As technology and regulatory changes give individual investors access to alternative assets previously available only to institutional investors, medical professionals are becoming increasingly interested in diversifying their portfolios through commercial real estate. EquityMultiple provides access to pre-vetted investments across the capital stack and with a diverse array of asset types in a multitude of markets.

“The personnel at EquityMultiple all have private equity backgrounds. They came from backgrounds where they were putting their capital to use and underwriting deals. We have a pretty deep bench with a wide array of experience in the private equity market.”

-Rada Milenovici, Associate Director of Investor Relations

Dr. Dave Draghinas of the Doctors Unbound podcast spoke with Rada Milenovici, Associate Director of Investor Relations, about the ways in which EquityMultiple allows investors to remain in the driver’s seat while enjoying the guidance of an experienced team of commercial real estate investment professionals.

 

Full Transcript

Dr. Dave:

Welcome back Doctors Unbound family. With the rise of real estate investing platforms online, have you ever wondered how these commercial real estate platforms actually work? I know I have. I know some of you have spoken to me privately and have some similar questions. Well, today I’ve got someone from Equity Multiple to explain in more detail how this commercial real estate investing works on their platform, how they vet potential deals on their site, and what the onboarding process looks like for potential investors. Please enjoy this episode with Rada Milenovici of EquityMultiple

Announcer:

Welcome to Doctors Unbound, your show devoted to doctors who are, well, unbound by physician stereotypes. Get a behind the scenes look at doctors that are breaking the mold and breaking into the worlds of technology, writing, investing, and politics, just to name a few. This is Doctors Unbound, where you’ll hear from experts with the insights to help you go to the next level. Let’s get this show started. Here’s your host, Dr. Dave Draghinas.

Dr. Dave:

Rada Milenovici, welcome to Doctors Unbound.

Rada Milenovici:

Hey, thanks for having me today, I appreciate it.

Dr. Dave:

I’m excited to have you on. You are a representative of EquityMultiple, which has been a sponsor of the podcast, so I want to thank you for that. In my talk to other physicians, the topic of investing in a platform like EquityMultiple has come up. There seem to be some questions about the platform, the investment type and those types of questions. I’m excited to have you on so we can flesh out some of those details. But before we get started and all that, I’d love to know a little bit more about you, your background, and tell us a little bit about your position with the company.

Rada Milenovici:

Yes, well, yeah, thanks again for having me. I appreciate the time. Basically, my background has been in EquityMultiple for over a year at this point. Before EquityMultiple, I was part of a couple of different real estate investment banks. Most recently, a group out of Toronto called Canaccord Unity on the investment banking team that specialized in capital markets. During my tenure there, we raised over $6 billion and worked on some dual lifting opportunities, as well as some M&A deals. Before that, I spent some time at a firm called MLV as part of their specialty finance group. Since then, I’ve basically been part of EquityMultiple’s Investor Relations Team sort of spearheading initiatives. In terms of engaging with investors, broadening and deepening relationships there, introducing ambassadors to products, sort of helping them on their onboarding process, as well as helping them build a diversified portfolio.

Dr. Dave:

Yeah, very interesting, and a lot of cool stuff in there. As I was preparing for this interview, I noticed that you have a background in biomedical engineering, just like I do. It’s interesting to see the different paths that people take. If I hadn’t gone to medical school, I had a friend who was pushing me to get an MBA and kind of go that route. So that almost happened. I’m happy with my choice of going into medicine. It’s really neat to see people who have that bioengineering background and kind of the different paths that we take in life.

Rada Milenovici:

Yeah, yeah. Similarly, I tried to go down the traditional route and realized that real estate was my passion a little bit too late. It’s a great sort of skill set to have. But yeah, it is unique, the path we take.

Dr. Dave:

Yeah, for sure. Maybe we can start with a little bit more of an overview regarding what commercial real estate investing really is. Maybe some of the benefits of this type of investing?

Rada Milenovici:

Yeah, sure. I think that’s a great place to start. Also, to kick things off and sort of frame the discussion, I think it’s important to note that, in terms of some of the largest pension funds and sovereign wealth funds and endowment funds, we see that a lot of these investments and investors sort of allocate twenty to thirty percent of their portfolio to alternative investments. Basically, what we are trying to do is create accessibility to commercial real estate with our product that we have on our platform. What we’re trying to do is basically create this accessibility, and sort of level the playing field. This is basically an industry that was sort of, you had to grow up on the proverbial Sand Hill Road, know someone who has access to this product at a very high minimum. 

We are sort of leveling the playing field. In terms of what commercial real estate is, it is basically any real asset that is outside of the single-family homes. This can take many different forms. This could be a multi-family garden-style complex, this could be a triple net lease asset that has a long term lease in place, with, for example, a Home Depot or Rite Aid. It really takes a lot of different shapes and forms. 

