At a glance
- What It Is: A digital investing platform where accredited investors can evaluate and participate in a range of commercial real estate opportunities.
- Deal Types Available: Debt, mezzanine debt, equity, preferred equity, REIT
- Eligible Investment Entities: Individual (personal funds), self-directed IRA, LLC, trust
- Advantages: Novice-friendly onboarding process for new investors, wide range of investment options and deal types, comprehensive due diligence process, investments accepted from individuals and multiple types of entities, relatively low investment minimums for diversified funds and vehicles
- Disadvantages: Commercial real estate investments are not liquid, accredited investors only, no turnkey real estate available on the platform
CrowdStreet is a digital real estate investing platform for accredited investors. It offers three distinct ways for investors to gain exposure to the commercial real estate market: diversified funds and vehicles that hold multiple assets in a single package, individual deals that offer more granular exposure to specific geographic markets and properties, and tailored portfolios built and managed by seasoned real estate investment professionals.
Although past performance is not necessarily indicative of future results, CrowdStreet’s returns compare favorably to broader market benchmarks like the S&P 500 stock index.
According to CrowdStreet, the platform’s marketplace investments average an annualized internal rate of return (IRR) of 17.10% since inception (as of July 2021). For comparison, the S&P 500 has exceeded that rate of return only twice (in 2017 and 2019) since CrowdStreet’s founding in 2014, according to Macro Trends.
Interested in diversifying your investments and gaining exposure to a vast, opportunity-rich asset class with CrowdStreet? Read on to learn more about how CrowdStreet works, how to build out your CrowdStreet portfolio with investment opportunities available on the CrowdStreet Marketplace, and how to determine whether the platform is right for you.
CrowdStreet’s Deal Types and Investment Options
Several commercial real estate deal types are available on the CrowdStreet Marketplace: debt, mezzanine debt, equity, preferred equity, and real estate investment trusts (REITs). Each investment falls into one of four general risk categories: core deals, core-plus deals, value-add deals, and opportunistic deals.
Separately, CrowdStreet offers three distinct investment options built to suit different investors’ needs and preferences: diversified funds and vehicles, individual deals, and tailored portfolios.
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 Investment Options
Two of CrowdStreet’s three investment options are appropriate for investors who’d like to leverage CrowdStreet’s considerable real estate investing expertise and limit the amount of time spent evaluating individual deals.
One is appropriate for more hands-on investors eager to dive into the details of specific investment opportunities offered by CrowdStreet.
Diversified Funds and Vehicles
This blended portfolio option involves professionally managed real estate funds (portfolios) that offer exposure to multiple investment opportunities with a single investment. They come in two varieties:
- Single-Sponsor Funds. These are led by a specific real estate firm and typically offer exposure to asset classes (like multifamily or retail properties) or geographies in which the firm specializes.
- CrowdStreet Funds. These multisponsor (multifirm) funds are built and managed by CrowdStreet’s real estate professionals and may offer more geographic or asset selection diversity.
Both options share some key advantages:
- Lower average investment minimums than single deal investments, sometimes below $25,000 per fund
- Faster diversification, or exposure to multiple assets with a single investment
- Using committed capital to take advantage of opportunities that arise after the fund’s initial raise
This type of investment is appropriate for CrowdStreet investors who wish to communicate directly with sponsors and carefully choose the specific opportunities they invest in, much as DIY equities investors pick individual stocks and ETFs to construct a fully customized, diversified investment portfolio.
CrowdStreet makes vetted individual real estate deals available to investors on the CrowdStreet Marketplace. Investors can communicate directly with deal sponsors and, if and when they choose to invest, direct their investment capital to that sponsor without CrowdStreet acting as a middleman.
Individual deals typically have higher investment minimums than fund investments, often $25,000 or more.
This is a managed investment option for CrowdStreet investors able to bring at least $250,000 to the table — that is, the minimum starting account balance is $250,000.
