10-Year Anniversary of the Passing of the JOBS Act
Special podcast commemorating the birth of the online real estate syndication (crowdfunding) industry
Ten years ago to the day, the JOBS Act was signed into law giving birth to the brand-new industry of online real estate syndication, AKA 'crowdfunding.' In this special event presentation, listen in as the founders of the four major platforms discuss the past, present, and future of the industry.
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Jilliene Helman | CEO @RealtyMogul
Jilliene is CEO of RealtyMogul and its wholly owned subsidiaries, RM Manager, RealtyMogul Commercial Capital, RM Adviser, RM Technologies and RM Communities. She has been involved in investments with property values over $4 billion, including over 15,000 apartment units, and is a pioneer in real estate crowdfunding.
Adam Hooper | CEO @RealCrowd
RealCrowd provides investors access to private commercial real estate investments using their cutting-edge investing platform. Since 2013, they have built one of the largest private investing platforms with 20,000+ members and have provided access to over $6.5 billion in commercial real estate investments.
Charles Clinton | CEO @EquityMultiple
Charles co-founded EquityMultiple, a leading online investment platform that is leveraging technology to help modernize the real estate industry. As CEO, Charles is responsible for shaping the strategic vision of the company and overseeing its daily operations. He also sit on the firm's investment committee and board of directors.
Watch the Full Event Here
10 year anniversary - Transcript
Adam Gower: [00:00:00] Here we are. Oh, my goodness. Thank you so much, everybody. All four of you, for joining me. I'm really grateful for you being here. We're going to start right away. We have almost 50 people so far. We'll let others come in as we get going. But in the interests of time, I'm going to kick us off. Here we go. I have a few prepared remarks. Only takes 25 minutes or so. Don't worry, I won't take too long. I'll try and make it quick. Thank you, everybody, for coming. Thank you to my panelists. Thank you to all of you for joining us. I am Adam Gower, the founder of GowerCrowd and it is my great pleasure to welcome you to this commemoration of the birth of a brand new industry - the online real estate syndication industry, also commonly known, if slightly erroneously, as the real estate crowdfunding industry. Ten years ago, to the day and almost to the hour, the JOBS Act of 2012 was signed into law following bipartisan support by then President Barack Obama. Here's some of what he said at that momentous signing occasion, ten years ago, slightly paraphrased: One of the great things about America is that we are a nation of doers, not just talkers, but doers. We think big, we take risks, and we believe that anyone with a solid plan and a willingness to work hard can turn even the most improbable idea into a successful business". For start ups and small businesses - now, he didn't say this - I'm going to say this: remarkably, despite having been the biggest beneficiary of the JOBS Act, real estate was not considered a target industry for the JOBS Act.
Adam Gower: [00:01:53] This Bill is a potential game changer. Right now, the President continued, you can only turn to a limited group of investors, including banks and wealthy individuals, to get funding. But because of the JOBS Act, startups and small businesses will now have access to a big new pool of potential investors, namely the American people. And for the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in. Indeed, and this is important. Some entrepreneurs may turn a big idea into an entire new industry. That is the promise of America. That's what this country is all about. And that, ladies and gentlemen, is what our guests today have done for the real estate industry. They have forged a path for us all in creating a brand new industry, the industry of investing in real estate syndications online. There are no destructions here. No one was disintermediated. No one was put out of work. The industry simply did not exist before the JOBS Act of 2012 and my guests today are the vanguard of that industry and the revolutionary transformation that has changed real estate finance for us all forever. The leaders of the new industry with us today are Tore Steen, Founder of CrowdStreet, Jilliene Helman, Founder of RealtyMogul, Adam Hooper, Founder of RealCrowd, and Charles Clinton, Founder of EquityMultiple. And it is my great pleasure to welcome them here today. Let's get straight into it and start off. My first question. Tore, I'm going to start with you, if you don't mind. When you founded CrowdStreet, on the heels of the JOBS Act, what was the opportunity that you saw?
Tore Steen: [00:03:55] Thanks for having me, Adam. Excited to be here. And I know we're here to talk about commercial real estate, but I think when you think about it, it's even bigger than that because what was happening is alternative assets, as a whole, now commercial real estate's the largest, of all of those, are being opened up. These private markets that, for so many years were inaccessible to individual investors because they were only accessible to the largest of institutions or the highest of net worths could then suddenly be opened up. The regulatory change that you talked about with the JOBS Act was something that was critical to allowing this to happen. My background is in the internet and software space and helping to disrupt industries and so I think the spark for me was, number one, meeting my Co-Founder, Darren Powderly, who came out of the commercial real estate industries and looking through his eyes at how real estate developers and operators raise capital from institutions and high net worth investors. And then personally, being an investor myself and knowing that I did not have access to this wonderful asset class. I thought, wow, couldn't the internet help disrupt this? Couldn't it allow access to more investors in this asset class that, again, we walk by every day in our everyday lives? So when Darren and I got together in 2013, and specifically when Title II of the JOBS Act came out in September at '13, allowing the open access to accredited investors, that was the spark.
Adam Gower: [00:05:26] Well, that was exactly the intent, wasn't it? [00:05:29] Jilliene, how about you? What was the opportunity you saw when you founded RealtyMogul. [00:05:34]
Jilliene Helman: [00:05:34] [00:05:34]Yeah. So, I was working in the banking and wealth management industries prior to launching RealtyMogul. And I think the theme that I saw was that our wealthiest clients were real estate investors. So they'd either made their money in real estate or they'd kept their money in real estate. And I grew up in a real estate family, so my grandfather was a developer, mother and father were in real estate. And I always knew that I wanted to go into the real estate industry. And, you know, the JOBS Act was very influential. You know, it was the first time, really since the securities regulations in 1933 that there was a major change and you sort of alluded to it in the opening remarks, Adam, around - I don't think when they wrote the JOBS Act, they were thinking about real estate. I think they were thinking about startups and they were thinking about the corner bakery store and the local restaurant and giving people exposure to different types of assets and yet I think real estate is going to end up being one of the dominant players in using crowdfunding to democratize access to alternative investments and namely real estate. So, the big opportunity was opening up real estate to a broader swath of investors, kind of given the insight that real estate is a great place to invest long term. Real estate is a great place to diversify long term. And, it was challenging to access these investments prior to the businesses that all of us have built. It was very much the old school country club network. It was very hard to source the deals. It was hard to underwrite the transactions. And so, opening that up and bringing platforms to fruition, where people could invest in real estate in a really easy and simplified manner, was kind of the insight, and taking it well beyond startups and small businesses. [00:07:07]
Adam Gower: [00:07:08] Adam, how about you? What was the opportunity that you saw?
