStreet Marketplace also experienced its first loss since our launch in 2014. Bridgeton Holdings’ Cloverleaf Suites - Lincoln offering recently sold and investors lost 74% of their originally invested capital.

As I have noted every time we’ve discussed our Marketplace track record, the returns delivered to investors so far have simply been too good to sustain forever, and the Cloverleaf Suites - Lincoln outcome is a good reminder that investing in commercial real estate, like any other investment, comes with the risk of loss.

Even though we have a thorough quality control process for selecting offerings for the CrowdStreet Marketplace, there is no guarantee that an individual investment will meet performance expectations. That is why we stress the value of portfolio diversification, either through the CrowdStreet Blended Portfolio or with a larger portfolio of individual offerings. That way, the focus is on blended returns and you can better protect your overall portfolio from offerings that may underperform."

dustball

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Re: Crowdfunding due-diligence. Comparing Realty mogul with CrowdStreet
« Reply #5 on: August 06, 2019, 01:16:30 PM »
I'm not financial expert but I've been with Realty Mogul for a couple years and so far the return is about 7-8%.
No complaint about that.
The other thing that I like is they provide dividend per month instead of per quarter.

Logan

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Re: Crowdfunding due-diligence. Comparing Realty mogul with CrowdStreet
« Reply #6 on: August 21, 2019, 05:08:07 PM »
I have invested with CS and RM as well as RS.  I had two deals with RM that have now completed and paid very well (30%-40%). I have one deal with CS which has paid quarterly dividends of 8% so far. I slowed up a bit when RS went out of business. CS is not great about communication with investors, but then none of them seem to be.