#57: Passive investing in commercial real estate

 

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Commercial real estate investing piques many people’s interest, but can seem a bit intimidating from the outside looking in. Thankfully there are platforms like Crowdstreet that can help new commercial investors understand the process and get started. CrowdStreet is a real estate investing platform that gives investors direct access to individual commercial real estate investment opportunities, allowing you to review, compare, and personally choose the deals that meet your own investment criteria. 

Brent Hieggelke is the Chief Marketing Officer of Crowdstreet and a high-growth tech marketing executive focused on start-up and early category innovators and disrupters. He is a former CMO of several leading Saas companies such as Urban Airship (mobile), Brandlive (video), Webtrends (data and analytics) and Touch Clarity (AI, machine learning).

In this episode Brent and I talk about how Crowdstreet got started, what it’s like doing a deal through the platform, and what new commercial investors need to know to start diversifying their investment portfolio. We also discuss some of the benefits of commercial real estate investments and getting help streamlining your dealflow on the front end.

In this episode, we’re discussing…

  • How and why Crowdstreet got started and what they’ve got planned for 2020.

  • The problem Crowdstreet solves for commercial real estate investors.

  • What kind of commercial investment opportunities you can find on Crowdstreet.

  • Why so many people will want to continue investing in commercial real estate after doing their first deal.

  • Why it’s important to diversify your investments and why commercial real estate is a good option for doing so.

  • The additional support you can get through Crowdstreet, including investor education and relationship building opportunities with experienced investors.

Brent’s Top Tips:

  • Working directly with sponsors is a great way to learn – if you’re newer to commercial investing, Crowdstreet’s matchmaking can link you up with experienced sponsors who typically have at least a billion dollars asset experience. That’s a great way to learn the ropes and reduce your investment risk.

  • Look at people who manage a lot of money - The people and organizations that run big pension funds, university endowments, and other big accounts regularly allocate 20-30% of their portfolio towards commercial real estate - for good reason!

  • Do your research & educate yourself – there are tons of resources both on Crowdstreet and beyond that can help you figure out what you need to know before you invest in your first deal. Due diligence is a key part of every deal, so make sure you’ve done your research on becoming an investor in the first place.

Resources:

 

+ Read the transcript

What if you could be doing something smarter with your money that creates income right now? If you're an IT professional who's wanting to get ahead financially and enjoy greater freedom of choice, and if you wonder who else in tech is creating ways to make their money work for them? You want actionable ideas with honest pros and cons and no fluff. Welcome to The Richer Geek Podcast. We're helping IT professionals find creative ways to build wealth and financial freedom. I'm your host, Nicole Stohler and in this podcast, you'll hear from others who are already doing these things and learn how you can too.

Hey, everyone, welcome back to today's episode of the richer geek podcast. In episode number three Ian balletto joined us to chat about the real estate crowdfunding review, which is a website and a community where Ian and his community itself covers several different crowdfunding platforms that are focused in the real estate state space. Today we're gonna dive into one of those specific platforms and I've invited Brent Highgate from crowd Street to join me. As you'll hear crowd street is an accredited investor platform and it's focused specifically on the commercial real estate space. Brent is a high growth tech marketing executive. He's focused on startup and early category innovators and disruptors, as the Chief Marketing Officer of crowd Street. Brand joins me to share more about the platform's beginning offerings and capabilities to help those looking to passively invest in commercial real estate. Let's jump into the show. I'm excited to welcome Brent to the show today.

Nicole, it's great to be here. Thanks for taking the time.

Let's jump right in with how Crowdstreet got started.