Adam Hooper: [00:07:13] Yeah, so I'm a career real estate guy and actually, small world story, Darren Powderly and I, actually used to work together 20 years ago at the same firm over in Central Oregon and kind of independently, I think saw a similar opportunity. I was on the joint venture equity side, helping real estate managers raise capital from institutions. And, it was these kind of middle market deals, sub $10-$15 million equity checks that just were incredibly challenging to raise capital from institutionally and it was just the syndication model. And so we saw in 2011-12, these donations-based, you know, true crowdfunding, Kickstarter, Indiegogo, this mechanism of using the internet to build that audience. And, you kind of create this pool of donations-based capital at that time. When the JOBS Act came around and we saw this regulatory change that you can effectively, you use the internet as a distribution channel and take that similar model that was growing tremendously fast, in the kind of agin donations-based, apply that to the real estate capital markets, just seemed like a natural fit to fundamentally change how you can hike and build these audiences right and kind of bridge that access from people that are looking to raise capital, people that are looking to invest who just don't have the access to it.
Adam Hooper: [00:08:27] We just saw that as a no-brainer, too good of an opportunity to not pursue. And I think that's still at the core of what we're all trying to do right? Is trying to build this access into this asset class that just historically was really, really difficult to participate in unless you knew the person. I think all of our platforms are kind of trying to - that is a disintermediation, right? The person that you had to know to get the deal is now our platforms right? We have that access and that reach to kind of spread that message around. So I think that was the - the opportunity was to use the internet as a distribution channel. I think that was just very, very much a fundamental shift in how the capital markets can function, for sure.
Adam Gower: [00:09:08] Amazing, right? The internet has come to real estate, finally. Right? It's what really changed. Charles. Your background's a little different, isn't it? What was the opportunity you saw when you were sitting there legal beagling?
Charles Clinton: [00:09:22] Well, you know, I think my colleagues here have all hit the major points. You know, just how impactful the internet can be in terms of providing access and transparency into, typically or historically, opaque markets. You see this time and time again. I think real estate was particularly ripe. I mean, financial services, as a general matter, are particularly ripe. They've been really reluctant to change, partly because you have such huge embedded institutional interests. So, those are always the slowest industries to move. But relatedly, they're also the big biggest opportunities. I think, from my perspective, I was working as a real estate attorney, Blackwood was my primary client, and you know, I think on a daily basis institutional capital flooded to real estate. But I think, echoing what Jilliene said, when it came to actually investing my own money into it, looking what the options were, public REITs, private REITs, really staying - not being able to access that world of deals where people were making, just better, kind of asymmetric returns, lower fees. Just a totally different profile to the more readily accessible vehicles. It felt crazy to me, honestly. I was a little later to the party than some of the folks on this call.
Charles Clinton: [00:10:34] I watched Jilliene start her business. Saw the early days of that. And sitting in my seat as an attorney, thinking about regulatory changes in the historical sense, when you have these big shifts in terms of how money is allowed to move. Markets change and they change permanently. I think what we've seen, over the years is, it took a long time for the market to get conditioned to this new way of accessibility, for investors to start becoming aware of it. And, I think particularly in the last 24 months, you've really started to see mainstream adoption. But I would argue, even in the big sense, where we're still pretty in the early innings here compared to where Betterment is or Robinhood, that really have customers that are crossing into the millions of people, in terms of active customers. The alternative platforms are, you know, they sit downstream from that. So, as exciting as it's been over the last ten years, I think the next ten years are going to be a lot more.
Adam Gower: [00:11:34] Well, you know, it's fascinating to me that, if you think back, 20-30 years, 30 years, institutions weren't even investing in real estate. They didn't invest in real estate. Then there were regulatory changes and they came in and now they're the biggest investor. My sense is that is where we are. That's what we're seeing today in the - I know some of you don't like the term, but the real estate crowdfunding industry is that we are at the very beginning actually, of ultimately, potentially, dominating real estate capital formation. Charles. Let me follow up with another question for you. What was the - when you got started with EquityMultiple, what was the deal or the event that gave you the idea - kind of that tipping point or that eureka moment, gave you the idea that, this thesis that you had was going to work?
Charles Clinton: [00:12:29] Yeah. I mean, I imagine everyone on this call has had the same experience or had the same experience. But, you know, when we did our first deal, we raised $500,000 for a mixed-use development in Brooklyn and it took us months and we did absolutely everything we could to find the money for that deal. We put up our website and thought things would just work and that was not true. And, you know, fast forward a year or two later, when we had our first deal that subscribed in a few hours. And, I think that was the eureka moment, right? Is that, this is what this can be. Where, once you have the audience, once they know that this is available, you're really just meeting that supply and demand in a way that the market demands. And obviously, the deal sizes have grown tremendously since then, across the industry. The type of operators, type of projects has changed quite a bit over time. But, that basic moment, of any startup where you have product market fit, right, you just have that demonstration that your customer or the investor wants what you're offering, which is access to commercial real estate.
Adam Gower: [00:13:39] Adam, what about you? Was there a moment that just gave you this moment of relief that you're on the right path? Having struggled like everybody else.
Adam Hooper: [00:13:48] They happen every day and then they don't happen every day. Right? I mean, it's - there's always indicators of going each way. You know, I think it was - even before we started the company, I remember the deal specifically that gave us the confidence that this would work. And I think there was an inevitability to this happening. It was a real estate manager out of northern California. They were buying a deal for 13 or 14 million and we ended up listing - the firm I was with listed a sister property office building, just down the street, another $13-14 property. And we told them, you know, hey, you should look at buying this one too and get some economies of scale and own a little bit more in the market. He's like, guys, I can't go kiss a wife and kids goodbye, shut the office down for another month and go raise another $5 or $6 million. And there was nothing we could do to institutionally write a check for that size. And so I think there was just this very, very apparent need for these, again, kind of middle market equity checks. There just wasn't a capital source that was reliable for it. And so that particular deal was one of those light bulb moments. And then, at the same time, we're getting emails from people that we know in the business, Hey, I've got friends, I've got $50,000. What should I invest in? And you say nothing, right? That just felt like there was a mismatch there.
