The Best Real Estate Digital Syndication Platforms for 2022
In UNLEASHED, (2021) a book that analyzes the scale of the online private equity real estate industry since inception following the passing of the JOBS Act of 2012, we quantified the size of the industry for the first time.
In the following article, we update our analysis of this new industry, explain the difficulties in labelling it 'crowdfunding,' and comment on the track record and performance of five veteran marketplaces, each among the earliest adopters of digital syndication.
For those not familiar with the concept of real estate syndication - or the distinction between private equity real estate and 'crowdfunding,' we provide a detailed explanation. If you are already familiar with the industry and the related concepts, skip right to the section on the comparative performance of the major marketplaces by clicking here.
- What is Real Estate Syndication?
- Real Estate Syndication Regulations
- Real Estate Digital Syndication vs. Real Estate Crowdfunding
- Best Real Estate Syndication Platforms in 2022
- Why Private Equity Real Estate Syndications
- Is Real Estate Investing a Good Option for You?
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Regulation D Digital Syndication
The lion’s share of capital raised using online real estate syndication platforms like CrowdStreet do so by utilizing Regulation D - which is not, technically, 'crowdfunding.' There are two types of Regulation D capital formation, otherwise referred to as 506(b) and 506(c).
Regulation D, 506(b) offerings have been allowed for decades. Per Rule 506(b), sponsors can raise an unlimited amount of money for their real estate deals, as long as they have a pre-existing relationship with those investors. They are not allowed to utilize general solicitation or advertising to market their real estate securities. The upside is that under Reg. D, 506(b), sponsors can raise capital from an unlimited number of accredited investors and can also can raise capital from up to 35 non-accredited investors.
Regulation D, 506(c) is arguably what opened the door to today’s real estate private equity real estate marketplaces. Under Rule 506(c), created as part of the JOBS Act, anyone issuing securities may now utilize “general solicitation” or advertising to market their offerings to investors. Unlike Rule 506(b) offerings, these are only available to accredited investors.
It is a common misconception that 506(c) – which is what sponsors are increasingly utilizing to raise money for their syndications because of the marketing options now available to them – is what sparked the advent of online real estate “crowdfunding.” In reality, all that 506(c) did was remove the requirement that sponsors have a pre-existing relationship with their investors. Now, sponsors can solicit investment from any accredited investor using an array of marketing and advertising techniques.
Therefore, it is more accurate to think of websites like CrowdStreet, RealtyMogul, RealCrowd and EquityMultiple as private equity real estate digital marketing and ecommerce platforms that help sponsors advertise their real estate syndications as they look to procure capital for their deals and gain committed funds from qualified investors. True “crowdfunding” platforms are subject to an entirely different set of SEC regulations (see Regulation CF Crowdfunding, below).
Regulation A+ Crowdfunding
Another way for real estate sponsors to raise capital is through Regulation A of the Securities Act. Any company selling securities under Reg. A is required to file their offering with the SEC for review, just as any major company would do when filing an IPO. Of course, this process is burdensome, especially for the size and scale of most real estate deals.
In 2015, changes to SEC regulations resulted in “Regulation A+” crowdfunding, often referred to as a “mini-IPO”. Under Reg A+, companies can raise up to $20 million in “Tier I” offerings and up to $75 million in “Tier II” offerings – each of which has its own requirements, including the level of SEC review needed prior to opening the offering.
In practice, the still-cumbersome nature of offering securities via Reg. A+ means that few real estate sponsors pursue this avenue when raising capital. According to a March 2020 SEC report, approximately 183 issuers have raised a total of $2.4 billion since 2016 – not an insignificant amount, but worth noting that only a fraction of this dollar volume is attributed to real estate transactions. The primary benefit to utilizing Reg. A+ is that sponsors can raise capital from accredited and non-accredited investors alike.
Regulation CF Crowdfunding
The only “true” form of online real estate “crowdfunding” is done so per Regulation CF. Reg CF was also introduced as part of the 2012 JOBS Act, and initially allowed issuers to raise up to $1.07 million in equity for any business or entrepreneurial venture (including but not limited to real estate) within any 12-month period. That money could be raised from an unlimited number of investors, accredited and non-accredited alike.
Reg. CF crowdfunding portals must be authorized by FINRA and the SEC. SmallChange is one of the most notable Reg. CF real estate crowdfunding platforms operating today.
One of the reasons why so few real estate sponsors pursued using Reg CF to raise equity is because of that equity cap as well as the restrictions this sub-section of the JOBS Act imposes on issuers. Often, sponsors are looking to raise tens of millions of dollars in equity, so $1.07 million is a drop in the bucket. Perhaps in recognition of this reality, the SEC has since modified Reg CF to allow sponsors to raise up to $5 million per year – still a low threshold, but a five-fold increase from the previous Reg CF limit.