Each tailored portfolio relationship begins with a thorough, one-on-one consultation with a dedicated CrowdStreet advisor whose job it is to evaluate the investor’s financial goals and tolerance for risk and construct bespoke, diversified portfolios finely tuned to those parameters.
CrowdStreet provides its tailored portfolio service (which it terms a Private Managed Account service) through CrowdStreet Advisors, LLC, a wholly-owned subsidiary.
CrowdStreet Deal Risk Profiles
In ascending order of risk and potential return, these are CrowdStreet’s four deal risk profiles. Bear in mind that all real estate investments carry some risk.
These are investments that offer stable and predictable cash flows. They are typically fully occupied properties located in major markets, and need no significant updates. Accordingly, they are the least risky of the four risk profile types. Core deals make up only a small fraction of CrowdStreet’s total deal flow.
These are investments that are mostly occupied but may need some updates or maintenance in the near future, meaning some of the monthly income they produce must be set aside for those purposes. Core-Plus is the second least risky of the four and is more common than Core in the CrowdStreet Marketplace.
These are investments that require significant upgrades to realize their full cash flow potential. Accordingly, they involve more risk but offer higher reward as well. Value-add deals are quite common in the CrowdStreet Marketplace, accounting for nearly half the platform’s deal flow to date.
These are the highest-risk, highest-reward investments available in the CrowdStreet Marketplace. They are generally ground-up developments with little to no initial cash flow and complicated business plans. They account for about one-third of CrowdStreet’s total deal flow.
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.
CrowdStreet’s Historical Performance Metrics
Past performance is not indicative of future results. Nevertheless, investors interested in using the CrowdStreet Marketplace should compare the platform’s self-reported historical performance data against other types of investments. Of the 54 deals fully realized as of July 2021, CrowdStreet has delivered:
- An average IRR of 17.10%
- An average equity multiple of 1.39x (total cash distributions received from an investment divided by the total equity invested)
- An average hold period of 2.3 years (purchase date to sale date)
CrowdStreet continually updates these metrics as deals are fully realized. Prospective investors should refer to the platform’s most recent performance data before getting started.
How to Start Investing With CrowdStreet
Investors new to CrowdStreet must follow a simple three-step process to get set up on the platform. After completing these steps, you can begin evaluating deals in the CrowdStreet marketplace and submitting offers as you’re able.
1. Confirm Accreditation
CrowdStreet only makes investment offerings to accredited investors, defined by the Securities and Exchange Commission (SEC) as individuals or entities who meet one of the following criteria:
- Individuals or married couples with net worth greater than $1 million
- Individuals with incomes greater than $200,000 (or $300,000 for couples) in two of the last three years with reasonable expectation of similar or higher earnings in the future
- Certain private entities with assets greater than $5 million
- Certain private entities whose owners or directors are themselves accredited investors
- Certain registered investment advisors or brokers
To verify their accreditation status, investors will need to provide detailed proof of income, assets, and liabilities or professional licensing, depending on the accreditation criteria they wish to use.
2. Attend a New Investor Orientation Session
Once they’re verified, new investors are strongly encouraged to attend a virtual new investor orientation session. CrowdStreet generally offers these 50-minute sessions on a weekly basis.
3. Create an Investing Entity
CrowdStreet recommends that each new investor set up an investing entity before submitting their first offer. Investors may invest as individuals (using their personal funds) or through:
The process for creating and registering an entity with CrowdStreet is straightforward but does vary by entity type. CrowdStreet’s guide to creating an investing entity has more detail.
CrowdStreet has some compelling advantages for investors seeking exposure to the commercial real estate market. In particular, it offers investors multiple ways to invest in real estate, including options for more hands-off investors, and thoroughly evaluates opportunities before offering them on its marketplace.
1. Straightforward Onboarding Process for New Investors
CrowdStreet’s new investor onboarding process is efficient and novice-friendly. Prospective investors simply need to create a CrowdStreet account, verify their accreditation status using readily available documentation, attend a new investor orientation session, and create an entity suitable for investing on CrowdStreet.