Adam Hooper: [00:15:03] So, I think it was - I mean, every deal that we would launch in the early days, we'd launch it on a Friday afternoon. We were living down in Palo Alto. Go out and have dinner, a couple of beverages, and you come back and it's like, Oh my God, there's $750,000 that was just committed to this thing. I mean, that was that was kind of crazy that this thing that we had built, on the internet, and people that we hadn't met, and they came and they saw the deal and they liked it and they committed to invest. Not insignificant amounts of money. So, I think there's still, you know, when we take a step back and really think about the volume of capital that's flowing through all of our respective platforms, I mean, it's pretty phenomenal, what we've all built collectively, in this industry and how much of an impact that's had. And still to Tore's point, I think, this is still early days, right? I think there's still a lot of room to grow in this space. And Jilliene, you were still - I remember meeting back in 2013, right? You made the same comment of, we have to educate the market, right? I think there's still a lot of education to do. Conversations we have today are still conversations we had almost ten years ago with both sponsors and investors. So, I think there's a lot of those light bulb moments that kind of continue to happen and give you that juice to keep pushing.
Adam Gower: [00:16:10] I love that idea. You know, I raised a lot of money pre-JOBS Act for real estate. It was always in person. Whoever it was, said yes while you were there iN person. The idea of going out to lunch or dinner and coming back to see money coming in. It's just mind blowing. Jilliene. You had a cushy job. A senior position at a major bank doing very, very well. You jumped ship. What was it that gave you the awareness that you'd made the right decision?
Jilliene Helman: [00:16:40] Yeah. I mean, I jumped ship well before this story. But it was probably early 2013. And the first thing that I would do every morning is check the bank account. Kind of to what Adam is talking about, where you go to bed at night and you wake up the next day and there's just suddenly money in the bank account. And so I woke up and someone had wired us a half a million dollars the day before. And so I turned to our employee and I said, you know, hey, have you talked to this investor? And he said, no. Turned to our other employee. Hey, have you talked to this investor? No. So that's kind of weird. So I picked up the phone and I called the guy and I said, His name is Jack. I said, Jack, I'm Jilliene. I'm the CEO of RealtyMogul. I didn't have an office phone. I mean, I was calling him from my cell phone. This is, you know, pre-office. Pre really being an established business. And, he picked up the phone and he said, you know, it's nice of you to call me and the reason that I'm investing with your platform is because I don't want to have to talk to anybody. Click. And he hung up on me.
Jilliene Helman: [00:17:31] And, the thought that someone would wire us a half a million dollars, having never spoken to us and to invest - and this was an apartment project in Kansas. Like, that was the wake up call. Right? And I said, if we can raise a half a million dollars from someone like Jack, we can raise $5 billion from the Jacks and people like Jack, kind of, around the world. So, that was the big moment for me that I knew this is going to work. I had no idea that it would work to the size and scale that we've now grown to, as a business. But, that was really the eureka moment of, we can build trust on the internet, right? And that was always the big question, is, can you build enough trust to have people invest with you online in real estate projects that most of these investors never see. You know, they can go step foot on them, but most of them do not actually go into the real estate. So, that was sort of the moment for me that I knew this was going to work.
Adam Gower: [00:18:20] Yeah, it's amazing, isn't it? I mean, nobody - having been a developer raising money, one of the things that we dreaded the most was the dog and pony show. If you'll forgive the expression of going out and pitching to people. You don't want to do it. But the reverse is true, isn't it? That's exactly your point. Investors don't want to sit in two hour pitch meetings either. They want to do it online. It's much easier. Tore. When you started. You started a starter. All of you are startups, right? JOBS Act. The definitive reason for the JOBS Act. But Tore, when you started, what was it that clicked and informed you that you're onto the right path?
Tore Steen: [00:19:01] Yeah. I think similar to as Jillian mentioned, hearing from the investors was critical to know that you could actually, again, on the first project, actually put something up there and it wouldn't be crickets out there. Right? And, I think the defining moment was after we held the webinar, for that very first deal, with a great sponsor. And afterwards, I started, kind of like Adam and Jilliene and others have shared, you see the offers being submitted and you're like, wait a second, I've never met these investors before. The sponsors never met these investors before. And I think the defining moment was, I actually had two of those investors that invested in that very first deal who actually reached out to me because, again, we were so small. My email was probably right there. And they said, Tore, I just want to thank you so much for making that webinar available. I would never have had an opportunity to hear from the sponsor. But just as important as hearing from the sponsor was actually hearing questions from the other investors. Because, I'm a more novice investor in real estate and there were a couple of investors on there that asked really hardball questions of the sponsor. And the light bulb kind of went off and said, you know, what we're doing is we're creating - Aand again, the internet can do this. We're creating community out there for the betterment of the investors, right? They can learn from each other. They can learn from the sponsors. And when you think of the analog world, that would never have occurred, right? An investor probably wouldn't have been in the same room as other investors talking to that sponsor. And so, I think that was kind of a light bulb moment for me. And then I realized later on, as we all did, it was going to take a lot longer to get more sponsors to recognize that this was a new channel, with a new platform for them to raise capital.
Adam Gower: [00:20:46] Exactly. It's been a - what we've seen really is an explosion of transparency, information and education that just never existed before, did it? Jilliene, let me come to you. Why is - so my question that I sent out beforehand. I'm going to modify it slightly, on the fly, if you don't mind. Why is this industry here to stay and what are the challenges?
