Crowd Street: Comprehensive Review and Ranking
On-probation (3 out of 10 stars)
What is CrowdStreet?
IMPORTANT 2021 COVID-19 UPDATE: The investment repercussions of the global pandemic continue to change and evolve with unusual speed. As such, this review might be dated, no longer accurate, irrelevant and/or missing crucial information necessary to making an effective investment. For the latest and greatest information on analyzing investments in this new era, see the latest article in the series: "How will Covid-19 / Coronavirus Affect my Alternative Investment Portfolio?"
Update February 12, 2021: in the August 2020 update, Crowd Street was placed under probation. This was due to numerous investors alleging that customer service was not responding on a timely or acceptable basis.
Since that time, Crowd Street has made an noticeable effort to reach out to its existing investor community. And they have claimed the issues would be addressed with new hires and process changes.
So a new survey was just done to see what the current investor sentiment is. And when asked the question "Would you recommend that your friend or family member invest with Crowd Street?" 54.84% answered "yes", 32.26% answered "no" and 12.9% answered "undecided".
On one hand, some investors said that customer service seems to be improving. And, multiple investors said that Crowd Street has the largest diversity of deals and that's why they like the platform.
On the other hand there were also complaints that too many of the deals are of lesser quality (requiring an investor to do a lot of work to weed through them). And there were also complaints about deals that had allegedly gone bad.
But, the biggest recurring complaint was over the Blended Portfolio (which is Crowd Street's offering that automatically invests a person across a number of their deals). Investors claimed that the platform had prominently marketed the fund as producing a composite K-1. This is when a fund pays all the state taxes on behalf of investors so they do not have to file individual K-1's. And since otherwise filing all of those K-1's individually can be very expensive, many said this was a key factor in them deciding to invest.
But ultimately, Crowd Street announced it would not provide a composite K-1 and is now allegedly sending a large number of individual state K-1's (one investor claimed 17 this year). If a typical investor has to pay their accountant $200 for each K-1, then this is an extra $3400 per year cost to them. On a hypothetical $25,000 investment this would cause a -13.6% drag on the total return (which would be very significant).
Other investors alleged that there has been no real apology from crowd Street for this change, nor acknowledgement of the pain caused, nor any help offered with the tax burden. Additionally one alleged that the fund now has to have an audit which will cost "at least" an extra 1% audit fee.
All in all, the overall sentiment of those surveyed was lukewarm about Crowd Street. And there was not yet the strong positive sentiment necessary for it to exit probation.
On the other hand, they have appeared to have improved things on the customer service side, so they are not going to be downgraded for staying in probation (as they normally would have, had it been for the same issues). And if things change in the next review then this will be updated.
8/12/2020: Downgrade: multiple investors are claiming that CrowdStreet is not responding to them on a timely basis (or at all). And they are speculating it may have something to do with their recent layoffs . Whatever the reason: they are being downgraded from 9 out of 10 stars ('all stars') to 3 out of 10 and "on probation". Also their previous awards have been stripped unless/until they come out of probation.
Crowd Street specializes in commercial real-estate (CRE) investments, and has one of the largest and most diverse selections in the industry (spanning multifamily, retail, industrial, hotels, self storage and much more). If offers both single property investments and multi-property funds, as well as both equity and debt deals. They have also exploded and almost doubled their volume since last year. (More on these in the "pros and cons" section).
How does CrowdStreet work?
Crowdstreet sources deals from third party sponsors, and then makes them available on it's site. So it does not originate its own deals, and instead functions like a crowdfunding version of Craigslist.
Some other platforms with this model charge investors a fee, and at one point Crowdstreet didn't which used to be a big plus. (It made its money by charging the sponsor). But investors are reporting as of September 2020 that on some deals, they are now being charged a "technology fee" which means they are actually being charged.
Note that the investor still has to pay fees and compensation charged by the third-party sponsor, which vary from deal to deal.
Another plus is that Crowdstreet allows the investor to interact directly with sponsor, rather than putting itself in between all communication like Realty Shares. This lets the investor conduct due diligence directly, which is much faster (and also avoids potential misinterpretation by the middleman). And if something goes wrong, the investor can go direct to resolve it (and avoid finger-pointing delays between the middleman and the sponsor).
What are CrowdStreet Pros and Cons?
Advantages: Substantial and growing investment volume. Sometimes no investor fees (unless investing in a fund with underlying fees). Excellent e-book.
Disadvantages: Minimums are significantly above industry average at $25,000 (average is $10,000).
