(CrowdStreet, Inc. | Photo courtesy of CrowdStreet, Inc.)
Home-grown success story CrowdStreet, which has pioneered a path for individual investors to band together and acquire prime commercial real estate assets nationwide, has passed a staggering $1 billion milestone in total online investments.
Stemming from that level of activity, the platform’s investors have received over $100 million in returns since the marketplace concept, fostered by Central Oregon’s supportive entrepreneurial ecosystem, was first launched in 2014.
In six years, CrowdStreet has created a community where more than 90,000 investors and 193 real estate operators and developers have had the opportunity to fund commercial real estate projects across a wide variety of asset types, from multifamily to office to industrial.
As momentum has accelerated, 2019 proved to be a record year for CrowdStreet, with $511 million invested through the platform into 111 offerings — which was more than the prior five years combined.
Some $58 million in distributions was returned to investors last year, which represented more than double the total amount distributed back to investors on the platform since its launch.
Co-founder and tech entrepreneur Darren Powderly recalled his “light bulb moment” for the crowdfunding* idea came after the passing of the Jumpstart Our Business Startups (JOBS) Act of 2012, during which time he was working as a commercial real estate broker in Bend.
Forms of syndication for the purposes of investment had existed “offline” for centuries, but U.S. securities regulations had mandated that such offerings be conducted privately.
Following the JOBS statute — enacted to stimulate economic activity in the wake of the Great Recession — syndication could now be organized more publicly and in an online format, including the pooling of people to invest jointly in an offering that few individuals could afford to invest in alone.
Fusing his real estate expertise together with his previous background as a software specialist in San Francisco, Powderly realized the door had been opened to the possibility of an online investing marketplace for institutional-grade commercial real estate, which had hitherto been primarily the preserve of institutional buyers.
Instead of having to buy into Stock Exchange-sanctioned shares, bonds or a publicly-traded real estate company that owns dozens of properties, or a mutual fund with an assortment of different real estate companies, investors could come together to acquire a stake in specific properties that they chose.
Powderly said, “I started to develop the concept in Bend in 2012, and this was a real ‘kitchen table’ story of working nights and weekends trying to think entrepreneurially and building a business plan over two years to perfect the model.
“Coming out of the ‘Great Recession’ we saw systemic problems exposed, especially in relation to retirement investment vehicles. Options were somewhat limited to publicly traded stocks and bonds rather than alternative asset classes, and real estate is the third largest asset class.
“After the act passed, I had the lightbulb moment that there could be another way to invest, online, in a customized scenario, allowing multiple individuals to come together.
“Previously, it was more common to buy stocks in publicly-traded Real Estate Investment Trusts (REITs) to buy interests in larger real estate investments, but through CrowdStreet we provided a path for individuals to own fractionalized interests in specific commercial real estate property, rather than a stock that is repriced on a minute-by-minute basis and subject to volatility.
“As a real estate investor myself with a particular passion for helping individual investors, I saw a better business model offering better forward outcomes and more options, in a highly scalable, transparent, digitized process.
“During the business plan evolution, I also recognized the need to hire an executive with the depth of tech experience to take the company further, and I was fortunate to meet Tore Steen who came on board as CEO and Co-founder in January 2014 to help realize the vision.”
Since its inception, CrowdStreet has continued a mission to offer access to a large volume of vetted commercial real estate deals, both equity and debt, and a fee-free platform for investors.
Every sponsor and investment opportunity applying for inclusion on the platform is subjected to a “rigorous, objective vetting process”. Only two percent of all applicants successfully pass the requirements and appear on CrowdStreet’s marketplace.
Powderly said the company provides access to deals investors would otherwise have no knowledge of or ability to invest in. And investors aren’t limited to investing locally; they can select the specific property type, the location and the “sponsor” that best suits their investment strategy and objectives, anywhere in the nation.
{In commercial real estate, the sponsor is a company in charge of finding, acquiring and managing the real estate property on behalf of the partnership. The sponsor is usually expected to invest anywhere from five to 20 percent of the total required equity capital. They are then responsible for raising the remaining funds and acquiring and managing the investment property’s day-to-day operations.}
At the same time, sponsors can now just as easily accept an investor from across the country as from across town, which has spurred interest in developing a national, rather than regional, investor base.
