
RealCrowd (YC S13) Rides The Crowdfunding Wave For Real Estate Investments - jconley
http://techcrunch.com/2013/07/17/realcrowd/
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"While there are a ton of other real estate crowdfunding startups, Hooper says
many are focused on residential real estate, not much larger and more high-
profile commercial deals."

I was literally reading about Fundrise yesterday, and they are also focused on
commercial deals. Just a reminder of how much reporting is going on in stories
like this.

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j2d3
I'd like to see a real estate development _swarm_ sourcing site that
bootstraps a real estate dev deal from concept through site acquisition,
design, build, and monetization (management if it's a rental / keeper and/or
sales), so that it's basically super-interested parties collectively swarming
around a chosen site until a fully crowd- (or as i prefer, swarm-) sourced
building is realized. There are a lot of different ways I could see this
going. I want to close the disconnect between designers/architects and
financiers/developers, such that they operate together as a swarm to their
collective benefit from concept through completion.

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j2d3
like some have already noted in this thread, this and other real estate
crowdfunding concepts are limited to involving only accredited investors.
there can be ways to get around this, i think. what if the organization is a
non-profit educational / community improvement corp, and people participate as
designers and as investors (truly a crowd/swarm of investors, where there are
MANY MANY individuals giving very small amounts of money) and the money is
given for "rewards" \- like getting to stay for a night in one of the rooms
for free after the, say, hotel! is finished being built. .. so that at least
some of the investment capital -if not all of it - is coming in because people
_want_ to participate in building long lasting high value structures. this
would be attractive to architects and designers and the general interested
public more than as a way to _make a killing in real estate_ \- it would _not_
be about that.

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bdcs
The accredited investors limitation will end in about 60 days due to a recent
SEC ruling regarding the JOBS act

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adamhooper
Advertising of the offerings will be opened up to all, but there will still be
restrictions on allowing only accredited investors to participate.

The broader crowdfunding portion of the JOBS Act will hopefully be put in
place towards the end of this year/first part of next (if the stars align...).
There will still be some restrictions on income/amounts you can invest, but
that will truly open up opportunities like we've never seen.

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7Figures2Commas
> Hooper says this is less than the fees an investor would pay to participate
> in a REIT, or real estate investment trust, where 15 percent might go toward
> fees before investing in the property.

It should be noted that he is almost certainly referring to non-traded REITs,
which are very different beasts than publicly-traded REITs.

RealCrowd's FAQ states:

    
    
       RealCrowd is fundamentally different from a Real Estate Investment Trust (REIT) in that you are owning units of an LLC whose sole purpose is to own and operate one asset. Ownership of REIT shares are not physical ownership of real estate, more like a derivative of a real estate, since what you own is a piece of the company that owns real estate. Not only are you subject to the whims of that company, their strategy and the properties they choose to purchase, you are subject to the tremendous volatility of the stock market. By investing on RealCrowd, you are able to control your own portfolio, which assets you choose to invest in and ultimately own the real estate itself, not a financially engineered product that can be wiped out if the stock market goes into a tailspin.
    

This is somewhat confusing:

1\. I fail to see how ownership of units of an LLC differs substantially from
ownership of shares of stock of a REIT.

2\. Each LLC will have a RealCrowd-controlled managing member which "will have
the sole and exclusive right to manage, control and conduct the affairs of the
LLC" so I fail to see how investors in a RealCrowd vehicle are any less
subjected to the "whims" of a third party than investors in a REIT.

3\. An investment in a single property may or may not be a good idea.

4\. Non-traded REITs are not subject to the volatility of the stock market.

5\. Referring to shares of stock in a traded REIT a "financially engineered
product" seems a bit over the top. They're no more a "financially engineered
product" than units of an LLC.

RealCrowd's approach is interesting, but I'm not sure it's _drastically_
different from real estate investment vehicles already out there except in how
it's being branded ("just add crowd!").

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adamhooper
Hooper here, answers below:

1) REIT shares are ownership in the operating company that derives its income
from owning real estate. With a single asset LLC you own that specific
building and only that building for your investment

2) We are partnering with experts in their respective micro markets that know
the ins and outs of their space better than anybody. You get to choose which
buildings you invest in and understand the asset specific business plan before
you invest. In a REIT, you have no control over how they invest your money,
what buildings they buy or how your portfolio is built.

3) If you put all of your money into one deal, there could be concentration
risk. However, that's what we're solving. The ability to diversify over
multiple buildings with far lower minimum investment amounts

4) Correct, but you're paying 15% load off the top in most cases and are
likely going to be subject to stock market volatility as the end goal is
usually to convert to public

5) Up for debate :)

Where we're drastically different is in providing access for investors to
institutional real estate that they would never have before. A typical deal
gets funded by one institution or maybe 5-10 ultra high net worth investors,
people don't have access to invest in the best real estate deals. We're
changing that.

