What is Crowdstreet and how does it work?
CrowdStreet is an online real estate investing platform that specializes in commercial real estate opportunities across the United States. It functions by sourcing and vetting commercial real estate projects from developers and operators, then presenting these investment opportunities to its community of investors. Individual accredited investors can browse, compare, and invest in a range of projects which may include multifamily units, office buildings, industrial sites, and retail spaces, among others.
The platform operates by offering investments through either individual deals or diversified funds. Investors can choose to invest in a single property or a portfolio of properties, depending on their investment strategy and preferences. Each investment is typically structured as a limited partnership (LP) or a limited liability company (LLC), with CrowdStreet providing the necessary documentation and support to facilitate the investment process.
CrowdStreet manages the investment process from start to finish, but the day-to-day management of the real estate is typically the responsibility of the project sponsors or operators.
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How risky is Crowdstreet?
3/5— Moderate Risk
Investing on CrowdStreet involves risks akin to any real estate investment, including changes in market conditions, economic cycles, and the unpredictability of individual property performance.
While CrowdStreet performs due diligence, the success of each investment is largely dependent on the project sponsors' management and the real estate market dynamics.
As commercial real estate investments are illiquid and often long-term, investors should be prepared for the possibility of loss and must carefully consider their own risk tolerance and investment objectives.
How liquid is Crowdstreet?
1/5— Minimum Liquidity
CrowdStreet investments are typically illiquid, meaning they cannot be easily sold or traded on a secondary market.
Investors should be prepared to commit their capital for the full term of the investment, which often ranges from a few years to potentially a decade or more.
Liquidity events, such as a property sale or refinancing, are planned and executed by the project sponsor and may provide opportunities for investors to realize gains and retrieve their capital.
However, unlike stocks or bonds, there is no established marketplace for selling one's stake in a CrowdStreet investment prior to a liquidity event.
How volatile is Crowdstreet?
3/5— Moderate Volatility
The real estate assets on CrowdStreet can be subject to volatility, as property values fluctuate in response to broader economic conditions, interest rate shifts, and local market dynamics.
Investors should be aware that these fluctuations can impact both short-term and long-term investment performance, potentially leading to a decrease in investment value under adverse conditions.
It's important for investors to recognize that commercial real estate markets can be cyclical and unpredictable, which can affect the timing and magnitude of investment returns.
What is the average rate of return for Crowdstreet?
17.9 %— High Return
CrowdStreet has demonstrated a historical Realized Internal Rate of Return (IRR) of 17.9% and an average hold period of around 3.1 years for its investments, though some may target 3-5 years or extend up to 10 years.
Returns for investors can come from profit shares for equity investments, agreed-upon interest for debt, or a combination for hybrid investments, with additional returns potentially realized upon the sale of the investment property.
It's crucial for investors to examine individual offering details for specific return expectations and to understand that past performance is not indicative of future results.
What is the minimum investment amount for Crowdstreet?
Investment opportunities on CrowdStreet typically require a minimum investment that can start at $25,000 or more, although this amount may vary depending on the specific deal.
These minimum thresholds are established by the project sponsors and are detailed in each project's investment terms.
Prospective investors should carefully examine the required minimum investment for each opportunity on the platform to understand the financial commitment involved before investing.
What is the investment time horizon for Crowdstreet?
Investors on CrowdStreet typically face a 3.1-year average hold period, with some investments aiming for a shorter 3-5 year window and others extending up to 10 years.
This long-term investment horizon is a reflection of the commercial real estate market's nature, meaning investors should be prepared for the commitment period when engaging with the platform.
Who can invest in Crowdstreet?
Individual investors on CrowdStreet must be accredited U.S. citizens or Resident Aliens with a Social Security or Tax ID Number and pass certain verification checks.
Entities must also be accredited, U.S.-taxed, provide documentation, and pass verification checks.
All accounts undergo CrowdStreet review and require approval.
Is Crowdstreet regulated or audited?
CrowdStreet operates within a framework of financial regulations and conducts regular audits to ensure compliance with the laws governing securities and real estate investments.
The platform's offerings are typically registered with or exempt from registration by the Securities and Exchange Commission (SEC), and they adhere to standards set out for accredited investors. Detailed information about each investment, including risks, is provided to investors, and CrowdStreet is subject to periodic scrutiny to verify that it is adhering to regulatory requirements.
However, the specifics of the regulatory audits and compliance measures are not publicly detailed on their website.
