EquityMultiple’s Associate Director of Investor Relations, Rada Milenovici, discusses the platform; EquityMultiple’s history and track record; upcoming product launches; and how we deliver on our promise of making real estate investing simple, transparent, and accessible for accredited investors.
This Q2 Investor Webinar also touches on our investment offering breakdown, our new tax-advantaged Opportunity Zone Offerings, and the upcoming launch of our new investment approaches.
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Hello! My name is Rada Milenovici, Head of Investor Relations at EquityMultiple. We very much appreciate you taking the time to learn more about EquityMultiple. While many of you joined us for our first webinar in January of 2019, we are excited to welcome new investors to our platform.
Today, we will provide an introduction to EquityMultiple. We’ll discuss what sets us apart from other online real estate investment platforms, speak about our track record, and touch on the current and future state of EquityMultiple’s investment offerings.
EquityMultiple’s vision is to connect accredited investors with pre-vetted commercial real estate investment opportunities all across the country.
At EquityMultiple, our view is that the portfolios of most individual investors are significantly underexposed to commercial real estate. If we take a look at many of the largest pension funds, sovereign wealth funds, and endowments, we can see that nearly twenty to thirty percent of their portfolio is dedicated to alternative investments such as real estate.
Studies have shown that such allocations may consistently yield better risk-adjusted returns over time than a traditional portfolio of stocks and bonds. At EquityMultiple, we make it possible for individual accredited investors to allocate a meaningful portion of their portfolios to private, institutional-quality commercial real estate.
EquityMultiple’s vision is to connect accredited investors to pre-vetted commercial real estate investment opportunities all across the country.
Let’s talk briefly about our process. Our real estate team engages in rigorous screening to source institutional quality assets from high-pedigree sponsors who are tested and have a track record of realized returns. We conduct all due diligence by vetting the sponsor, stress testing financial models, and scrutinizing sales and rental comps. We hone-in on only those opportunities with the potential to deliver strong risk-adjusted returns and structure investments with the maximum degree of built-in protections for our investors.
So how is EquityMultiple different from other investing platforms? First and foremost, we think of ourselves as a real estate firm that uses technology to provide a better investing experience.
We believe our diligence measures are unmatched in the industry. Our in-house asset management team seeks to maximize investment performance throughout the lifetime of your investments, and our Investor Relations team is with you every step of the way.
Our Investor Relations Team takes pride and being attentive and promptly answering any questions. Our senior team can help provide support over the phone, through the app online, and through email.
EquityMultiple was founded in February of 2015 and launched our very first deal in September of that year. We are the only online investment platform backed by an established real estate company. Our founders partnered with Mission Capital because they wanted to build a business rooted in really understanding the bricks and sticks.
At EquityMultiple our team brings diverse industry experience from real estate finance, private equity, investment banking, law, marketing, design, and technology. Our co-founders Charles Clinton and Marious Sjulsen launched EquityMultiple with a shared vision of transforming real estate investing through technology, leveling the playing field by allowing individual investors access to institutional-quality real estate and by streamlining the investment process.
We get a lot of questions about the past performance of our investments. Because our goal is to provide you with transparency, we added a track record section to our site.
You can view performance in aggregate and in detail at any time on our Track Record, within our Resource Center. As of this recording, our investors have invested 88 million dollars across equity, preferred equity, and debt offerings. This amount represents more than 1 billion dollars in real estate value.
We have closed on 73 investments with 10 investments now fully realized. Of these 10, 3 have outperformed, 2 have underperformed, and 5 have performed in-line with our expectations and pro forma. An investment can perform below expectations if events arise such as construction delays or cost overruns. Conversely, a shorter-than-expected project schedule or favorable market upon exit can yield performance above expectation.
In total, our fully-realized investments have yielded a net 17% IRR to our investors. Of the investments that are cash flowing to investors, meaning distributing on a quarterly or monthly cash basis, the cash on cash return is more than 8% which does not include any upside on a resale in the
case of equity or preferred equity.
