Is real estate crowdfunding a “market in dislocation?”

Hello GowerCrowders! With storms battering the country- and the private and public real estate markets, as an investor, keeping up to date is more important than ever. 

This week, I’ve got a lot to tell you, and a lot of news you need to know, including a new deal from YieldStreet, Norfolk Industrial Complex Equity II,  and a new deal from RealtyMogul, a  20.6% Target IRR mixed-use rental Development in one of Chicago’s most desirable neighborhoods.

We’ll also look at The 6 Most Asked Real Estate Crowdfunding Questions, and cover two end-of-year updates from Fundrise and CrowdStreet and we’ll mine our new newsletter section on the SEC Funding Data for market insights. 

Finishing things off, we will examine two new podcasts, including a look at the changes coming to 1031 exchange rules and a glimpse of what the future might hold for NFT technology and real estate tokenization via a discussion with the founder of Fractal Property.

Let’s get into it. 

New Crowdfunding Platform Deals

Our first project is the Norfolk Industrial Complex Equity II, a YieldStreet deal that offers significant benefits to investors, including its status as a defensive, cash-flowing asset with fixed-rate debt financing, in a submarket with a significant supply and demand imbalance. 

Since the property was acquired by the sponsor in April 2022, they’ve signed or are about to sign new and renewed leases across 14% of rentable square footage, with a weighted average length of each lease being 6.7 years with 3% annual increases, with a triple-net reimbursement structure that means tenants reimburse all operating expenses for their spaces. 

Learn more about this project on YieldStreet, here.

On January 19th, 2023, at 12 PM PST, RealtyMogul plans to host a new webinar for 1802 Bernice, a mixed-use, new construction rental development that sits in the North Center neighborhood of The Windy City, Chicago, IL. Right now details are scarce, but you can watch the webinar live (or a recording at a later time) to find out more. 

Register here.

General Crowdfunding Industry News

As a veteran or newbie real estate crowdfunding investor, you should never stop asking questions. That includes due diligence before investing in any deal, regardless of the platform, sponsor, or deal specifics. But beyond questions about an individual deal, you should also try and learn as much as you can about the industry as a whole. Consider pursuing this article from Private Lending Source that considers the 6 Most Asked Real Estate Crowdfunding Questions for real estate crowdfunding investors.

In keeping with the idea of learning til you drop, you should also read this Yahoo Finance article that asks a different, but just as important question: What Can a Gross Rent Multiplier Tell Property Investors? 

While you may not manage the day to day of crowdfunded RE investment, it’s still critical that you understand the numbers behind the deal, including items like cap rate, equity multiple, and yes, gross rent multiplier. 

Crowdfunding Platform Updates

If you’ve been following the crowdfunding and private equity space recently, you know that things have not exactly been peachy keen in the industry. Blackrock put a kibosh on redemptions, many other firms are forecasting (or currently seeing) a major slowdown in growth. 

We’ve got three letters from three major crowdfunding platforms:

AcreTrader’s Lay of the Land

Fundrise’s 2022 year-end letter to investors

CrowdStreet’s “Investing in CRE in 2023: A Market in Dislocation”

While things are not all bad in the world of crowdfunding- most companies had a solid 2022 and 2023 is by no means set in stone, it’s important that you curate a holistic view of the industry- the good and the bad. 

SEC Filing Data

Despite headwinds, we did see a solid jump in the number of Reg D (c) deals from Week 1 to Week 2 of 2023, with the total number doubling  from 5 in Week 1 to 10 in Week 2. We also saw gains in the total number of Reg D (b) deals, which rose from 37 in Week 1 to 42 in Week 2. 

While the total number of deals went up, we did see a slight decline in the total amount raised, with roughly $1BN raised in Week 1 and a little less, $0.96 BN raised in Week 2. The smallest minimum investment stayed the same, at $1,000, while the largest minimum investment grew substantially, from $250,000 in Week 1 to $631,876 in Week 2.

Multimedia Links (Videos, Podcasts, etc.)

As is custom, I’ll finish off with a few podcasts for your listening pleasure.

A 1031 exchange, which is also known as a like-kind exchange, is a tax strategy used by investors to defer capital gains taxes on the sale of investment property. This strategy is also used in the real estate crowdfunding space- notably by crowdfunding platform 1031 Crowdfunding– but also by other investors and outfits looking to reduce or even eliminate cap gains taxes.

However, the Biden Administration has set its sights on changing the rules, potentially limiting the exchanges- and the tax benefits to investors. This may have a negative effect on overall property values, and may cause wealthy investors to hold on to property– locking up liquidity in an already slowing market. 

The latest episode of “The Finance Lobby” Podcast covers the (potential) demise of 1031 tax advantages- and its potential effect on the real estate and crowdfunding industries as a whole- check it out on Listen Notes, here.

As of the writing of this newsletter, we’ve seen the crypto market show signs of life, with Bitcoin and other crypto assets seeing substantial (20%+) gains in just days. That has brought real estate tokenization back into the spotlight as well, which may have a tremendous impact on the future of how we crowdfund real estate- with near-instant settlement, blockchain-based record keeping, and other changes to the RE crowdfunding space. 

If you’re interested in learning more about how these changes might affect the industry, listen to this podcast, also on Listen Notes: Founder of Fractal Property talks about the future of NFT technology in the Real Estate Sector.

That’s it for now- but we’ll be back next week with all of your favorite news stories, real estate crowdfunding updates, new podcasts, and more! Ciao!