Some of the benefits that are involved with commercial real estate investing is avoiding, for example, double taxation, which refers to situations where typically a corporation gets taxed. Sometimes there could be an event where distributions are also taxed. But this is a benefit here, where investing indirectly into commercial real estate, you’re able to avoid double taxation. Also, you’re able to get non-cash expenses such as appreciation pass-through. You can also offset any gains with passive losses with investment. Those are some of the benefits that are involved in investing in alternative investments of commercial real estate.

Dr. Dave:

I belong to a few different Facebook groups that are related to finances, money for doctors, and probably a lot of doctors are familiar with REITs or multifamily investments, things like that, how is investing in the EquityMultiple platform different from investing in something like that?

Rada Milenovici:

Yeah, sure, so in terms of how we differentiate ourselves, there are some other online platforms that provide access to individual asset syndication. How we differentiate ourselves is that we put the investor in the driver’s seat, so to speak. We carefully curate deals. Just put some metrics behind this roughly one in twenty deals that we look at it posted to our platform. 

We offer diversification to our investors across the capital stack. What that means is, depending on your risk profile, it could be equity, preferred equity, or debt. Some other investment platforms just provide one part of the capital stack. There are other competitors, I would say that use more of a portfolio approach more like an electronic REIT or an E-REIT structure where you don’t really have a lot of visibility, or as to which investment you are putting your capital to use with. We do a pretty extensive job vetting the sponsors and the deals. 

We also have an in-house asset management team that, once you invest, provides you with quarterly updates. Some other platforms just leave that to the sponsor to maintain that relationship. And lastly, I think what’s really unique about our platform and our company is that we’re partnered with Mission Capital, which is a commercial asset sales as well as capital markets group. We’re able to get some additional torque and tension by tapping into their Rolodex of sponsors and investors, which is a huge differentiating point. Some other competitors that are sort of VC backed.

Dr. Dave:

So let’s talk a little bit more about that in the track record that you guys have seen so far. Are you able to share with us some details about that, the types of investments that have been offered, the type of results that you guys have seen for your investors?

Rada Milenovici:

Yeah, sure. I think that’s a great question and the one that we actually get a lot of. For us at EquityMultiple, transparency is definitely our guiding principle. We actually have a certain section of our website that points to that. It’s something that we tout. 

In terms of when we sort of kicked off EquityMultiple, we launched EquityMultiple in 2015. Since then, we’ve raised over $88 million across equity, preferred equity and debt, this translates into over a billion dollars of real estate value. The $88 million is across 73 deals, which are spread across 30 cities across the US. 

Because we started a few years ago, only 10 of the deals have gone full circle. So what that means that we’ve exited the deal return principle back to our investors, and then profit. So of those 10 deals, we’ve actually performed in line with expectations, out of those we’ve outperformed three and underperformed two, with a net return to investors on an annual basis of 17%. invested rate of return.

Dr. Dave:

Okay, that’s pretty impressive. Let’s flip a little bit more in the talk about the sponsor side. What is the process like, on their side raising capital on your platform, maybe we can get a little bit more detail about that? How you guys ensure that there are quality opportunities there for the investors?

Rada Milenovici:

That’s a really good question. I think it may take a minute to talk about the personnel at EquityMultiple. I mean, roughly a third of our team is actually dedicated to the real estate team and underwriting deals. So each of these real estate, either associates or sort of mid-level and senior professionals, all have private equity background. They came from backgrounds where they were putting their capital to use, and underwriting deals. We have a pretty deep bench with a wide array of experience in the private equity market.

 In terms of what the diligence process looks like, we definitely are highly selective, like I mentioned, roughly one in 20 deals get posted to our platform. When a sponsor comes to us, I would say the two most important things is the pedigree of the sponsor, as well as the thesis. In terms of the pedigree of the sponsor, we would like for them to have seen a couple of cycles, sort of stood the test of time. We definitely will veer away from new entrants in the space. We definitely show a track record to our investors of prior deals, exited deals to see what that return profile looks like. In some instances where we’re preferred equity or debt. We actually require the sponsors to put up a personal guarantee and look at their personal financial statements. We do background checks and all our sponsors. 

In terms of the thesis of the business model, we are very mindful of good risk-adjusted return deals. So we are picking certain markets that are exhibiting strong demand drivers, such as migration of the workforce. These secondary markets, where you’re getting some better risk-adjusted return yield. Trying to stay in asset classes that bode well for the near and long term such as industrial asset, triple net lease, and maybe sort of straying away from retail deals that have seen a little bit more distress.

Dr. Dave:

When you’re kind of looking at the different products, different, investment strains put up on your platform, do you have certain return parameters that you guys are trying to target when you look at this stuff?