We currently have exposure to 42 distinct markets across 21 states.
The darker blue on this map reflects the concentration of our portfolio. What you’ll see is a higher concentration in primary markets and in 18-hour cities which usually have more robust employment metrics and in-migration. We recently penned an article titled “Multifamily Real Estate Markets to Watch in 2019,” where we looked at three metrics – job growth, supply absorption, and rent growth – to rank emerging cities with strong demand drivers for multifamily real estate investments.
If you are interested in learning more about these investments you can log on and go to our “Invest” page.
Along with geographic dispersion, we believe in diversifying across real estate asset classes and the capital stack. Although you’ll see that a good portion of our portfolio has equity exposure, we’re focused on offering more preferred equity and debt deals as well. We try our best to insulate our investors not only by picking high-quality sponsors but also by exercising good judgment in exposure across the capital stack.
While we provide access to investment opportunities in core property types, we take pride in offering some unique asset classes such as assisted living facilities, manufactured housing, self-storage, car washes, and memory care facilities. The objective is to provide investors with strong risk-adjusted returns.
As we continue to scale our volume of real estate investments on the platform, our goal is to maintain great customer service at every stage of your investment process.
This year, in addition to direct investing, we’re layering in two new investing approaches to facilitate greater personalization of your real estate portfolio: Tax-Advantaged investments and diversified Fund investing.
At EquityMultiple our objective is to provide a well-balanced portfolio tailored to your needs by offering you three ways to invest.
Many existing investors might already be familiar with our legacy or core direct investment products. There are three options here – debt, preferred equity and Equity.
Debt is secured by a mortgage or deed of trust. If the borrower fails to pay the lender, the lender can take title on the property. This greatly reduces risk on the principal invested because, at the very worst, the lender owns the property and will look to maximize the value by selling the property or selling a non-performing note. Our target debt rate of return to investors is usually 7 to 12% which is paid monthly and we like to stay under the 75% loan to value.
Moving down in seniority of payment we have preferred equity. Preferred equity holders have more rights than traditional equity holders but are still limited compared to a senior loan. Preferred shares generally have a distribution that must be paid out before equity. The returns are generally in the mid-teens for what’s usually a one to three-year hold, depending on several variables. We typically go up to 85% of total capitalization on a preferred equity investment.
The final portion of the capital stack carries the greatest return potential while also shouldering the highest attendant risk. This is, of course, the equity investment. Common equity holders take on more risk because every other tranche of capital is entitled to get paid before the equity investor. However, equity investors hold the greatest potential upside: if the property does well, there’s no cap on potential returns.
EquityMultiple is proud to offer investments across the capital stack with low minimums. Our direct approach allows investors to access discrete properties and diversify across the risk/return spectrum.
Earlier this year we launched our first Opportunity Zone Fund, a new tax-advantaged investment vehicle created by the Investing in Opportunity Act which was part of the tax reform passed in late 2017. Qualifying investments offer three unique and compelling tax advantages – investors can defer paying federal capital gains tax from recently sold investments until December 31, 2026, reduce that tax payment by up to 15%, and pay as little as zero taxes on their Opportunity Fund investment if held for 10 or more years. For more on this exciting new form of tax-advantaged real estate investing, please check out equitymultiple.com/opportunity.
Finally, while actively in dialogue with investors, we have noticed an increased interest in a managed portfolio product. Depending on when you are listening we plan to, or already have, launched our EquityMultiple Debt Fund, which would further enable you to diversify your portfolio. As background, debt funds are pooled investments that hold debt securities – such as bonds, mortgages, and other fixed-income instruments. Debt funds are typically used for income investing or as part of a diversified portfolio. This thesis-driven strategy usually has a fund manager who has full discretion over the investments made. A debt fund offers exposure to different asset classes and geographic regions across several real estate investments.
Understanding these different investment structures and how they impact both risk and return is a key step in making real estate part of your portfolio.
That does it for today’s webinar! Thank you for taking the time and for your interest in EquityMultiple.