Jilliene Helman: [00:21:14] Yeah. Look, I think you have demand from both sides, right? Industries stick around when you're adding value. And I think that we've all proven that we add value on both the investor side of the platforms and on the sponsor side of the platforms. You know, I mean, we recently had a sponsor use our platform to raise $17 Million in equity for a development deal in Nashville. And sponsors want this, right? I think, one of the challenges in the early days was the amounts of equity that they could raise was very small, right? They'd raise $1 million or $2 million per project. That business wouldn't have survived, right? It would have been impossible to build a true business off of that and meet the demands of sponsors and the needs of investors. But that's not the case anymore, right? Sponsors are regularly using our platform to raise $10 million of equity for their project, $15 million of equity for their project, $17 million of equity for their project. And I think you see the investor demand right? Where investors want this asset class. They want access to the asset class. If they live in Miami, they also want to invest in Texas and in Washington and in Utah.
Jilliene Helman: [00:22:15] And they want to build, sort of, diversified portfolios that they otherwise would not be able to without platforms like ours, because they wouldn't have those connections to sponsors. So, you know, it always comes down to value proposition and I think we add value on the investor side, we add value on the sponsor side. I think the biggest challenge is keeping the marketplace in balance, right? We're all running two-sided marketplaces. And so, you want to make sure that you have enough investor demand and enough sponsor demand and that you grow those in lockstep. I think that's been the hardest thing for us over the last decade, is, you don't want to get ahead of your skis on either side of that, right? If a sponsor comes to you and they say, you know, I need to raise $15 million for my project.
Adam Gower: [00:22:54] This week.
Jilliene Helman: [00:22:54] We want to do everything to give them the opportunity to raise that $15 million for their project, right? They put up sometimes millions of dollars in hard money. And so, that's really, really important. Is growing the two sides of the marketplace in lockstep.
Adam Gower: [00:23:07] Charles. What do you see as the challenges for the industry?
Charles Clinton: [00:23:13] I agree with Jilliene. I think that the balancing act is definitely the one you feel most on kind of a day-to-day, month-to-month basis, you know, running this kind of business. You know, I think another is having the regulatory environment continue to mature alongside of our businesses. You know, I think you've seen some modifications to the original JOBS Act in terms of increasing Reg A+ from $50 million to $75 million. None of us use it, but increasing Reg CF from a million to a more usable $5 million. But I think that, you know, we're basically all, as popularity, particularly in real estate has grown, we're basically all pushing the limits, in terms of, what was imagined at the start of this. So I think that's certainly something that we all have to continue to respond to. The other piece is, something that any real estate business faces, right, which is just evolving credit, standards, and changing market conditions. You know, the next ten years is not going to look like the last ten years. So I think that there is a real credit strategy, even for those of us who are more pure market players versus, hold a little bit more in the asset manager direction. The quality of the investments that are on the platforms is so crucially important because ultimately that's the experience of the investor. Part of our core value proposition is vetting these investments, making the investment process easier. So, how you navigate something like rising interest rates is incredibly important and something that, I think, all of the platforms, I'm sure are dealing with at this point, on kind of a week-to-week, month-by-month basis.
Adam Gower: [00:24:56] Tore. I'm going to key off something that Charles said, to ask you a question. Are there any limits, do you think, to how big the industry can go?
Tore Steen: [00:25:05] I guess, use Blackstone as an example, right? Their BREIT today is raising somewhere close to $2 billion a month I think, so. No. I don't think there's a limit and I think if we, collectively all here would say, hey, we should be doing $20 billion a year, plus, right? Online. Now, just like e-commerce and retail, e-commerce is not 100% of retail sales. But, I do think that this online channel, for sponsors, will become a big portion of the way that capital is raised for projects where they do need to raise $20, $30, $50 million of equity. And traditionally, had gone to institutional investors to raise that capital when they recognize that that they now have this kind of technology-enabled way to raise from the retail accredited investor audience that they never had before. So, I don't - I mean I think, the limit is so far from where we are today, it's really kind of - it's amazing and it's great, right? But again, it's taken us ten years to get this far. I think Moore's Law will apply here.
Adam Gower: [00:26:17] I was just thinking of that.
Tore Steen: [00:26:19] Moore's Law is going to apply here and we're going to continue to see incredible acceleration.
Adam Gower: [00:26:24] I was just trying - I was just thinking Moore's Law. Who was it of you, that mentioned Moore's Law and it must have been you, I think. What is Moore's Law? Just tell everybody. What is Moore's Law?
Tore Steen: [00:26:32] Just back to my my tech grounding I guess. You know, Moore from, who is founder of Intel, right? And CEO of Intel, was talking about the processing power and how it can turn over, basically, every 18 months and the acceleration. Now, that's an old industry, semiconductors. But again, when you look at the change of what happened and the acceleration of computing power, you know, you apply it here and you start to say what we did in ten years, will suddenly, we'll do in two years. Right? So, it's exciting.
Adam Gower: [00:27:06] The closest I get to that. My first book took me ten years to write. My second took me ten weeks. I'm not sure if that's Moore's Law or just.
Tore Steen: [00:27:14] Is that Gower's law?
Adam Gower: [00:27:15] I wasn't quite as diligent on the second book, let's put it that way. Adam. Let's just wrap up with you on this series of questions. Tore talks about the industry growing to, potentially, billions and billions of dollars a month, in growth. What do you see as the challenges? What are the headwinds that this industry, that we all represent, may face?
Adam Hooper: [00:27:36] Yeah, I think Jilliene and Charles summed it up pretty well, right? Keeping, two-sided marketplaces are very difficult businesses to build, at the best of times, right? And so, that's always been a challenge, I think, for all of us. One of the more, I guess, kind of soft challenges is, maybe we'll talk a little bit more about this later is, keeping investor expectations in line with the realities of the market. As Charles said, we're in a very different part of the market cycle that we were in 2013, 14, 15, when we all started our companies. Yields and expectations change over time. And I think that was a challenge that that we faced and I think still somewhat face is the disposition of someone that's seeking investments in real estate online, by nature is going to be more understanding - or they're looking for a higher risk. They have a higher risk tolerance. Right? And so, they're looking for juicier returns and maybe where the market continues to shift and we've seen so much money come into the real estate space that yields have continued to compress. And so, I think that's one of the, in terms of getting to that next level of scale, I think keeping investor expectations in line with where market returns actually are. And then again, to Charles's point, I think, once we can figure out a more efficient way to distribute to non-accredited investors, right? Whether that's through Reg A+ or through Reg CF, now at 5 million. Fundrise has really been the only one. They're not on here today, but they've been really the only one that's really pushed the Reg A+ space to like massive scale, right? I think they're over a billion of AUM now. So I think there's a, certainly an opportunity to look beyond just accredited investors and really look at breaking down those barriers and to making this accessible, truly to everybody. I think that's one of those next frontiers. That's another, kind of, level step change of where the scale can go within our industry.