Investors should be aware that while regulations and audits provide a layer of oversight, they do not eliminate the risks associated with investing in commercial real estate.
Is Crowdstreet insured?
CrowdStreet's insurance policies are designed to safeguard the physical real estate assets on their platform against damage or loss.
While the specifics of their insurance coverage are not detailed, such policies generally cover events like fires, natural disasters, and other unforeseeable damages to properties.
It’s important to note that insurance does not protect against market risks or economic downturns that can affect the value of the investment.
Additionally, the coverage limits might not match the full market value of the properties. Investors should understand that while insurance can provide a degree of risk mitigation, it does not remove all financial risks inherent in real estate investing.
Does Crowdstreet distribute payouts?
CrowdStreet offerings may provide investors with distributions, which are typically paid out according to the business plan and the availability of cash flow from the investment. However, distributions are not guaranteed and depend on the specific circumstances of each project. Some offerings generate cash flow soon after closing and may start distributing to investors relatively quickly, while others may take time to produce available cash, especially if funds are being reinvested in construction or improvements.
Generally, distributions, when available, are paid on a quarterly basis, although some may be distributed monthly. The details of potential distributions for each offering, including the sponsor's distribution strategy and the split of proceeds between investors and the sponsor, can be found on the offering's detail page under the Distribution Strategy tab.
Investors should also review the Operating Agreement found in the Documents section of each offering's detail page for a comprehensive understanding of their rights and the sponsor's commitments, including those related to distributions. It's crucial to remember that the payment and timing of distributions are subject to the availability of cash and are not ensured. Changes in the investment's performance or unforeseen circumstances may affect the original distribution plan.
What are the annual fees for Crowdstreet?
On CrowdStreet, various fees may be associated with an investment at different stages of the process. While CrowdStreet itself may not charge investors direct upfront fees to use the platform, investors should be aware that project sponsors might incorporate fees into the structure of the investment offerings. These can include acquisition fees, asset management fees, and/or property management fees, which are typically outlined in the project's offering documents.
Additionally, there may be fees related to the performance of the investment, such as a carried interest or promote, which is a share of the profits that goes to the sponsor contingent upon achieving certain return thresholds. Fees can vary widely from one investment to another, so it's essential for investors to review the specific fee structure detailed in the offering's legal documents before investing.
Furthermore, in the event of a liquidity event, such as the sale of the property, there might be disposition fees or transaction fees that apply. It's important to note that while CrowdStreet provides the marketplace for these investments, the fees are generally determined by the deal's sponsor and should be factored into the overall investment consideration.
How do I handle my investments in Crowdstreet?
On CrowdStreet, investors primarily engage in passive asset management.
They invest in commercial real estate projects but do not handle the day-to-day management of the properties, which is overseen by the project sponsors or operators.
Investors can track the performance of their investments through the platform's dashboard, receive updates, and review financial reports. While active asset management, such as making decisions regarding property operations, is not a part of the investor's role, they do have the ability to manage their portfolios by choosing which projects to invest in based on their individual investment criteria and goals.
How does Crowdstreet get taxed?
CrowdStreet provides tax reporting support to its investors by issuing relevant tax documents that reflect the investment activity within the platform. These documents typically include the Form K-1, which reports an investor's share of income, deductions, and credits from investments in partnerships, which is common for many of the real estate investments on CrowdStreet.
Investors can expect to receive their K-1 forms or other necessary tax documents annually, which they will need for preparing their tax returns.
Since the tax implications can be complex due to the nature of real estate investments, CrowdStreet recommends that investors consult with a tax advisor to ensure proper reporting and to understand the tax consequences of their investments. The exact timing and type of tax documents provided will depend on the structure of each individual investment.
How many investors are on Crowdstreet?
As of October 2023, CrowdStreet has served over 300,000 investors who have collectively invested $4.2 billion through the platform.
This substantial financial activity has funded a total of 798 deals across the United States. Among these, 168 deals have come to fruition, meaning that the investments have been realized through a sale or other liquidity event.
The deals launched on CrowdStreet have been diverse, involving 345 project sponsors and spanning 17 different property types.
The properties and projects funded through CrowdStreet are distributed across 45 states, covering a significant portion of the US market.
Who is the CEO of Crowdstreet?
CrowdStreet was co-founded by Tore Steen and Darren Powderly amidst the backdrop of the Great Recession. Their vision was to democratize access to real estate investing, which stands as the third-largest asset class in the U.S.