Yeah, so back when the jumpstart a business legislation was passed in the Obama era, 2013, Darren Powderly was a commercial real estate executive in Central Oregon and started talking to some other folks in the venture world and they realized that there was a massive opportunity to basically bring commercial real estate investing online. And so they set out to find an executive that had sort of the other side of the equation, which was the online e commerce experience. And they came in Portland, they found torstein. And basically with that they had kind of the core yin and yang as we say, kind of the, you know, the commercial real estate experience and the online and e commerce experience to get started. And they built the first platform they went out and found some some very, you know, forward thinking sponsors and started bringing commercial real estate investing online at crowd street comm so that's that's kind of the short version. I mean, they would tell you, there's a lot of blood, sweat and tears, like any startup and getting that going, and certainly lots of leaps of faith from both the investor side and the sponsor side. But, you know, it's it's pretty amazing to see that just in a few short years, we've gone from kind of those auspicious early days to now, you know, we have 10s of thousands of investors, we've had almost 400 different commercial real estate offerings on our platform. We've delivered back 10s of millions of dollars in investor returns. And it's very exciting time to be in the industry.

It is, and I'd love to have you talk a little bit about what problem does Crowdstreet solve for real estate investors?

Yeah, so if you go back and kind of look at commercial real estate investing, you know, for four centuries, really, it has been something that is very much what we call kind of a country club activity. You know, if you weren't connected in the right circles with developers and you probably have never invested in this asset class. And that's because, you know, up until the the jumpstart of business Act, the JOBS Act was passed, it was really illegal, it was illegal for commercial real estate developers to solicit these offerings. And so as a result, you know, you really couldn't find the deal flow, even if you really wanted it. So for individual investors, they were effectively locked out of this asset class. So once this legislation change happened, it now became legal to solicit investment in these projects. And so that meant bringing that online, made a ton of sense. And so what that means is just like you can go to Amazon to find you know, anything you're looking for and have it delivered to your house and that user experiences so much better than driving out to your local strip mall and rummaging for a parking spot etc. Now you can go to crowd street COMM And look at dozens of options. Online investment opportunities for commercial real estate projects. And you can do the entire process online. So effectively, you know, what would take months, even if you had access of kind of research and you know, lunches and meetings can now be done in a matter of minutes. And so what we're doing is we're bringing investors, both the deal flow, but also the research, the curation, and the educational tools to figure out, you know, how to build a portfolio that has a commercial real estate comprised in it.

Perfect, and thank you for talking through that. And I realized that we should probably define what is in the commercial real estate portfolio, like what types of assets can people invest in, on the site?

Sure. And also, yeah, there's also one other distinction, which is we focus on equity, equity in these deals. Go there's others You know, obviously there's there's debt. And there's equity. We allow individual investors to be direct equity shareholders in these projects. So we have a marketplace where we effectively kind of matchmake I'm putting my air quote fingers up matchmake investors with sponsors, and they directly invest in those projects. So what we'll do then is allow that investor and that sponsor to have an ongoing, basically we have a what's called an investor room for that deal. So that you know, for the life of that project, there's the ability to communicate, get documents, etc. We'll talk about that a little bit later. But I think what we're, you know, really talking about in terms of commercial real estate is everything from multifamily all the way to office buildings, etc. So we do see a lot of multifamily. I'd say over 40% of our projects been multifamily And actually, it's a little bit higher than that. Because if you bring in things like Senior Living Centers, student housing, obviously those are their sort of specialty flavors of multifamily. It even goes up but those, those are definitely by far the most popular. A lot of those are value added opportunities, where you know, projects can be renovated and sponsors gonna bring, you know, their experience and renovating and acquiring an asset at a great market value, hopefully, and then turn that into, you know, escalating rents or, or eventually selling the asset off. But we also see things like self storage facilities, very popular. I mentioned office, we also have things like medical office on the platform, we have industrial, even specialized industrial like data centers and those kinds of things that are really kind of modern takes on industrial properties. Hospitality is popular, we did a virgin branded Hotel in Nashville. Earlier this year that was very popular. And we also even have things such as RV parks, which you know, kind of, as talks of a recession, escalate out there, there are some some asset classes that will really fare well in a downturn. So that's another type of asset that we've had on the platform. We've had a few RV parks, we can't say we have that very frequently. But we do have that included from time to time.