Adam Gower: [00:29:25] Fascinating. Yes. Managing investor expectations. For those of us who have been through multiple cycles in real estate, this industry has not done it yet. So, that's really key. And it actually brings me to a question for Charles. In our podcast conversations, some years ago, you talked about the need to stay responsive to what investors are looking for. Question. How have what investors are looking for evolved in the last few years?
Charles Clinton: [00:29:58] You know, fundamentally, I think it's still the same thing that we've all been talking about today. Right? It's access to commercial real estate. So, at a very base level, it hasn't shifted. I think, while deal-to-deal investing remains the dominant paradigm right now, I do think that's starting to change. I think investors are starting to embrace funds and other kinds of diversified products because really the core need is getting into real estate, right, and having transparency into what you're investing in. But that has been synonymous with deal-by-deal investing. But I think that, one-to-one is starting to break down a little bit and investors are a little bit more focused on the benefits of diversification. I know we've spent a lot of time on this. I'm sure every platform has, really emphasizing that piece from an educational perspective. You know, creating a portfolio and lowering your beta by doing that. I know, we launched a, kind of, short term savings product that's backed by commercial real estate interests, and that's been tremendously successful for us. We close on it every month. We're 2X oversubscribed, basically, every time. And I think that's indicative of a little bit of shift in investor sentiment. The other piece, I think is, given that investors have dealt with more platforms over time, seen some platforms rise and fall in the early days of the industry, I think there's a more focus from the customer on their holistic experience with the platform.
Charles Clinton: [00:31:26] So, you know, not just, hey, does this deal have an attractive IRR. But, what kind of - are my questions getting answered? Are there good investor relations, customer service? Are the payments and reporting functioning well? Am I getting clear and transparent information? I mean, really, it's a long term relationship that you have with the investor. You know, we have investments on the short end that are six months, but we also have investments that are five or even ten years long. So, the customer's comfort level with you, as a platform, is really important and obviously it plays into that virtuous cycle of investing or frequently building a more diversified portfolio. So, I think that's been a really positive thing, as the industry grows, and I think you'll continue to see more of that. You know, investors managing their portfolios, thinking about it a little bit more broadly than they did in terms of, hey, I saw this deal, I want to invest in this particular deal.
Adam Gower: [00:32:20] Perfect, now that they have the opportunity to be able to diversify. Jilliene. When you and I first spoke, you talked about marketing. This is something, I mentioned earlier, that I've actually adopted and evangelized. Thank you for mentioning it, all those years ago. That marketing - that we were going to see, or that the JOBS Act was going to unleash a marketing opportunity to promote private equity real estate in a way never seen before. Is success in online syndication, a.k.a. crowdfunding, still primarily a marketing challenge, or has it evolved into something else Jilliene?
Jilliene Helman: [00:32:57] You know, I wouldn't call it a marketing challenge so much as an education and trust challenge, right? In order to invest $100,000 or $200,000 in a real estate deal in the internet, you have to trust the players, right? The platform, the real estate company, the property manager, the construction manager. And it's hard to build that trust in a digital way. So I think for us, the more we can educate potential investors on investing in real estate and help build tools to gain their trust, the more effective that marketing becomes, right? I think on the real estate company side of the marketplace as well, it's less a marketing challenge and more, be successful, right? Success begets success in this industry. So, we have a lot of repeat business with real estate companies who have done business with us, had a good experience and they come back to do deal two, three, four, five, six, seven, eight, nine, ten. Right? These real estate entrepreneurs, they want to be in the business of buying real estate, not in the business of raising capital. Right? What they're great at is real estate transactions and adding value to real estate and increasing the value of that underlying real estate asset, not raising capital. Right? And kind of, making that not a full time job for those real estate companies. So, I think it's building trust. I think it's education and I think it's being successful and meeting commitments with real estate sponsors.
Adam Gower: [00:34:14] Fascinating. It's about the way that we form relationships, actually, it's changed fundamentally. And Adam, this is what you and I talked about first when, just shortly after you had founded RealCrowd, you said that the need for in-person one-on-one conversations between sponsors and investors had been removed, but that the need for relationships had not. So my question to you is, has that changed since the industry has started growing? What kind of relationships are developing when parties seldom actually meet in person?
Adam Hooper: [00:34:50] Yeah. So, we've talked about it, right? The internet is the great connector, right? It takes this one-on-one conversation and instantly goes from 1 to 2 unlimited. Right? One to many. So I think there's the ability to change how you can make those connections through these internet-based platforms. And there's really - I think we've all kind of mentioned it, and Tore mentioned it before too. There's really three different relationships that are being formed, right? There's the - well four maybe. There's the real estate manager and the platform. Right? That's a very, very tight relationship. They're looking at the platform for speed and certainty of capital, and that's a pretty big relationship to manage. There's the investor in the platform, right? Which has to kind of elicit that trust and it's customer service and you got to make sure that there's this kind of general customer service. And I think to Jilliene's point, education, right? I mean, that's why we've got the fancy mic here. We do our podcast. You know, you have to educate and you have to kind of give this information piece. And then there's this relationship between the the individual investor and the real estate manager and seeing those connections is really fun to kind of know that all of our platforms have a role in that, right? We're on the direct side so there is very much that direct relationship between the investor and the and the real estate manager. And I go back to earlier days, we had an investor make an investment on a platform into a deal that was down in Southern California. And a year later or so, the investor was actually the doctor that delivered the real estate manager's child and they didn't know each other, they didn't have any connection.
Adam Gower: [00:36:20] Haha. That's incredible.
