PORTLAND, OR â For commercial real estate developers, online syndication as an alternative to traditional capital has come a long way and, in the wake of the pandemic, may have finally taken its place as a source of investment. reliable and seemingly unlimited capital investment for sponsors.
Sean Lyons of Jackson Dearborn Partners (JDP), a Chicago-based investment and development firm, saw the power of online syndication firsthand during JDP’s first raise on CrowdStreet, one of the leading CRE online investment syndication platforms.
âWe did a half hour presentation, and then they usually do a question-and-answer session for potential investors, but after only two or three questions the moderator [from CrowdStreet] stepped in and said, “The project is fully funded,” Lyons said. âWe kind of looked at each other and thought he was joking. We never thought that in a million years it would happen so quickly.
Darren PoudrÃ©, co-founder and vice-president of capital markets for CrowdStreet, told GlobeSt that CrowdStreet had just had a record year in 2020, with investor demand reaching a new high. Powderly explained why sponsors find online retail investors attractive and the benefits that online syndication can offer.
CrowdStreet posted its best year-end results, raising over $ 640 million in sponsor capital and ultimately breaking records for their most productive quarter and most productive month since launching their Marketplace in 2014. 45 sponsors have made deals on the platform for the first time, including industry giants like Greystar; Taurus; Harbor Group International; and Cabot, Cabot & Forbes.
What brought these sponsors to the platform? At the height of the pandemic, many traditional sources of capital, including large institutions, banks, etc., naturally reduced their exposure amid economic uncertainty, tightening their stock markets. These sources typically write tens of millions of checks for a single project, and many have stopped to see how things have rocked before committing their capital. Meanwhile, CrowdStreet’s individual investor base was hungry for deals. With a much lower entry threshold – a minimum of $ 25,000 per project – these individual investors could spread their aggregate amount of investable dollars across multiple offerings to create a diversified portfolio.
âIt was the black swan event that no one had anticipated. The decline of traditional capital has created a vacuum. Individual investors stepped in to fill it out, âPowderly said.
Jackson Dearborn Partners’ second raise was just as successful as the first, according to Lyons. “We [hit our goal] in three minutes, âhe said. “It literally broke a record on their platform.”
In addition to fast and efficient capital raising, online syndication can also offer sponsors cost of capital improvements. There are conditions attached to any acceptance of a large check or form of financing. While most projects will require some form of traditional funding, working with retail investors to fill in the gaps allows sponsors to maintain more control over their projects and carry out their business plans as they see fit.
âInstitutions can say ‘I own this’, and if the right thing comes up, they can take over the project from the sponsor,â Powderly said. âBut with individual investors, their involvement in the project is passive. They told the sponsor behind the deal to do what’s best for the project and manage their capital.
When Jackson Dearborn Partners was looking for capital for one of their transactions, Lyons jumped into this dynamic. âWe ran into a private equity group and they wanted a controlling seat at the table. They are used to getting what they ask for because it is the golden rule: you have the money, you decide, âhe said. But “there is now an alternative, a plan B, and I don’t think the industry is fully prepared for this disruption.”
With so many individual investors working from home over the past year, many have discovered real estate investing online for the first time. This helps explain the surge in investor demand despite a difficult economic outlook during the pandemic. Attracted by the ease, access, and informed nature of investing, people have used CRE syndication online to generate returns, balance their portfolios, and hedge against inflation.
âIt’s fair to say that investment strategies have changed very quickly due to the pandemic. Investors can stay on top of online investing, âPowderly said.
Looking ahead, investor appetite for online syndication opportunities shows only signs of increasing. CrowdStreet surveyed its large investor base and 96% of those surveyed said they plan to make a commercial real estate investment in 2021. More than a quarter plan to invest in four or more deals.
This strong investor engagement creates a self-sustaining cycle of success for online syndication platforms. Investor demand attracts sponsors, and access to more attractive offers drives investor demand, and so on.
âWe have been able to develop our activity because these [accredited and U.S. qualified] investors, who can be anywhere in the world, can find us through the CrowdStreet platform, âLyons said. âWe don’t have to do the traditional things people do when they want to make a deal. Everything is streamlined.
As more retail investors access CRE offerings through platforms such as CrowdStreet and sponsors reap the rewards, the momentum for online syndication continues to grow. As markets recover in 2021, different asset classes and metros will recover at different times, but investors seem keen to strike the right deal with the right business plan and the right sponsor behind the wheel. CrowdStreet’s total investments of $ 1.7 billion bear witness to this.
Download the Investor Insights report and investment thesis to learn more about investor appetite for CRE syndication online in 2021 and how CrowdStreet rates trades for the market.