2. Multiple Investing Options to Suit a Wide Range of Investors
CrowdStreet has three distinct investing options to suit a diverse array of investors and investor preferences.
Less experienced, hands-off investors seeking broad diversification can take advantage of CrowdStreet’s diversified funds and vehicles. Hands-off investors able to bring considerable sums to the table may prefer CrowdStreet’s tailored portfolios option. And investors looking to take a more active role in evaluating and selecting opportunities can elect to invest directly in individual deals.
3. Broad Range of Deal Types, Asset Types, and Geographies
CrowdStreet has funded more than 500 commercial real estate investments, gathered more than $2 billion in investment capital, distributed more than $240 million to its investors, and successfully realized (exited) more than 50 deals. Needless to say, it’s a robust, well-established platform that’s committed to serving current and prospective investors well.
4. CrowdStreet Performs Thorough Due Diligence on Potential Deals
CrowdStreet has a rigorous three-step due diligence process that ensures only the highest-quality opportunities make it to the CrowdStreet Marketplace.
Although investors should always do their own due diligence and must carefully read through all offering materials before investing, CrowdStreet’s high standards are reassuring.
5. Open to Individuals, Self-Directed IRAs, Business Entities, and Trusts
CrowdStreet is open to individual investors using their own personal funds as well as several types of investment entities, including self-directed IRAs, LLCs, and trusts.
6. Relatively Low Minimum Investment Thresholds for Diversified Funds and Vehicles
CrowdStreet has relatively low minimum investment thresholds for its diversified funds and vehicles segment. Terms vary from deal to deal, but it’s possible to find investment minimums lower than $25,000 here.
No investment platform, or investment class for that matter, is perfect. Consider these limitations before moving forward with CrowdStreet.
1. CrowdStreet Only Accepts Accredited Investors
The CrowdStreet Marketplace is open only to accredited investors (both individuals and entities). If you don’t meet the SEC’s current accreditation criteria, you aren’t able to invest in deals offered by CrowdStreet at this time.
2. CrowdStreet Doesn’t Offer Turnkey Residential Real Estate
The otherwise diversified CrowdStreet Marketplace has one significant omission: turnkey residential real estate.
All CrowdStreet offers qualify as commercial real estate — meaning office, industrial, hotel, retail, multifamily properties larger than four units, or multiproperty single-family portfolios. If you’re looking to invest in individual properties like single-family homes, duplexes, triplexes, or quadplexes, you’ll need to look elsewhere.
3. Commercial Real Estate Investments Are Illiquid
Although this is a general disadvantage of investing in this asset class, it bears repeating that commercial real estate deals of the sort offered on the CrowdStreet Marketplace are not liquid. This means they can’t be sold at will. According to CrowdStreet’s historical performance data, the average hold period for fully realized deals is 2.3 years.
CrowdStreet offers a compelling proposition for sophisticated accredited investors seeking exposure to the commercial real estate sector.
The CrowdStreet Marketplace contains a diverse array of property types — multifamily residential, hotels, retail, industrial, office — and deal structures. CrowdStreet has closed more than 520 commercial real estate deals and fully realized (sold) more than 50 of them. And while past performance is not always indicative of future results, CrowdStreet investments show an impressive rate of return: over 17% IRR as of July 2021.
Of course, like any investment, commercial real estate presents unavoidable risks that CrowdStreet’s due diligence can’t completely protect against. Before getting started with CrowdStreet, speak with a fiduciary financial advisor and confirm that the types of investments available on its marketplace are appropriate for your objectives, financial position, and level of risk tolerance.
CrowdStreet offers access to a wide array of commercial real estate investments, spanning a range of property types and deal structures. It’s therefore appropriate for many sophisticated investors seeking exposure to commercial real estate opportunities not available elsewhere. And its smooth, novice-friendly onboarding process is reassuring for people new to the space.
Like other digital real estate investment platforms, CrowdStreet does have some limitations, including lack of liquidity and no turnkey residential real estate.