Crowd Street was already a strong contender in our last review and won accolades for significant volume (11 open investments during the sampling period). This year, they have exploded and almost doubled their volume (18). They now offer one of the largest selections of CRE investments in the entire industry.
Additionally, Crowd Street charges no platform fees to investors.
The one downside is that minimums are significantly above the industry average at around $25,000 (versus $10,000).
However, for those who can swing it, the site's massive volume and diversity makes it a "must see".
They also have a very impressive 176 page e-book on commercial real estate investing (which you can download here). It's produced by a company selling a product, so investors may wish to keep in mind the inherent conflict-of-interest in the material (and ignore the first 26 pages or so that are essentially an informercial for using the site). But despite it's flaws, it also has a lot of very helpful and comprehensive investing information. I do personally have quibbles with some of the content (like how it glosses over the conflict of interest caused by a promote). But in my opinion, despite these shortcomings it's overall the highest quality educational content produced by any platform (and light years ahead of RealCrowd University)... and well worth the read.
For more raw data on the site (including investor and sponsor fees, legal structure etc.), or to easily compare it with the data of competitors, see the feature by feature comparison matrix.
Is Investing In CrowdStreet Legal?
CrowdStreet markets to investors under 506C, meaning that it's only available to accredited investors. Since it is not using 506B, new investors are able to view investments immediately and there's no 30-day waiting period. Since it is 506c, it also requires investors to prove their accredited status (and update it periodically).
What does a CrowdStreet deal look like?
Here is my step-by-step due-diligence on a random Crowdstreet investment. So it may or may not be a typical investment. Also I'm a very conservative investor, so something that's way too risky for me might be the perfect fit for someone else who is more aggressive. Finally, I'm not a financial advisor, attorney or accountant. So this is just my personal opinion and always consult your own financial professionals before making any financial decisions.
The investment is to construct a self storage facility in Seattle from the ground up and then fill it with tenants. The projected hold period is 10 years after which the sponsor hopes to sell it for profit. The minimum investment is $25,000, and the targeted investor IRR is 14.4% with a 9.9% targeted average cash yield.
The first step is to make sure that the asset class and strategy even make sense for my portfolio. (If you don't know how to do this, please see The Conservative Investor's Guide to Due Diligence).
This is an opportunistic investment, which is the riskiest of all four strategies, and thus inappropriate for my portfolio at this time. But let's ignore that and pretend that it does make sense for me, and dive in.
Experience: As a conservative investor, I'm concerned about hiring inexperienced sponsors late in the cycle. So I want to see that a new sponsor has full real estate cycle experience in the specific strategy (in this case constructing self storage). And I also want to see that they didn't lose any investor money doing it. (On the other hand, a more aggressive investor may not care about some or all of this).
As usual, there isn't enough information presented in the pitch to answer this question for sure. "75 years of combined experience" is not much help. It could mean one guy who has been in real estate since 1943 (which would be very impressive). Or it could mean 75 employees who have been in real estate since 2017 (which would be pretty useless). So this is too ambiguous to answer the question.
The pitch says the firm was "started in 1994" and might be read to imply that they have been in self storage that all time. If that's true then they would have much more than full cycle experience, and would be a tremendous positive. However, digging further into their website, it's also could be read to say that they were actually focusing on other types of "growing cash flow and capital appreciation opportunities" in the past. It's not 100% specific.
So if I were interested in this deal, I would contact them and ask them specifically about their self storage construction experience. And if they truly have full cycle experience, I would then ask them for their complete track record of those deals (both completed and uncompleted). Hopefully it would show that they didn't lose any money, and I would continue looking further. If not, I would be out. (A more aggressive investor may not care about this).
Skin in the game: 1.5%: $200,000. Skin in the game is vital to a conservative investor for overcoming the inherent conflict of interest in the promote structure. Typically it's anywhere from 5 to 15%. 1.5% is very low.
A young sponsor may not have the net worth to put in a huge chunk of money, and a smaller amount might accomplish the same purpose. But this sponsor is pitching themselves as ultra-experienced, so I'm evaluating them that way. Most very experienced sponsors (if they been successful) have significant net worth and are able to contribute substantial skin in the game on deals. So for me this low skin in the game is a red flag. However, more aggressive investors may feel differently and be fine with it.
Disclosure: The disclosure says that they have another deal on the crowdstreet marketplace, that closed back on 6/30/15. But it is not "paying distributions according to the pro forma". We are not in a downcycle, so a properly executed deal would be expected to be performing. So this is a yellow flag for me. If I were interested in the sponsor, I would drill further into why, and see if it was a concern for this project as well, or not (keeping in mind that when some sponsors really mess up, they do not easily disclose the full truth).
