CrowdStreet Review 2022
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As someone who has personally invested $810,000 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 several 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. I have since kept in touch with them on a quarterly basis in 2021. CrowdStreet has really been sourcing some fantastic deals during the pandemic.
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.
Deal Types Available on CrowdStreet
CrowdStreet investors can find five distinct types of real estate deals on the CrowdStreet Marketplace:
REITs: A real estate investment trust (REIT) is a corporate entity that invests in real estate through some combination of direct purchases, purchasing existing mortgages, or providing loans to real estate owners and developers.
Debt: Property developers and owners commonly take on debt to reduce the amount of their own capital (equity) they need to invest in a deal. Issuers (lenders) of “senior debt,” such as a first mortgage, get first priority for repayment and are compensated before issuers of junior debt, such as mezzanine debt, in the event of bankruptcy or debt restructuring.
Mezzanine Debt: Mezzanine debt is junior to senior debt but senior to equity investments. In the event of default or bankruptcy, mezzanine lenders are compensated after senior debt issuers and before equity investors.
Equity (Common Equity): Common equity investors have ownership interests in offered properties or property portfolios. The value of their investment rises and falls in proportion to the underlying value of the asset or assets they own.
Preferred Equity: Preferred equity is a more secure form of equity investment with more predictable cash flows. With regards to cash flow distributions, preferred equity investors receive preference over common equity investors.
CrowdStreet features you should know
In-depth research: Each individual investment offering on CrowdStreet’s website includes a detailed video webinar about the project, which is a useful way for investors to learn more about the specific details of the development and to ensure that the investment belongs in their portfolio. You can listen live to each webinar and submit questions to the project sponsor, or watch the recorded video later.
Its Investment Thesis feature gives investors insight into how potential deals are being evaluated along with Crowdstreet’s outlook on various asset classes (hospitality, industrial, medical office, multifamily, office, retail, self storage, senior housing and student housing) and geographical locations within the real estate industry. Its “StreetBeats” video series provides an insider perspective on the commercial real estate market and helps investors understand what’s happening and changing week to week.
Investing guidance: The platform offers instructional videos and articles about general investing topics, such as “How to review an investment offering” and “Understanding internal rate of return.”
Accredited investors only: Currently, all of CrowdStreet’s investments are available solely to accredited investors. These investors have a net worth, excluding the value of their primary residence, of at least $1 million, or annual income in each of the past two years of at least $200,000 if single or $300,000 if married. If you’re not an accredited investor, check out our reviews of Fundrise, which offers real estate investments to nonaccredited investors, as well as DiversyFund.
Complex investments: CrowdStreet’s investment offerings are complicated commercial real estate deals, and investors should make sure this is the right investment for them before they invest their money. Here are some caveats to keep in mind:
Each CrowdStreet project is different, and each requires your own due diligence, over and above CrowdStreet’s review process, to make sure the project fits in your overall portfolio.
These real estate investments are illiquid, so be prepared to leave your money invested for a few years (see each project page for details on its target investment period).
Some projects may start paying a return early, while others may take years.
Some projects may fail to fund, and your money will be returned to you.
As with any investment, you may lose money. CrowdStreet posts results for deals that have now closed, so you can see past performance results. But remember that past results don’t predict future performance.
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-funded: No
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.
It removes the platform risk of a marketplace insolvency and any associated disruption to the administration of funds contained in special purpose vehicles.
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.
CrowdStreet’s Deal Review Process and Performance
CrowdStreet’s team subjects every opportunity it considers to a thorough deal review process that ensures only the most compelling offers appear on the CrowdStreet marketplace.
CrowdStreet’s Deal Review Process
CrowdStreet applies a rigorous, three-step deal review process to every potential opportunity:
Evaluating the Firm:
This initial step of CrowdStreet’s vetting process has three sub-steps:
A thorough background check on both the sponsoring firm and its principals
A track record review that confirms the sponsor has successfully executed similar investments in the past
Assigning a sponsor designation that communicates the sponsor’s experience level: Emerging, Seasoned, Tenured, or Enterprise
Evaluating the Asset
During this step, CrowdStreet asks and answers four key questions about the deal:
Is the project within a core competency of the sponsor?
Do the sponsor’s offering materials demonstrate professionalism and conform to industry standards?
Are the assumptions about the deal supported by market data?
Does the project match CrowdStreet investor preferences with regards to asset type, projected returns, and location?
Evaluating the Deal Materials
Finally, the CrowdStreet team dives into the deal documents provided by the sponsor. They look for discrepancies within the materials themselves and between the materials and verbal or written representations made elsewhere.
CrowdStreet raises with the sponsor any issues that come up during this due diligence process, providing feedback to help bring the deal into compliance. The sponsor can choose to address CrowdStreet’s concerns or withdraw the deal entirely.
Is CrowdStreet right for you?
There’s no doubt that adding real estate to your portfolio can be a smart move — real estate is a useful way to diversify your overall investment portfolio. The easiest way to do that is with a publicly traded real estate investment trust, or REIT, which you can trade like a stock, or a REIT mutual fund or REIT ETF. REITs are available to all investors and have lower minimums than CrowdStreet’s projects.
Plus, there’s a market for publicly traded REITs — that is, they’re a liquid investment you can easily get out of — and a REIT mutual fund is a one-stop shop for a diversified real-estate investment.
But it’s also true that the prices of shares of publicly traded REITs tend to move somewhat in tandem with the overall stock market. Investing in properties directly, through a site such as CrowdStreet, may offer better diversification. When REITs drop in price, the values of real estate developments could hold steady or even rise.
If you’re looking for that extra level of diversification, you have time to research the projects available on CrowdStreet, you can afford to let your money sit for a few years, and you’re an accredited investor, then the site offers a useful and easy way to add commercial real estate projects to your investment portfolio.
How do we review real estate platforms?
NerdWallet’s comprehensive review process evaluates and ranks companies that allow U.S. customers to invest in real estate, primarily through non-traded REITs or private equity. Our aim is to provide an independent assessment of providers to help arm you with information to make sound, informed judgements on which ones will best meet your needs. We adhere to strict guidelines for editorial integrity.
We collect data directly from providers through detailed questionnaires, and conduct first-hand testing and observation through provider demonstrations. The questionnaire answers, combined with demonstrations, interviews of personnel at the providers and our specialists’ hands-on research, fuel our proprietary assessment process that scores each provider’s performance across eight factors. The final output produces star ratings from poor (one star) to excellent (five stars). Ratings are rounded to the nearest half-star.
