In early 2016 we wrote about how EquityMultiple stacks up in an increasingly crowded universe of real estate investing platforms. Nearly three years later, several forces have brought some clarity to the industry, and what it means for investors seeking to allocate a meaningful portion of their portfolio to real estate.
- A cresting of the market’s wave: the bull market rumbles on, with the U.S. economy nearing a record for consecutive months of net job growth. While the economy remains healthy overall, commercial real estate markets have calmed a bit since 2015 – a year that saw the highest volume of commercial real estate transactions completed since 2007. Not coincidentally, 2015 was when the young “real estate crowdfunding” industry really took flight. In 2018, with interest rates on the rise and supply finally catching up with demand in some high-profile markets, platforms must go a bit further afield for yield opportunities. Now, and through future business cycles, platforms with access to a breadth of deal flow across secondary and tertiary markets, and across property types, will be able to more consistently find attractive risk-adjusted returns for investors.
- Opportunity Zones: The tax reform signed into law in late 2017 offered a major boon to real estate investors. The Investing in Opportunity Act, part of the broader reforms, created Opportunity Funds – vehicles for tax-advantaged investment in under-invested census tracts across the country. For details on this major new system of tax incentives, please consult our Opportunity Funds Resource Page. This system of tax incentives is so substantial that offering Opportunity Fund investments may come to be a major differentiator for real estate investing platforms.
- Recent industry events: it was announced earlier this month that RealtyShares – an early entrant in the space – would cease offering new investments. While numerous factors contributed to this event, the implications for the rest of the industry are clear: platform operators are advised to not grow too rapidly, and to keep asset management and sound diligence measures front and center as investment volume grows.
What the RealtyShares News Augurs for the Industry
In response to the RealtyShares news, our CEO issued the following statement:
- Our approach has been and remains distinct from our competitors. At inception, we partnered with an established real estate capital markets firm, Mission Capital, rather than relying on funding from venture capital. We remain focused on commercial real estate – the core of our expertise – because we have seen firsthand how institutional asset managers invest and grow effectively in this realm.
- EquityMultiple is on strong financial footing, and we remain committed to sustainable and organic growth. We recently closed a successful funding round, led by notable executives in real estate and finance. These investors are aligned with our disciplined growth vision to expand thoughtfully, build the right team rather than the biggest, and emphasize scalable business lines.
- We strongly believe in the vision of offering institutional-quality commercial real estate to accredited investors. As with any nascent industry, success depends on execution and attention to detail. We remain steadfastly committed to getting these details right as we grow.
The industry has grown exponentially in the last few years and we believe this trajectory will continue. With continued focus on the quality of our investments, asset management and customer service, we are well-positioned to grow with it.
In light of this industry event, it is a good time to recap how EquityMultiple compares with other prominent models of real estate investing platform, as the space has coalesced further around several dominant value propositions to investors:
The news from RealtyShares does not portend anything dramatic with respect to the ‘real estate crowdfunding’ space, or commercial real estate investing writ large. It does, however, offer a familiar lesson with respect to growth-stage companies in new industries – one that we learned from LendingClub not long ago: a rapid growth trajectory is not always the best growth trajectory.
Our position is that customer service and full-cycle, transparent asset management and reporting matter most to investors. We’ve experienced this anecdotally in conversations with our investors, and learned this more quantitatively from our recent Investor Preference Survey. We will continue to emphasize this aspect of our business and operations going forward.