Well, data centers piqued my interest, because man did a lot for a lot of my listeners as well. So I liked that. I know, industrial has been pretty hot, depending on the market, certainly in Phoenix, where you're definitely seeing a lot of industrial. When you talk about curated, what does that mean, I guess, or how do you vet what you offer on the platform?

Sure. So yeah, let me start, you know, with the marketplace, I mean, think of is something is as broadly adopted as like Craigslist, you know, Craigslist, anybody can basically go up and just put their You know, put put their ad up on Craigslist. So when I say curated, what that means is, you know, not everyone can just go to crowd Street and put their deal on there, we really try to put a actually a pretty incredible amount of effort into what we call it quality control. And what we mean by that is, you know, we go through, and we we look at the sponsors track record. And we, you know, we have guidelines on the sponsors we work with, we want experienced sponsors, typically, with a billion dollars of asset experience that have been around, you know, I would say, typically 10 years or more, and we go through those sponsors track record, and everything we find out about the sponsor, because it all starts with the quality of that sponsor, ultimately, then, secondly, we look at the project and the project's business plan. What are they going to do? How does it compare to comparables, what is their business plan the financials Doesn't make sense based on everything, we can figure out what's out there in the marketplace, based on the market based on the sub market, etc. So we have a team of 16 investments professionals who come from commercial real estate, who go through all of this and then delivered to an investment committee, a recommendation on whether this kind of meets the criteria for the crowd street marketplace. And then the Investment Committee goes through and then comes up with a kind of go no go on a project and whether it goes on to the crowd street marketplace. So right now we're looking at about a 5% rate of all the different offerings that we come across, about 5% of those, make it on to the crowd street marketplace. So it is a difficult bar to get on the crusher marketplace. I should have also mentioned that we have out in the different markets. We actually have managing directors that meet with the sponsors, you know, in Their markets to start the deal flow out there in the field. So folks in New York with folks in Texas, we have folks in the southeast, we have folks in the northwest, we have folks down in LA, in Chicago, so all over the country, and those folks are meeting with developers sponsors in their markets, getting to know what they're up to. And that's what starts kind of this whole process. So it is a actually a very large investment for crowd Street to, to partake, in terms of, you know, making sure that deal flow is of the highest quality that we can possibly, you know, offer investors. But, you know, ultimately, we do believe that investors are excited and the reason why we're growing so fast, is because of the deal flow on our marketplace.

And how - when you talk about the deal flow, how many new opportunities are being added on a regular basis?

So you know, there's no like, there's not like, you know, we have a quota by the month or anything, it comes and goes with, you know, kind of seasonality. I can tell you though, we do not slow down on the over the holidays as we're kind of, you know, rolling into the holiday season here. We have a very busy pipeline of projects are going to be launching on the cross sheet marketplace between now and the end of the year. So, you know, I would say I mean, we're gonna do there's gonna probably be 120 deals but you know, ballpark this year, we never know exactly how many but we're tracking about that level. And so you know, that's that's 10 new projects a month right on average, but like I said, you know, summer is a little slower. We're definitely seeing a crescendo right now. So there's gonna be you know, we'll there's weeks when we watch six new deals in a week. So it's really, really ebbs and flows. But you know, like I said, on average, if you if you just do the easy math, it's you know, about 10 new deals, launching There's also some funds on there from some very established sponsors, and that will raise an equity fund. And so some of those deals may may sit there for longer periods of time. So you might see, you know, you may log in and see 20 to 30 different projects on the CrowdStrike marketplace from time to time. And that's because some of those funds have, you know, longer periods of time for raising investment.

And you talked about those business analysts that are looking at all of the details of the submissions. And there's a 5% rate, what tools and resources are available for the investor to do their due diligence when they're looking at a specific offering?