Rada Milenovici:

Yep, yeah. So in terms of the return parameters, it’s different depending on where our investors sit in the capital stack. So just to kind of put some goalposts and metrics behind it. For debt deals, which are sort of shorter in duration I’ll call it a one to two-year hold, will typically go up to 75% loan to value on a deal. Those returns will be anywhere from 7% to 12%, on an annual basis, paid monthly. That would be sort of the more conservative part of the capital stack.

 If I’m going a little bit riskier, the next will go into preferred equity. What that means is that after the senior loan or the debt gets paid, then the preferred equity, which is next in line to receive their distribution payments. Preferred equity often has more rights than straight-up joint venture equity. With that, we’ll go up to about 80 to 85% of the capital stack. The returns there will be sort of mid-teens, some of that will be paid current, some of that will be paid accrued on the back end once the deal exits.

Then lastly is equity. Equity, obviously, the riskiest part of the capital stack. The last in line to get paid, also, you stand to make the most upside. So on equity deals, we are targeting, sort of mid to high teen IRR in terms of equity deals.

Dr. Dave:

Okay. All right, thank you for explaining all that. This podcast has a lot of physicians, a lot of people who are in the healthcare space. So for some of those that are listening to this and thinking about it. What would be some of the benefits for this audience to think about investing with EquityMultiple?

Rada Milenovici:

Yeah. So I think really what the benefit is for investing in our platform is that I think we truly offer diversification to our investors. I mean, at this point, it’s taken us a while to ramp up. We’re launching about one new deal a week. That one deal a week is pretty diverse in terms of the capital stack that we’re offering investors. I just rattled off three parts in terms of property type. 

We’re in the market on a multifamily value-add in Raleigh, North Carolina. Before that we did a condo deal in Brooklyn. We’ve done an assisted living facility, a memory care facility. We’re in over 30 cities across the US. The benefit is putting the investor in the driver’s seat and allowing them complete autonomy picking and choosing deals that fit their investment preference profile. 

Dr. Dave:

Okay, the minimum investment for those who are interested?

Rada Milenovici:

Typically, our investments have a minimum of $10,000. The $10,000 is actually a minimum for our direct investments, which is sort of our legacy core bread and butter business. We just layered in a new product that is called opportunity zones. I’m not too sure if some of your listeners have researched opportunity zones, but that is sort of a tax advantage vehicle. With that one or minimum is a little bit higher. 

We’ve done two opportunity zone deals, the minimum there was $75,000 and $50,000. And we’re also looking to layer in a new product, which is a debt bond which should have a little bit of a higher minimum but will provide you with access to multiple investments. If it’s $25,000, you can spread that across eight or nine debt investments in this fund. 

Dr. Dave:

I see. Okay. What is the onboarding process when somebody decides that they want to invest with you?

Rada Milenovici:

In terms of the onboarding process, there are several different accounts someone can complete. That could be an individual account, you can have an entity or joint account with you or your partner, an IRA or a trust. The onboarding process takes as little as five minutes to complete. Obviously, the investor relations team is here to answer any questions you may have along the way. 

Basically, what we do is we pre-qualify our investors by collecting some basic information such as email, name and address, citizenship, then you have to self-certify that you are an accredited investor, and a suitable investor. Accredited investors, basically, you have to make $200,000 for the past two years if you file single or $300,000 if you file jointly or have a net worth of a million dollars or more outside of your primary house as your asset. 

Once you self-certify that you are accredited and suitable, we would require you to submit a photo ID complete a W-9 form, and then lastly, link a bank account. Once you’ve done all these steps, then you would have a completed investment account, you can then view investments and start the investment process.

Dr. Dave:

Okay,  I’d love to just get any last words, anything that we didn’t cover, any thoughts on where EquityMultiple is headed in the year ahead?

Rada Milenovici:

Yeah. I sort of touched upon, layering in new products onto our platform. We are at this point ramping up to a high velocity of deals while also maintaining prudent underwriting criteria. We have opportunity investments, which are a nice tax advantage vehicle, we are launching a debt fund for investors that want a more of a managed portfolio approach and sort of want to have someone else manage that process. 

We’re excited to basically continue the momentum for the rest of the year. We have a lot of great products launching on our platform. Encourage your listeners to swing by the platform. There’s a lot of great resources on the website as well. Even if you aren’t familiar with commercial real estate, don’t be shy. There’s a lot of great tools that can help you get more comfortable with it.

Dr. Dave:

Very cool. Rada, thank you so much for coming on the podcast and explaining some of those concepts related to commercial real estate investing and giving us some more details on EquityMultiple. What you guys have to offer and kind of where the platform is headed. Thank you so much for being on Doctors Unbound.

Rada Milenovici:

My pleasure, David, thanks so much.

Announcer:

Thank you for listening to Doctors Unbound podcast. Remember to head over to doctorsunbound.com to access all the show notes and resources discussed in this episode. Now it’s your turn to be unbound.

By David Lofgren
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