Adam Hooper: [00:36:21] But until they got in the operating room. They're like, Oh my gosh, I think I know you. So that's just - there's real world connections to this. And then the final one that Tore mentioned, is these, these investor-to-investor relationships, right? To be able to build that community and be able to have that, kind of, collective insight. For a lot of people, this might be the first time that they've ever had access to these private real estate investments. So to be able to learn from and, kind of, leverage this collective network of intelligence and questions and comfort, I guess, and, kind of, other people that know what they're doing are also investing in this property. That's another interesting relationship. So I guess there's really four different kinds of relationships that were all, you might think it's just one relationship with the company and the investor or something. But there's really those, kind of, four different relationships that we're all managing that are possible because of this - these platforms that we've built and they each require a little bit of a different touch to manage those. So to me, that's one of the fun parts of this is to kind of see those relationships develop and evolve and how technology can play a role in amplifying and creating those relationships with far more efficiency than what it used to be with, you know, picking up the phone or going to do your lunch meetings. I think that's a really, really big shift of, I think, we've probably all seen on our platforms.
Adam Gower: [00:37:33] Exactly. I mean, this ability to be able to communicate openly online is what is commonly, kind of, referred to as democratizing real estate. Right? This access to information, to contacts and to networking. Tore. If there were a hardball question today, this is it. It's for you. There are two sides to the equation. There are sponsors and investors. The more investors that come in, obviously is good, but the other flip side of that is the sponsors having now raised $3 billion in equity, an extraordinary number, and increasingly raising money for deals that require $40 million of equity and above. Has CrowdStreet actually now stopped democratizing real estate finance and simply become another institutional investor?
Tore Steen: [00:38:26] It's a good question, Adam. And actually it's interesting because as some of our raises are $25 or $30 Million, and to your point, when people hear how much is being raised now, they start to assume - Oh those must be institutional investors putting in big checks. And this is the power of the crowd, right? Is that, you can have 4-500 investors go into a deal and submit their offers and transact online and you can disrupt what traditionally was done, just with an institutional check. Now, it's taken us all time to kind of graduate up. I think several panelists have talked about the fact that we've graduated from a million, $3 million to $10 to $20 million size, and you start to disrupt that institutional, kind of, investor. So, I don't think we're actually - now, we have to hold ourselves in check here because I think as we all grow, you know, it becomes clearer that maybe we're disrupting that institutional investor and they might look at our platforms and say, oh, is this going to give us a different advantage and access? And I think philosophically, we're all aligned here. We're out to help individual investors gain access. So again, the only way that investors had that access before I mentioned, kind of the Blackstone BREIT, there's been those traditional channels. And I think we've opened up this completely new channel for individual investors, which actually put puts all the power in their hands. Which again, the internet's done this to industries before ours and ultimately the consumer wins. And so, I think we all are aligned on that and out to make sure that that happens and we don't fall into the trap of, oh, gosh, now the big institutions have woken up and, you know, they're going to try and take advantage of the situation.
Adam Gower: [00:40:20] You know, I love this talk about institutions because when you think about institutions, you're talking about insurance companies, pension funds, endowments. Where do they get their money from? They get it from the same people that all of you guys are getting it from. It's the same people filtering out to the same deals, in a different way. It's absolutely fascinating and inevitable that these two industries, institutional and online syndication, were going to come together. It is inevitable. Tore. Let me follow up. I see you just - don't think that you're getting a break that quickly. My next question for you. Let's talk about some of the current events and what's been going on. What have been the biggest changes you've seen, Tore, to your business as the industry has grown and in what way has it - is it changing now that the pandemic recedes?
Tore Steen: [00:41:13] Yeah. I think the biggest changes to our business was, I think I'll reflect back early on, I referenced this in that, we were all pretty excited when we saw, kind of, investors and their demand for this. But I think a shocking thing to me was how slowly the sponsors came about adopting this. Right? And I don't blame them. They've been doing it a certain way for decades. Many times they're lawyers - were like, you can't generally advertise and use an internet platform. So it took us longer than I would have liked to get those sponsors online. I think we've also seen that investors obviously, that are new to this asset class, it takes a lot of education. So I think one of the changes is that we had to really put forth, a few years ago, a lot around the education side and putting out research and investment thesis and market outlooks for the investors to help them on the path. As you mentioned, as the pandemic recedes, I hate to say it but, 2020 in a way, was a big wake up call for a lot of these sponsors who've been raising capital a certain way. Because we know, when there's a shock to the system, usually the big institutional investors will pull back. They'll pause. They'll look at their portfolio. They might realign. And so, I think sponsors who had been looking at the online syndication model and again, these are large sponsors who had no reason to dip their toe in. Finally recognized, wow, I should probably open up a new distribution channel for my deals and I really should take this seriously. And so I think, as the pandemic recedes, we've seen kind of a realization, by the sponsors, to start making this a part of their strategy. And so I think it's been, I think, a shot to all collective businesses. It helped. It hurt temporarily, but it ultimately helps long term.
Adam Gower: [00:43:12] Jilliene. Did you see the same thing that everybody going online because of the pandemic suddenly felt forced to work remotely, forced to make investments remotely, do research. Do you see any acceleration of trends because of the pandemic?
Jilliene Helman: [00:43:28] I think it helped investors to build trust online. I go back to my earlier point around, like the real challenge in this business is education and trust. And you went from, maybe some investors who traditionally would go sit across from their banker or sit across from their investment advisor or their portfolio manager, and they would talk through their portfolios. And suddenly that all moved to Zoom. Right? And so, making an investment over the internet, a lot of folks had to become more accustomed with digital finance. Right? And having online bank accounts and doing wires online. And, a lot of folks were afraid to go into a bank branch and sign their name on a piece of paper, right? So they got comfortable with DocuSign and all of this adoption of technologies that are underlying technologies of our platform. Right? We didn't build those technologies, but we've integrated with them to create this seamless online user experience. I think the adoption of those technologies really grew during the pandemic, and that was a big win for us. And I think Tore's point around the sponsors is a very accurate one, right? Where, historically they could rely on a lot of these in-person meetings, conferences, they build through these one-on-one relationships and when the pandemic hit, number one, many of those firms stopped investing in real estate because there was fear. And number two, they weren't getting together in person. So sponsors had to find a different way to build those relationships. And so I think the confluence of those two things, the impact on the investors and the impact on the sponsors actually had a great outcome for our businesses.