Yeah, yeah. So you know, let me just walk through the process kind of overall, what happens so, basically, investors come to crowd Street, they set up a marketplace account, it's a free account. They set that up that gets them into the deal flow. So when we launch a deal, we send out the first thing we do is we send out an email Alert, you know, notifying all of our investors that a new deal has launched. What that does though, is it kicks off an evaluation period. So we have a few day evaluation period to give investors time to go in and do their own research about whether this makes sense for them. So they'll go into crowded marketplace, they'll they'll click on the deal specifically. And they'll go in and then there they'll have all the documentation from the sponsor. So you'll find things such as, you know, photos of the project renderings of the project. You know, sometimes there's drone videos of the site that are on there, you'll see the financials of the business plan, you'll see details of the sponsor, and their background and some of their other projects. So there's just a host of materials if there's probably a presentation that they put together for investors that you can walk through, and then there's an invite to their website. So what we'll do after the evaluation period is over, is we'll have that sponsor on a live webinar. And that sponsor at that time will walk through their business, plan the presentation, and also take live q&a from investors. So, you know, if you went through the business plan, you have a few questions, a few things you're not sure about, you have the opportunity to ask questions, and get direct response from the sponsor at that time. Now, we also allow you to ask questions through our portal, you know, so you can do it through sort of a, you know, an email interface. We also have the ability for you to call our Investor Relations team who, you know, are familiar with all the different offerings and talk to them as well, you know, they're not going to give you advice, but they can help you clarify what makes, you know, kind of what an interpretation of something might be in one of the project documents. So, with that, you know, we We have the webinar goes live. At that time, we're open for investments on that project. And so at that point in time, you know, we start taking offers. And I will tell you, we've see some of these projects fill up very quickly, we've had many projects that are filled for offers before the webinars even over. So doesn't always happen, for sure. But sometimes it's some of the very hot deals, we will see things close up even before the webinar is over. So it depends on the allocation of equity. You know, if we get a larger allocation, obviously, there's room for more investors, but if it's smaller allocation amount than that might might get, you know, kind of committed to by investors very eagerly in the early part of the webinar. So that's a that's a rough kind of walk through the process. If that makes sense.

It does. Okay, let's say you do that you complete an account. You are looking at the Information ahead of time, you've decided you're going to invest in a data center, because we're going to go with that theme. And you participate in the webinar or you've sent your questions ahead of time you invest and there's a whole period, what happens at the end of that investment term, then what?

Yeah, so Well, let me even before that, you know, so let's say it's pretty common that these will be let's say, five to seven year projected hold periods, right. So that's part of the business plan, you've put your money in kind of knowing that that's, that's the projected hold period. Obviously, there's a lot that happens in that five to seven years. So we set up an investor room on crowd Street. So the same place you go to invest is where you'll find your investor room. And in that investor room, is where you can communicate with the sponsor. It's where they'll post their updates on the project and how it's progressing. It's where they'll send any deal documents Your k ones, etc, kind of all happened to will all show up in an investor room. So that's where you go to kind of keep track of that project. Now, many of our investors will have multiple investments. And so they'll also be able to look at their overall portfolio and look at sort of what what their portfolio is doing. Think of it just like you do if you're doing any online stock trading, right, where you go to your online stock portal, and you look at, you know, your portfolio and how things are tracking, etc, same type of thing, but for commercial real estate, and that's all happening on crowd Street, in the marketplace. So, what will happen then is, you know, hopefully the project goes as planned, hopefully, let's say it was a five year expected project, you know, either the project will get sold, or, also there's there's commonly a refinancing, where the sponsor will refinance project and effectively You know, hopefully pay back these equity investors and hopefully according to their business plan, that's obviously the ideal scenario or above the business plan. And so at that point, investors get their payback. And so that's, that's effectively how it happens. It's, you know, they can track it, and then there'll be an exit. And that exit will, will happen, like I said, either through typically divestiture or a refinancing.

And then you would get your funds back, as well as return all of those other pieces. And you can just continue to invest in the platform or do something else.