Debt: 67.7%. For me, I don't go over 65% LTV at this late stage of the cycle. This is a little bit over that but barely, so if I liked all the other terms the deal I would probably overlook it.
Fees: 70% investor/30% sponsor after preferred return. This is fairly typical for self storage and not completely out of line. So this would be fine for me.
Cash flow: since this is construction, it will have no cash flow during that time. Construction is projected to last 14 months, and almost always construction runs late (assuming it is completed successfully and doesn't go bust due to unexpected problems). So if I were to invest, I would have to feel happy with no cash flow during that time.
Then, after construction, they still aren't done stressing the cash flow because then they have to attract tenants with advertising, etc. and it takes time to hopefully fill up a facility to a reasonable occupancy. They are projecting that will be year 5, but projections are sometimes optimistic and it is very difficult to forecast something so many years in the future. Hopefully they were very conservative with their projections, and I would find out for sure in later stages of the due diligence. But at this stage, I would want to feel comfortable with reduced cash flow for at least a few years.
"Death by Google": the pitch says that they function under the Storquest brand name, so I did some quick Google snooping there.
A lawsuit search found that one of their facilities in Hawaii faced a $104 million foreclosure lawsuit from the bank of Hawaii. However, the article states that it was not owned by them, but only managed and using their brand name. If true, this probably wouldn't be a yellow flag for me. But I would still follow-up with the sponsor to ask about it anyway to see if that revealed anything else. (Sometimes when I ask a sponsor about one "uncomfortable" thing they will disclose others things while discussing it, and give me helpful information). A more aggressive investor might not consider this important enough to follow up on.
There was also another court case in California Northern District Court against the sponsor and several other defendants, but was dismissed. To me this is a non-issue (since frivolous suits happen all the time), but others could wish to follow up further.
If the investment passed all my initial checks, I would have dived in further to check out the sponsor, the property itself, the projections, etc. To learn how I do those things, check out The Conservative Investors Guide to Due Diligence.
Where can I discuss other CrowdStreet deals?
You can do this with thousands of other investors in the private investor club. While the club is free, membership is restricted to investors who have no business connections to sponsors or platforms. Also, all members must agree to keep all club info confidential by signing a nondisclosure agreement. Click here to join or get more info.
Who are CrowdStreet Competitors?
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How do I invest in equity and/or debt?
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How to pick? Check out our step-by-step guide.
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Code of Ethics: To maintain objectivity, I do NOT accept any money from any outside sponsor or platform for ANYTHING (including but not limited to affiliate ads, advertising etc.). See code of ethics for more.
Personal opinion only: All info is my personal opinion only as an investor. I am not an attorney, nor an accountant, nor your financial advisor. Always do your own due diligence and consult with your own licensed professionals before making any investment decision. Information is believed to be correct but may have errors, so use at your own risk. If you find an error, please let me know.
Ratings are general: In my opinion, every investor comes from a different risk tolerance and financial situation, so there's no such thing as a single investment or platform that's great for everyone. There are many deals that aggressive investors love, which I won't touch, and vice versa. And every investor has their own way of doing due diligence. I believe there's no one right way to do it.
So, the site ratings are based on criteria which I feel are important to the broadest range of investors (transparency, volume, bankruptcy protection, etc). And even though I have my own personal, conservative, due diligence method (and talk about how the site's deals measure up in the "deep dive section"), I don't use my personal criteria as a factor in the ratings. So for example, a high ranking/rating doesn't mean that I would personally invest in a site (and vice versa). Click here to see what's in my own portfolio.
About Ian Ippolito
Ian Ippolito is an investor and serial entrepreneur. He has been interviewed by the Wall Street Journal, Business Week, Forbes, TIME, Fast Company, TechCrunch, CBS News, FOX News, USA Today, Bloomberg News, Realtor.com, CoStar News, Curbed and more.
Ian was impressed by the potential of real estate crowdfunding, but frustrated by the lack of quality site reviews and investment analysis. He created The Real Estate Crowdfunding Review to fill that gap.
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This site has been ranked and reviewed as part of our in-depth, 100+ site industry review. All data is believed to be correct, but may have mistakes. Please contact us if you notice one. All non-data (including rankings, investor comment summaries, etc.) are my opinion only. I'm just an investor and not an attorney, accountant, or certified financial advisor. To maintain neutrality: I do not own a portion of any of the companies reviewed.