According to Crowdfund Capital Advisors, the amount invested in Reg. CF deals nearly doubled in 2020, from $134.8m in 2019 to $239.4m in 2020. To put that in context, there was an estimated $15 billion raised last year under Reg. 506(c).
There was a 75% increase in the number of investors who participated in Reg. CF offerings during this period, as well, with more than 358,000 recorded investments. However, the average investment was quite low at just $650 per investor. These investments primarily span non-real estate industries; with real estate investments make up only a small fraction of the total dollars raised using Reg. CF crowdfunding, and a tiny fraction of the total amount raised for real estate overall under 506 regulations.
Accredited Investor vs. Non-Accredited Investor
Commercial real estate, considered an “alternative” asset class, has historically been considered a “riskier” investment than more traditional stocks, bonds and equities. As such, the federal government has implemented certain rules around whom can invest in CRE and how. The primary distinction involves being an “accredited” vs. a “non-accredited” investor.
According to the SEC, an accredited investor is one that has:
- At least $1 million in net worth, together with their spouse, and excluding the value of their primary residence;
- Income of at least $200,000 per year (or $300,000 if combined with a spouse) for the past two years, with a reasonable expectation to earn the same or a higher income in the current year; or
- Holds a Series 7, Series 65, or Series 82 license.
By some estimates, some 10.5% of the U.S. population meets the threshold to be an accredited investor, or a total of approximately 13 million households. Therefore, private equity real estate syndication platforms that raise money from non-accredited investors have access to the remaining 89.5% of the U.S. population who may otherwise be interested in investing, but who have been unable to do so until the recent SEC regulation changes.
Best Real Estate Syndication Platforms 2022
As noted above, real estate syndication is by no means a new process. Real estate syndication, often erroneously referred to as “crowdfunding” as discussed above, is the process by which a sponsor raises capital from a larger group of individuals (hence, the “crowd”). Historically, sponsors would raise large sums of money from a small pool of investors. Now that sponsors can engage in “general solicitation,” they can either raise capital directly from individuals or use various online platforms to advertise their deals to more investors who often contribute less capital apiece, but collectively, significant equity for individual commercial real estate deals.
Keep in mind that the private equity real estate digital syndication industry is still in its nascent stages of growth. The platforms we recognize below each report that they only accept 5% of the real estate sponsors who approach them – and that perhaps only 5% of sponsors even apply to list on any of these platforms. In short, only 5% of 5% of sponsors end up listing on a real estate private equity syndication platform which speaks to the potential for the industry's continued growth.
Below is a list of the top five real estate syndication platforms for 2022. It’s worth noting that while there are other entrants to the industry, these companies were among the visionary first movers after the 2012 JOBS Act was passed and are therefore the most proven and tenured.
Each learned early on that having robust investor education resources is vital to attracting new investors previously unfamiliar with private equity real estate. The credibility of the platforms we recognize below each is enhanced because they offer numerous educational resources available to investors; podcasts, articles, white papers, courses, and other numerous other resources.
CrowdStreet is by far the largest online private equity real estate investing platform. It was founded in 2014 and last year alone, helped sponsors raise more than $1.3 billion in equity from individual investors.
Since its inception, CrowdStreet investors have successfully funded 615 deals, of which, 98 have been realized as of March 4, 2022 (i.e., gone full cycle and have been sold). Among these deals, an estimated 193 were considered “opportunistic” investments; another 273 were “value-add” investments; 98 were “core-plus” deals; and 11 have been “core” deals.
The average hold period for those realized deals was 2.7 years and on average, these deals generated a 18.5% IRR and 1.49x equity multiple on behalf of investors.
Typically, there are anywhere between 5-15 individual deals featured on the CrowdStreet marketplace at any given time. These deals are only available to accredited investors and typically, require individuals to invest at least $25,000 in each deal – one of the highest minimum investment thresholds of the platforms featured here today.
At time of writing, CrowdStreet had raised just over $3 billion in capital on $22 billion of total capitalized deals making CrowdStreet the largest, most successful private equity platform, and at this scale in so short a time period, a platform that has almost become an industry unto themselves.
Founded in 2012, RealtyMogul is one of the most established online real estate syndication platforms out there today. RealtyMogul has helped sponsors raise more than $700 million in equity that has gone on to finance more than 400 properties.
One of the primary draws of RealtyMogul is that it allows both accredited and non-accredited investors to invest with as little as $5,000.