I mean, very commonly, folks will reinvest because they're, you know, they're interested in continuing to have the diversification of commercial real estate in their portfolios. So be very common for folks to start looking for other deals. You know, one of the things that's I mentioned I meant to mention this earlier, if folks are not familiar with cameras, Real Estate, you know, if you look at how, you know, those that manage, you know, billions of dollars behave, and I'm talking about, you know, big pension funds, and, you know, university endowments and those kind of organizations historically, those types of organizations have put 20 to 30% of their investment portfolio in commercial real estate, for a variety of reasons, but it's it's commonly been how they've invested for that diversification. And so, you know, what's exciting about this to a lot of the investors that I've spoken with, is they get to behave like those, you know, billionaire portfolio managers and say, you know, I like having I in fact, I just talked to one of our investors last week, he's invested in 12 deals this year. And so, you know, he he's looked at over 100 deals on our platform, and he's chosen 12 and he really likes the idea of having diverse commercial real estate portfolio, and he did invest in the last RV park that I mentioned earlier. But he also does, you know, really all the different asset types. And so, you know, this ability to have this diverse set of commercial real estate projects in his portfolio just makes a ton of sense. So, I did want to mention that, but that's where, you know, we do see folks typically will want to continue to invest in the asset class overall, because they, they still need that diversification and they still, you know, want to have kind of that broad base of you know, and oftentimes, it's, it's low correlation to, you know, public equities. So, you know, if you're worried about the stock market website, and how to kind of get get out of that commercial real estate can offer you know, typically a lower correlation to kind of the the whims of the public equities so that's another reason why a lot of investors CPS a class out

I love that idea, too. have been able to invest in a lot of different types of asset classes. My experience personally is in multifamily and hospitality. I don't know anything about data centers, right. Well, I do, I guess I should clarify. But investing in data centers, right. And I love the opportunity to work with someone who has a lot of experience in that. And then also, you know, medical and office and be able to have that diversification. So it does de-risk at the portfolio.

Absolutely.

Alright. So what are some services that you are looking to add or you've recently added, besides, as we've talked about, this particular you, you look at you identify, you participate in a specific deal, what are some other services that you're looking to add to the platform?

Yeah, yeah. Well, I'll talk about some things some innovations we've done just recently. So this year, we brought some live streams to Our process. So we've had a couple of sponsors, go live with live video. And that has gone well. So I hope that we can offer more of that, as we look out to 2020. We also and this is a change that is just happening now. We launched a year ago, actually, almost a year ago, exactly a product called the crowd street Blender portfolio. And that was in response to investor saying, you know, even though you put it my fingertips in my laptop, and I can do it, you know, in the comfort of my home, I still don't have time to go through and evaluate these deals, or I don't understand really what to look for, because I'm new to it. So what I'd like to do is can I just write a check and have you basically build a portfolio that's that's diversified kind of out of the gate. And that's the goal of the crowd street planner portfolio. So what we do with that is we will With a single investment, we'll put you in up to sort of, well, it's 25 to 35 different projects is kind of the way it works. And it's all driven by an algorithm. So, effectively, what the algorithm does is it looks for diversification in terms of asset types, geographies, hold periods, return rates, so it looks at all of those things, and basically builds a portfolio that's going to be diverse, as diversified as possible. And so we launched that last year, we've had four closings for different funds. It's been very, very popular. I think people like the idea of having one check and instant diversification. What's interesting is, though, we do see a lot of folks go on and pick individual assets after that. So I think it's, it's it's kind of an interesting behavior that we didn't expect where people said, Okay, I feel diversified now. Now I'm going to go pick out a data center or multifamily project that's in my, you know, area that I feel like I can get to know or an office, you know, projects, etc. So it's been kind of interesting to see that folks have done that. But what we were doing is we were holding that open for three months, and then investors were putting their commitments in and then we close it, and then we'd go start deploying that capital. And so our investor said, Hey, I'd like to, you know, could you guys if I invest at the beginning of the period, I'd like to have my money go to work for me sooner. So now we're doing multiple closings with that fund in the same time period. So for instance, we launched the fund in October, it's going to close out probably very early in January. But we're going to we're going to do closes and start investing those dollars, you know, kind of periodically now. So that's, that's a change we just made. We also just in this only is relevant for folks that maybe have seen the before. Because we just launched recently redesigned kind of marketplace. landing page, kind of the the offering Paige, so that just changed recently. So, you know, we've got so much happening, we're growing so fast, we just raised more equity capital. We announced a few weeks ago, we have so many things, so many new projects and plans in the works, that, you know, the best thing I could say is, you know, create an account and watch because it's going to be an exciting year, 2020 years. So a lot of things in the works.