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7Figures2Commas
1\. In a REIT, you have an ownership stake in a company that owns real estate.
In a RealCrowd LLC, you have an ownership stake in a company that owns real
estate. The number of properties owned by the company may differ, but that's
no justification for implying that there's a real structural difference in
what the investor actually owns.

2\. _Every_ REIT will tell you the same thing about their managers.

3\. I'm not sure that's solving anything. You're asking your investors to
perform the same function as experienced professionals who get paid to manage
real estate investments. Might some of your investors do well with this
approach? Sure, but there are plenty of individual traders who handily beat
hedge fund managers too (not hard these days). But that doesn't mean it's a
good idea for the average investor to become an active trader.

4\. The goal is not always to go public and not all non-traded REITs are
successful in going public even if they want to, but it should be noted that
recent liquidity events for non-traded REITs have generally been boons for the
investors. Even so, at the end of the day, unless you're buying and managing
property on your own, you should feel confident that the people managing your
investment are going to do what's best for your investment or you shouldn't
invest. Generally speaking, the more options they have, the better. I could
easily argue that a vehicle with no option to entertain a public listing is
potentially disadvantaged.

5\. Fair enough, but calling shares in a REIT a "financially engineered
product" is an odd angle for a company targeting investors who are likely to
be more sophisticated than average. REITs are not exotic financial instruments
so in my humble opinion, this description is over-the-top and doesn't help
your positioning.

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adamhooper
At the end of the day, both are viable investment alternatives, right? REITs
provide liquidity, but you pay for that liquidity through lower returns and
less control over those investments.

Our structure provides you the control to choose which assets you invest in,
can provide substantially higher cash returns than REIT yields and allows the
investor control over where they put their money.

In addition, our structure requires a substantial amount of money co-invested
by the real estate operator so their interests are financially aligned to
maximize the value of that asset as well. The better the asset performs, the
better we all do.

-ah

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calbear81
Partial property ownership sounds exciting from a marketing perspective
because I feel like it's such a core foundation of the "American dream" (we'll
debate whether this was good or bad on another thread in light of the market
implosion) to own property.

Also, the first thing that came to my mind was this is real-life Monopoly.
Many of us remembered spending hours acquiring real estate and charging rents
and collecting more properties.

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cpursley
As a commercial appraiser and developer/founder, I've always found the
crowdfunding CRE idea very interesting, but quite difficult. Also checkout
cre-apps.com - the leading CRE tech blog. Not the same end user, but
interesting non-the-less.

Good luck, guys!

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ph0rque
The article mentions having to be an accredited investor. Does that mean $1MM
net worth or $200k/year income? If so, that's too bad... hopefully that will
be changed once the JOBS act is fully in effect.

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jconley
That's correct. Accredited only for now. Sign up to stay informed about future
offerings. :)

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narrator
So your hypothesis is that accredited investors will throw around $10,000 with
a a few mouse clicks? From what I've seen though, getting people who know what
they're doing to invest in properties is a relationship business. There's a
lot of trust that an investor has to put in a developer to execute right and
with integrity when they invest with them and a flashy website might not be
enough to get people to invest serious money.

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jconley
We are building close relationships with our investors until we prove
ourselves and earn trust, such that they will feel comfortable investing in
the future with a click. There is also a significant amount of information
available on each property for investors to do their diligence.

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wtvanhest
How do you handle basic agency issues?

In a lot of larger deals developers expense what are arguably personal
expenses. A lot of the work that institutional asset managers do who manager
real estate is based on dealing with those agency issues.

Further, how do you compete with a large real estate asset manager. I'm not
talking about REITs, I'm talking about managers for pension funds and
accredited investors?

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adamhooper
Thanks for the questions, a big part of our role is to handle exactly what you
describe above. Making sure that the operating partner/developer is acting as
they should! We have provisions in our documents to remove them if they're not
behaving.

As far as competing with larger RE fund managers, our focus initially is on
deals that require $2MM-$10MM of equity, below where the big institutions will
look (>$10MM typically), but beyond where most operators can raise on their
own.

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narrator
You know, the funny thing about commercial real estate is that there's no one
right way to do it and the right way to do it is often a matter of gut
marketing feel. Sure there's a triple-net lease McDonalds but everything else
is pretty subjective.

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codegeek
"RealCrowd members are accredited investors"

can someone define what accredited investor means ? I would love to invest in
stuff like this but how do I know if I am an accredited investor ?

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adamhooper
Accredited investors must meet one of the following criteria:

-a minimum net worth of $1,000,000 (excluding primary residence)

-annual income of $200,000 for the prior two years and anticipation of the same in the current year if filing individually

-annual income of $300,000 for the prior two years and anticipation of the same going forward if filing jointly

For now, we're limited to accredited investors only, but as the JOBS act
continues to roll out, we'll see how the SEC/FINRA craft their rules and
hopefully open it up to all investors.

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jstreebin
Nice work!