Adam Gower: [00:44:50] It's that fascinating. Yes. I certainly saw a strong uptick at the beginning of the crisis. Adam, let me ask you. So, since 2012, times have been good. I mean, we had this slight blip, right? With the pandemic. Now, hopefully gone into the deep past hopefully. Things have been good for the real estate syndication business. It's grown from strength to strength, right, since the Global Financial Crisis 2008, whenever it was 2009. For those concerned about economic uncertainties that we see today, inflation, the impacts of rising interest rates, conflicts in Europe, impact of sanctions, etc., etc. Is real estate still a good hedge?
Adam Hooper: [00:45:36] I mean, look, we're all real estate people, so of course.
Adam Gower: [00:45:40] The answer yes. Now is never a better time to buy.
Adam Hooper: [00:45:42] The answer is a strong yes. You know, I mean, I think it's and what we saw through the pandemic too - I guess to a point that both Tore and Jilliene pointed to is, the business model that we've been building for the last ten years is a business model that so many transitioned to during the pandemic. Right? This ability to transact online and to function digitally is what we've been building for the last ten years. Right? So I think the transition for our industry was, I think, maybe less of a challenge than some of the other industries that kind of had this spin up from zero to figure out how you operate in this kind of digital first way. But, the other thing that came from that too is, I think, all the volatility that we continue to see in the equity markets. Right? There's so much volatility out there. There's so little yield in some other asset classes. Real estate is one of the greatest wealth creation tools that there are, right, to Jilliene's earlier point. The majority of the wealthiest clients at the bank, were real estate investors, right? That's just a tried and true method to both build and preserve wealth. So, I don't think the attractiveness of real estate as an investment class is going to go away and I think the more we can educate and the more we can get people to understand, at a fundamental level, how real estate investment works and really understand it, I think the better. We did a survey, just a month or so ago, when the Ukraine crisis was coming on and inflation and all of these things, just to kind of take an investor sentiment questionnaire and take the audience with a grain of salt.
Adam Hooper: [00:47:11] But 95% of the respondents said they were going to add to their real estate holdings in 2022. Right? So we're self-selected for a real estate investor audience. So that's kind of a throw away. And no surprise in terms of asset classes, right? Multifamily - number one. Industrial, self-storage was number three, which I thought was kind of interesting. Retail, hospitality, kind of, rounding out the end. Probably some interesting contrarian plays there, in the hospitality and retail space. Relatively neutral in the stock market, in terms of how that'll affect their investment decisions. But the biggest concerns was interest rates and inflation. Right? I think we're in an inflationary environment. There was a lot of money printed in the crisis that's going to have to be sorted through the system at some point. But, real estate is generally a pretty good hedge against that. Right? Especially when you look at some of the more higher velocity asset classes, whether it's self storage or multifamily. Were you able to reset those rents at a high enough velocity that you can, kind of, capture some of that inflationary pressure? So, I think that's a long way of saying yes. We're big believers in real estate as an asset class. We think it should be in everybody's portfolio and I don't think that's going to change fundamentally any time soon.
Adam Gower: [00:48:19] Right. Let's move on. You know, I was hoping to do some Q&A. I'm always worried that we're going to finish in 10 minutes and just sit around looking at each other. There's never enough time so we try and stop at the top of the hour. Let me roll on to some final questions, as we wrap up. If we have time, we'll do Q&A. We may not have time, just FYI. Charles, let me ask you this question. Has the growth of the online real estate syndication business been what you expected?
Charles Clinton: [00:48:48] No. I mean, I think that for all of us, the ramp up was much slower than we hoped or thought. I think that the expectation, when these laws changed ten years ago, was that this was going to shoot out of a cannon and that wasn't the case. I think that, as we were on the ground and started actually interacting with the customers and understanding why, you know, to Jilliene's point, there was just such a massive trust and education gap that the industry, as a whole, had to fill. But on the flip side, I think that, I've certainly been very, very pleasantly surprised by the acceleration over the last two years. I do think that COVID had a role, you know, taking these secular trends of democratization and access and just interest in online investing and accelerating them. But, we're also just at that inflection point from an awareness perspective. And I think, what's happened in the last 24 months, is really indicative of the new slope of this industry. And, you know, going to where Tore said, on BREIT on $2 billion a month. You know, as crazy as that might sound now, it would have sounded much crazier two years ago. And in two years, it's not going to sound that crazy because there really is no ceiling for this because of the amount of demand that's been proven, really for generations for real estate. You know, even when the products that were available for people were pretty poor. I mean, if you think back, not long ago, really at the time when we were all starting, I mean, I think BREIT is sort of a shining example of the new wave of REITs. But REITs were taking, between sales commissions and their own fees, taking 14% off the top, but still raising $20 to $30 billion annually because there was just so much thirst for it. And I think, you know, now that investors have one, become aware that platforms like ours existed, but also can compare us to our historical antecedents in terms of cost and transparency and ease. You know, the growth in front of us is really exciting.
Adam Gower: [00:51:00] Jilliene. What has surprised you the most over the last few years, since you've started?
Jilliene Helman: [00:51:07] The timeline of sponsor adoption. I think that I believed, at least, that we'd go to sponsors and say, you know, you can go raise capital on the internet and you don't have to go run around country clubs. And they would say, great, sign me up. And I think there was a decent amount of skepticism. Right? Even sometimes now there's skepticism. We're a sponsor. They'll look at us cross-eyed and go, you're going to raise $10 million for me on your website? And we go, Yeah, and look at these couple hundred transactions that we've already done and look at the track record. Yeah, this is where the industry is now. But, until that money hits their bank account and they've done business with us or they've done business with another platform, you know, there's still sort of that aura of skepticism. I think, to Charles's point, that that's really shifted over the last 24 months, and I think it'll continue to shift moving forward. But probably, you know, the biggest surprise, if I look back over a decade, the first deal that we ever did was $110,000 duplex in Compton. Right? Like literally, my first deal with RealtyMogul, $110,000 in Compton and we just worked on $100 million development in the Heart of Miami. Right? And so when I go, ok, over ten years, we went from $110,000 to $100 million project. Like, wow. That's pretty amazing what we've been able to accomplish.