The average funding amount for a deal on the CrowdStreet Marketplace has grown exponentially since its early days. Some of the top deals of 2019 include:
- 425 investors committed $27 million within a few hours ($1 million every 4.5 minutes) on the platform for an office-to-residential redevelopment of a 208,000-square-foot 12-story office tower in Alexandria, Virginia., sponsored by D.C. real estate investment firm PRP;
- 436 investors committed $25 million within a few hours ($1 million every seven minutes) for an Opportunity Zone redevelopment in Atlanta. The project was sponsored by Parkway Property Investments, LLC;
- 407 investors invested $14 million overnight for a new 163,000-square-foot office building in downtown Milwaukee, sponsored by J. Jeffers & Co.;
- 200 investors invested more than $10 million for the redevelopment of a historic downtown Chicago property into a dual-branded hotel, with a 135-room Hilton Garden Inn and a 214-room Canopy by Hilton, sponsored by Phoenix Development Partners.
Powderly added, “The bar is set high regarding the quality of projects we get involved with, and we only work with ‘best in class’ real estate sponsors.
“CrowdStreet’s salesforce, with both outside and inside sales people leveraging third party resources, prospects directly in each of the top 50 markets nationally, so we have a good grasp of where opportunities may exist.
“We look at growing economies and key business metrics for geographic investment targets, including, for example, Austin, Texas, which has been identified by the Urban Land Institute as the number one real estate market in the U.S. right now.
“We are also known as a thought leader in the industry and prioritize educating individuals on how to be more savvy real estate investors.”
Powderly moved to Bend in 2003 and worked with leading North West brokerage Compass Commercial Real Estate Services, including a stint as company president, before founding CrowdStreet.
He said, “During the CrowdStreet concept development and start-up phase, I found a great supportive ecosystem here in Central Oregon.
“I joined the business accelerator Founders’ Pad and leveraged Economic Development for Central Oregon (EDCO) relationships as well as utilized other robust resources available locally to promote entrepreneurship.
“I was really confident that I had a ‘big idea’ and the act of brainstorming with mentors was critical during development of the concept.
“Dino Vendetti, founder of the Bend-based Seven Peaks Ventures early-stage venture capital group, helped me generate the business model and arrange seed funding to get things off the ground. Dino remains active as the chairman of the board today.
“It has been quite a journey starting a local business that has created something entirely new, and I am personally honored to represent the Central Oregon community on a national stage.
“In any market, when efficiency, scalability and choice arrive, consumers typically win, and we have delivered on performance returns.
“We had great timing and execution with creating one of the first online real estate investing marketplaces, I feel very fortunate to have built a community of 90,000 individual investors who are seeking to build diversified real estate portfolios in a modern, digital format.”
Following the original launch, CrowdStreet moved its main headquarters to Portland, Oregon, where it now has a workforce numbering over 100 employees.
Commenting on the platform surpassing $1 billion invested, repeat Marketplace investor David J. Fishman, who is based in New York City, said, “It’s exciting but not surprising at all.
“Savvy investors are quickly figuring out that diversifying and investing in commercial real estate makes sense and what CrowdStreet offers in terms of deal flow, insight into the offerings and ease of investment and tracking is the best option available today.”
Tore Steen, CEO added, “Crossing the $1 billion mark for equity invested is a significant milestone for CrowdStreet and for the commercial real estate industry overall.
“As real estate sponsors continue to move their fundraising operations and investment management activities online, and as more investors expect more online investing options, supply and demand are feeding off of each other.
“As sponsors allocate more investment opportunities to CrowdStreet, and more investors select to participate in the deals, even more sponsors see the value in bringing their deals to the Marketplace.
“It’s a virtuous cycle that’s resulted in CrowdStreet having one of the largest and most diverse online Marketplaces for developers and operators to raise capital, and for individual investors to diversify their investment portfolios.”
*Crowdfunding is defined as the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.