Thank you for talking us through that. I think I really do like that diversified fund as well. how can listeners get in touch and learn more?

Yeah, so I would just encourage folks, you know, to trade, their free account, crowd street comm go to the marketplace, when you go there and create an account. I mean, it's one of these you know, 15 seconds to create your free account. You'll start getting the deal alerts, like I said, if it's if this is new to you, I would strongly encourage you to go to the Resource Center, you'll find a year's worth of content, weapons In our recordings, live stream recordings, white papers, to get you know, to really get started, we have a, we have an E book that's been 10s of thousands of copies have been given out, that goes in detail into each asset class. We also just recently started producing a quarterly research report from our investments team called market views. And that's free as well. And that goes deeper into certain topics and trends that really aren't. They're not about any crowd street deals on the marketplace. It's really about, you know, what types of assets, what types of markets are hot, what you know, what are the things to look at, you know, which areas are growing and declining and so on and so forth. So, we're going to we released our first version, at the end of summer, we've got our next version coming out here any day now. So that's another resource that's available for folks to get educated on commercial real estate. So, so that's what I would do. There's, there's a lot, you know, depending on how deep you want to go, there's a lot of materials there. And I would say, you know, it's a good time to get started, especially with, you know, it's funny because we see the holidays. I'm used to the holidays being quiet, we see a lot of activity over the holidays, because people tend to want to take that free time and get their financial house in order. And so we see a lot of folks taking advantage of the holiday periods to dig in and, you know, either get educated or start making some investments.

It's a great time to check out those resources. They sound phenomenal the webinars, the E book, the report, so go check it out. Thank you so much, Brent, for joining us today.

Thanks Nichole. I really appreciate it.

Thanks for tuning in to The Richer Geek Podcast. For today's show notes including links and resources, visit us at the richer geek.com. Don't forget to head over to iTunes Google Play stitcher or wherever you get your podcasts and hit the subscribe button. Help us spread the word by sharing with others who could benefit from listening and leave a rating and review that'll help us get the podcast in front of more people. I appreciate you. Thanks so much for listening.

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Brent-Hieggelke-Headshot.jpg

ABOUT BRENT HIEGGELKE

Brent is a high-growth tech marketing executive focused on start-up and early category innovators and disrupters. He is a seasoned evangelist, keynote, and panelist across a wide-range of topics.

He is a former CMO of several leading Saas companies such as Urban Airship (mobile), Brandlive (video), Webtrends (data and analytics) and Touch Clarity (AI, machine learning), which was sold Omniture. In 2009, Brent co-founded a real estate start-up, Second Porch, which built the first sharing economy vacation rental site which exited to HomeAway, now Expedia. Brent has keynoted and led panels at global events like SXSW, Mobile World Congress, Cannes Lions, Advertising Week, Adtech, and hundreds of other conferences. Brent has been featured or quoted in the Wall Street Journal, Forbes, Advertising Age, and hundreds of other publications.

Brent holds a BA in Economics with honors from the University of Chicago.

 
 
 
Commercial PropertyNichole Stohlerpodcast, season 1