Adam Gower: [00:52:21] Adam. What has been the most important lesson that you have learned since forming your company that informs your plans for the future?
Adam Hooper: [00:52:33] We were talking a bit about this before, and I think, while we're all almost ten years into this, it still feels startupy. Right? I mean, there's still daily challenges that we're trying to still problem solve and we're still discovering new things. And we're looking at new regulations and we're trying to see where we can kind of still push this industry forward. So to me, I think the biggest thing is just having that perseverance and the ability to still be learning. Right? There's still so much that I think we're all collectively learning in this industry that, yes, we're ten years into it. But, this is - there's no roadmap to how to do this. Right? So, it's still - there's so much room for us to grow the industry and just to learn. So I think to me, that's one of the biggest things of just, kind of, keeping our - it's a fascinating industry, right? There's still - it's such an interesting time to see where this can grow and learning new things about how to, even just present this information. Right? How do people want to consume this information? By and large, you know, we've taken a physical offering memorandum and put it on a website. Right? There's not a lot of new innovation that we've really seen yet, in terms of how we can deliver that information. Right? So I think there's just there's still so much more to learn and still so much more to do. That to me, as a real estate nerd, keeping my learning hat on, I think is always going to inform how we go forward. Always be open to new new ideas.
Adam Gower: [00:54:04] Perfect. Looking forward. Tore. So we're right at the end. 5 minutes, so we may not have time for Q&A. Rapid Fire. One question for all of you. I know you love to make predictions, right? Past performance is no guarantee of future results, as we all know. But, when I ask you to predict. Tore, why don't you kick off. Where do you think the industry is going to be, not in ten years, because that's, you know, contradicts Moore's Law and everything. Where do you think we'll be in five years? If we're sitting down, what will we be talking about in five years?
Tore Steen: [00:54:37] It's a great question. I'm going to play off of what Adam just said and kind of like, when you think about it, we haven't truly, truly disrupted private equity real estate. Right? I mean, we've transformed it, no doubt. And again, we all - hats off for what we've done but we haven't changed the real structure of what happens here. Right? It's still, for the most part, an illiquid investment. Right? And it's got - it could be a two year horizon, a five year or a ten year horizon of what's going to happen. I do believe that, again, what we've done already, again, you have to digitize the transaction process first. You have to get the supply and demand working together on this. But I think, truly in the next five years, you're going to see further disruption where we can actually further, kind of, take it from an illiquid to a liquid investment. Technologies like blockchain are enablers to allow us to get there quicker. Right? None of us are steeped in blockchain, but we're steeped in leveraging technologies and platforms that will help us get there faster. So I think, when blockchain really became popular three or four years ago, I was looking at it going, this is great, right? Because, the ledger system is going to get simplified. This is going to be an enabler. We'll all be able to leverage this and ultimately for the benefit of the investors. So to make basically, the real estate investing an easier thing for them, because it's still not easy, right? It's not as easy as go on your Schwab, put in a ticker symbol, buy the mutual fund or buy the stock. I'm going to say, it's going to take us a long time to get to that point, but I think we will be getting there in the next five years.
Adam Gower: [00:56:12] Interesting. Charles. How about you? Where will we be in five years?
Charles Clinton: [00:56:17] Well, I think there's two things that jump out to me. I think first, you're going to see several players really look like next wave financial institutions. I mean, you've seen it in other part of the fintech world, right? I mean, Stripe really is, just an - it's a financial institution now. It doesn't look the same way as the banks of old. It's doing things differently. But, it's kind of risen to a place where it's a semi-permanent part of the financial ecosystem. And I think, you're going to see multiple players that are at that scale where they're comparable in size to some of the large, kind of, name brand institutional asset managers. So I think that's one piece of it. And I think the other thing is, the type of investor is going to be dramatically expanded. I mean, right now, we're really all focused on accredited investors. Fundrise has gone heavily after non-accredited investors, but everyone's mission here is to open up this market, to make it more accessible. And part of that has to be expanding who has access to these investments. So I think that, as the scale of the platforms grow, as they can better support these higher customer volumes, you're just going to see them start to grow out in terms of the customers that they're focusing on.
Adam Gower: [00:57:40] Adam. How about you? Next five years, what's going to happen to this industry?
Adam Hooper: [00:57:44] Yeah. I think I'd echo with both Tore and Charles, right? I mean, true broad- based distribution. Right? We've built incredible foundations for that disruption to happen. And you look at any successful consumer scale technology company and they measure their users in the millions or tens of millions or hundreds of millions. Right? You know, we measure it in thousands or tens of thousands right now. So I think there are - there's orders of magnitude of greater distribution that we can get to that, once we can unlock that and figure out the most efficient way to truly get to that, millions of users scale. I mean, it's going to be a completely different industry and I think is, to Charles' point, will be a, kind of a foundational layer in financial services for the industry.
Adam Gower: [00:58:29] And Jilliene. Last word to you before we wrap up. Where are we going to be in five years?
Jilliene Helman: [00:58:35] I think it's all about scale. This year, I'd surmise that this group is probably going to be involved in around $10 billion of real estate transactions. And I think you look five years out and it's a $100 to $200 billion in real estate transactions that we're collectively touching and that's disruptive. Right? I mean, I think we've set the stage for the disruption and the next five, ten years are going to be about actually doing the disruption.
Adam Gower: [00:58:59] Ladies and gentlemen. You know, we're at the top of the hour. For everyone that sent me a question. I'm so sorry. I did agree that we wouldn't go beyond an hour with our guests. So we're going to wrap up now. I just want to say thank you to everybody for having joined. Thank you to Tore Steen, Founder of CrowdStreet. Jilliene Helman, Founder of RealtyMogul. Adam Hooper, Founder of RealCrowd and Charles Clinton, Founder of EquityMultiple for commemorating the 10th anniversary. Actually at 11:00, it is now, exactly ten years to the hour that the Act was signed into law in the Rose Garden there at the White House. Thank you everybody for attending today. Thanks so much for your time. I'll see you next time. That's it for today. Thank you.
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