Non-accredited investors may only invest in the platform’s two public, non-traded real estate investment trusts (REITs): the RealtyMogul Income REIT and RealtyMogul Apartment Growth REIT. The RM Income REIT invets in commercial real estate debt and equity assets across product types, including multifamily, office, industrial, self-storage and retail. The RM Apartment Growth REIT invests in preferred and common equity in multifamily apartments. Both REITs pay dividends on either a monthly or quarterly basis.
Accredited investors can invest in these REITs, too, but they also have access to several private placement investments featured on RealtyMogul as well. Individual deals may have higher investment minimums and will often range from $25,000 to $50,000. RealtyMogul’s private placement investments generally have a 3-7 year investment time horizon. They are offered to investors as unregistered securities offerings, making them exempt from registration with the SEC.
EquityMultiple is another of the more established private equity real estate platforms for those considering investing via online in a real estate syndication. Although deals are only available to accredited investors, those who qualify as such will have access to an array of equity, preferred equity, and syndicated debt offerings. Therefore, EquityMultiple is a good option for those looking to invest in different positions across the real estate capital stack, which helps to vary someone’s risk and order of repayment. As is common across the main platforms we are covering in this article, EquityMultiple also offers specialized deals, such as opportunity zone investments and, in some cases, deals eligible for those conducting 1031 exchanges.
The platform has a relatively low investment minimum of just $5,000 for some deals, though many offerings require an initial investment of at least $10,000 or more. Also as is common among the main syndication platforms, EquityMultiple accepts sponsors to their platform who allow investments to be made via a self-directed IRA.
Since its founding, EquityMultiple has helped sponsors raise $318 million across all investment types. Debt investments represented $49 million of that total (14 exited investments); Preferred Equity totaled $115 million (35 exited investments); and JV Equity represented $138 million (15 exited investments). Across all investment types, roughly $145.4 million has been returned to EquityMultiple investors in terms of gross distributions.
RealCrowd is another of the top veterans of the real estate syndication industry that helps sponsors raise capital (debt, equity and preferred equity) for individual assets and funds. These deals are only available to accredited investors who must invest at least $25,000 per deal.
Similar to the other seasoned platforms, RealCrowd engages in a Sponsor vetting process before allowing a deal to be listed on its platform. Sponsors must have at least 10 years of operating experience and $50 million of verified transaction experience in order for their deals to be featured on RealCrowd’s platform. RealCrowd also requires lender references from each of its prospective sponsors.
Although large and successful, unlike the other platforms featured here today, Fundrise is is actually a sponsor that raises capital for their own deals using Reg. A+ (i.e., by issuing securities to non-accredited investors using a “mini-IPO”). When someone invests with Fundrise, they are investing in a portfolio of real estate assets that Fundrise has already identified, acquired and will now manage on investors’ behalf.
Individuals can invest with as little as $1,000 on Fundrise. In turn, they can choose from an assortment of Fundrise eREITs and eFunds. Those willing to invest more (e.g., $10,000 for an “Advanced” account or $100,000 for a “Premium” account) will have access to more real estate deals than those investing the bare minimum.
Fundrise is also unique in that it offers a redemption program that allows investors to sell their shares back to Fundrise for a 1% fee if doing so within the typical 5-year hold period. This appeals to investors looking for flexibility or as a means of otherwise preserving liquidity.
This model has proven very successful for Fundrise and its investors. Since its inception in 2017, the annual returns of Fundrise client accounts was 5.42% - a marked increase from Public REITs (4.34%) and the S&P 500 (2.17%) during the same period.
Is Real Estate Investing a Good Option for You?
Investing in commercial real estate is a great way for an individual to diversify their portfolios. Too often, investors become overly concentrated in a mix of traditional stocks, bonds and equities. The ability to invest in real estate securities—online or otherwise—is an excellent way for investors to add commercial real estate to their portfolios. Those looking to preserve liquidity may opt to invest in an eREIT whereas those with a longer-term mindset may want to consider investing with a sponsor directly through a syndication or fund.
In either case, online real estate syndication platforms have made investing in commercial real estate easier and more transparent than ever.
The commercial real estate “crowdfunding” marketplace is growing with remarkable speed. There are new platforms emerging each year in an effort to take away market share from those who are more established. As lenders become more comfortable with these platforms, it is expected that more sponsors will utilize them as a way of raising both debt and equity for their syndications.
That said, determining which platform is “best” is no easy task. Each offers something slightly different. The five platforms featured here today are among the best real estate syndication platforms in 2022 and are among those any prospective sponsor or investor will want to consider.
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