Real Estate Syndication/Private Placements Platforms

12 Replies

Is Syndication still a preferred/popular platform for investors? Has crowdfunding platforms become a more preferred vehicle or are most investors hesitant because of it's technology and still prefer dealing with someone directly? Are syndications more attractive to a particular type of investor (i.e.: Do the more serious investors with deeper pockets prefer established private equity firms?)

Most accredited investors are not putting their money into crowd funding platforms. Most still prefer experienced syndicators with a long track record.

I think crowd funding is changing things a bit, but more so that it opens up larger investments to smaller investors. Not sure what effect it will have on where accredited investors look to invest their capital.

hi Xavier- syndications are my field.  It's interesting, I've formed some relationships recently with larger firms in the real estate crowdfunding industry and have learned that their average investor is in their 40's with a net worth well over $1M.  I was pretty surprised by that, as I thought that likely only smaller investors would be attracted to that distribution method.

Syndications are alive and well.  I deal with hundreds of clients each year who are selling traditional real estate investments, performing 1031 exchanges and purchasing into large scale, diversified, institutional class real estate investments.  If you want to learn more about it, just give me a ring.

Best- Leslie

@Leslie Pappas   It should not be too surprising that the typical crowfunding investor is in their 40's with a net worth over $1 million.  Under current crowfunding sec regs 506b and 506c, they are only open to accredited investors.  Only investors with net worth's north of $1 million excluding their primary residence or income over $200k single or $300k married can invest.

The main reason investors are using (and will use the corwdfunding platforms more in the future) is they have exposure to  much, much higher deal flows.  In the past, the only exposure a typical investor would have to deals was from the few local relationships they  have with syndicators.

@MarkRobertson: I would assume that the number of 40 somethings with access to cash assets worth a $1M and/or with an income of $200K/$300K is not a large percentage...correct? Also...please clarify "net worth" in crowdfunding sector?

@Leslie Pappas Do you prepare the syndication paperwork? I have a growing group of private investors.

@Mark Robertson  the 506b cannot be used  for crowd funding due to the advertising ban.  The 506c is what opened the door. 

There is a lot of bad information in this thread.  Be careful what you read on the internet.  

MOST of the portals are operating under no action letters from 506(b) and NOT 506(c).  That means that they could still, in theory, take in non-accredited investors.  Non-accredited investors can also be taken in under state securities regimes like what Groundfloor is doing.  This introduces a lot of complexity for the portal and states like Texas don't really know what they're doing yet with registered crowdfunding portals.  There are 6 state applications in Texas for a license as a TCP and 0 have been approved to date.  I have communicated directly with the SSB and attorneys who interact with the SSB regularly on these matters.  Introducing a portal that offers securities under both 506 and the state rules introduces a lot of complexity and problems.  That is why you don't see many portals using it.  Most portals are taking the long view too and will probably choose to operate under Title IV instead of devoting precious and scarce resources to adhering to individual state laws.  

Regarding the OP....The profile of most of the crowdfunding investors tends more toward more technology savvy folks.  The intersection of these folks and people that are old enough to be accredited is a small one.  Thus the industry has a long way to go to mature.  The vast majority of offerings like this are still done under the old rules using old methods.  However, just like online banking I think you'll start to see technology take over a sizable portion of the organization of capital.  Raising money online with the ability to generally solicit drastically increases one's scope and ability to find investors.  

Regarding net worth....This excludes one's primary residence.  All other assets and liabilities are fair game.  If the portal is using 506(c) a reasonableness check is needed from a professional like an attorney or a CPA.  However, as I stated above MOST of the portals are NOT operating under 506(c) and thus this accreditation check is not needed.  The industry has yet to mature to a point where accreditation reasonableness checks are done regularly and the technology is lagging behind what portal operators need to make things function properly.  There are firms like Accredify and Verify Investor that get it, but they haven't had enough time to develop proper APIs to embed functionality in sites yet to make the process seamless for investors.  Our team is working with these folks right now to implement these features to make the experience better for investors when they visit the site and invest.  Right now there are awkward hops to third party sites that confuse half of the people.  

I could go on and on and on.  Again, be careful what you read on the internet.  Crowdfunding is brand new and at least 90% of what I read online is either partially or wholly inaccurate.  

Any other thoughts @Herwig Konings  ?

@Xavier Randall  

I see crowd funding portals as more competition to traditional HML as opposed to syndicators.. When you look at a lot of the Crowd fund deals they are small one off rehab loans or construction type loans.. Those are far too small to syndicate in the traditional manner.. A HML may use a syndication to raise substantial capital to then lend out to their clients.. This is quite common for the large HML companies.

@Byran Hancock  is correct about the 506b and 506c  definitions etc.. The only  3 real estate 506c crowdfunding portals that have substantial volume are RealCrowd, Fundrise and Patch of Land.  The active 506b platforms are Realty Mogul, Realty Shares and ifunding.  There are list on the internet of 60+ real estate crowdfunding platforms, but the vast majority have closed very few, if any transactions.  Many have already come and gone.

@Xavier Randall I seen stats posted online that up to 5% of the US population qualifies as accredited under the current definition. SeedInvest puts the number at 8.5 million.  The rules have stayed very close to the same for 30 years and inflation is increasing the number of accredited investors each year.

Originally posted by @Mark Robertson :

@Leslie Pappas   It should not be too surprising that the typical crowfunding investor is in their 40's with a net worth over $1 million.  Under current crowfunding sec regs 506b and 506c, they are only open to accredited investors.  Only investors with net worth's north of $1 million excluding their primary residence or income over $200k single or $300k married can invest.

The main reason investors are using (and will use the corwdfunding platforms more in the future) is they have exposure to  much, much higher deal flows.  In the past, the only exposure a typical investor would have to deals was from the few local relationships they  have with syndicators.

 @Mark Robertson where do you get the demographic split? I am a bit surprised at that demographic type. Is that strictly speaking for real estate debt crowdfunding deals?

@JP Larcheveque it is defined by the SEC: http://www.investor.gov/news-alerts/investor-bulletins/investor-bulletin-accredited-investors 

sorry, had some troubles with the site double posting ...

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