Equity Multiple: Comprehensive
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What is Equity Multiple?
Equity Multiple specializes in commercial real estate debt and equity.
It's one of the few sites that coinvests in every investment. This gives them true "skin in the game" and one of the industry-leading incentives to do maximum due diligence. They also were one of the first sites to reveal their performance on many (although not all) deals. So they get kudos for transparency.
On the other hand, they charge a double layer of fees and profit splits compared to other platforms. This may make their deals difficult for some investors to swallow versus competing options. Also, volume is very low. (More on these in the "pros and cons" section).
How does Equity Multiple work?
Equity Multiple 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.
The other, larger platforms with this model do not charge the investor anything, but Equity Multiple charges additional fees and profit splits. This may be problematic for some investors. (More on this later).
What are Equity Multiple Pros and Cons?
Advantages: Claims to coinvest in every deal (for true skin in the game), one of the first to publish partial track record
Disadvantages: Double layer of fees and profit splits may be difficult for many to swallow. Low volume.
Equity Multiple has a tremendous advantage over virtually every other competitor. It's one of the few sites that claims to co-invest in every investment. This gives them true "skin in the game" and the greatest incentive to do maximum due diligence. Note: The company doesn't co-invest directly, but says "every deal has been invested in by Mission Capital's principals (who we view as an extension of our senior leadership)."
Additionally, since 2017, they've received kudos from us for being one of the first sites to publicly reveal their (partial) performance information in quarterly updates. In January 2019, they expanded this to show the performance at the deal level of their completed deals.
The majority of their deals are in process and not included. So I would love to see them improve on this by publishing the in process deals as well (showing whether they are performing to proforma, etc.). Sometimes a sponsor's worst deals will fall in this category. So being able to see it with full transparency would be very helpful in understanding the quality of past underwriting. Perhaps they will consider this in the future.
On the other hand, they charge a double layer of fees and profit splits compared to other platforms. Other platforms with a similar model do not charge the investor anything. This can dramatically reduce the amount the investor gets in the end, versus other competing options (see my "due diligence on a sample deal" below). This alone may make using the platform difficult to swallow for some investors.
Their investment volume is also very low. On one hand, I prefer to see a platform being conservative and not underwriting bad deals. On the other, I can't really rate the site highly if it doesn't have much volume for people to actually invest in. I hope to see the company find a way to improve this in the future.
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 Equity Multiple Legal?
Equity Multiple appears to market to investors under 506B, which would mean it's only available to accredited investors. If so, new investors would need to go through a verification process before they can see the investments that are available.
Presuming it is 506b: it would not require investors to prove their accredited status (and update it periodically) like 506c offerings do.
What does an Equity Multiple deal look like?
Here is my step-by-step due-diligence on a random Equity Multiple 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.
This is an investment in an apartment complex in Jacksonville. It is pitched as already having significant place cash flow, high occupancy (96%), and passed rental increases of 11% a year from renovations and upgrades. It is projecting a 22.06% IRR and 2.4x multiple over five years.
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). Let's say that it does make sense for me, and dive in.
Sponsor: I believe we're late in the cycle and am concerned about a possible downturn. If we have a severe one, I don't want a newbie sponsor learning expensive lessons with my money. So in a mainstream asset class like this, I require full estate cycle experience in the exact strategy (value-added multi-family in this case), with no investor money lost.
To evaluate this, I look at the full sponsor track record which shows both their realized and unrealized deals. Sometimes a sponsor will have a great-looking realized track record, and have a bunch of dogs hiding in the unrealized (because they are unable to sell). So I require the sponsor to show me everything.
Unlike some other platforms, Equity Multiple does not put out enough information from the sponsor to be able to figure this out and gauge the risk. I would like to see them provide this in the future.
If I were interested in this deal, I would ask them for the full track record. If they have full real estate cycle experience with no money lost then I would view that as a great sign. If not then that would be a red flag and a dealbreaker for me. A more aggressive investor or one who really likes this deal or sponsor may be fine with the track record.
Skin in the game: As a conservative investor I want to see 5 - 10% coinvestment by the sponsor to offset the fact that the promote structure incentivizes a sponsor to push the risk envelope. (I will accept less if they are a new sponsor: as long as it is a lot of money to them).
It's important that the co-investment be in cash and on same terms as the investor. If not, the deterrent effect is not as strong. Also, sometimes the deal will be shown as having high skin the game but when you drill in your find that some or all of it is being provided by partners which do not have general partner control of the partnership. Non-controlling partners have no effect on the deal so that portion of the so-called "coinvestment" should be ignored for the purposes of this test.
The sponsor is putting in 23% of equity. This is very high, and many times when it is this high it's because some of it is put in by a non-controlling partner or is not fully in cash nor on same terms as the investor. So if someone is interested in this deal, I would recommend finding out. If after that, the coinvestment is at least 5% that I would consider that to be a positive sign.
A more aggressive investor will prefer lower skin in the game, to incentivize the sponsor to push projected returns as high as possible.
Debt: To minimize the chances of default and losing 100% of the investment I like to see conservative use of debt at 65% LTV or less. I also want to see them eliminate refinance risk by locking in long-term debt at 7 to 10 years. And finally I want to see them eliminate interest rate risk, by locking in a low fixed interest rate.
This is at 65% loan to cost which to me is a good sign. Someone who is more aggressive will want to see higher leverage so that there is a higher projected return.
The interest rate is fixed at 4.6% which for me is another excellent sign. Someone who thinks interest rates will fall during the term, may view this as a negative.
It's not clear to me how long of the term the loan is. If the loan is at least seven years than I would consider that to be also a great time. Anything less would be a yellow to red flag for me. Someone who is more aggressive or thinks that refinance risk is low will be fine with a shorter-term loan.
Property management fee is 3%. The acquisition fee is 2% of the asset management fee is 2%. All of these are within averages and to me are fine.
On top about there is equity multiple origination fee which is a 4% one time fee. This is extremely rare with other accredited offerings which traditionally do not charge such a fee. The investor who goes ahead with the starts off in the hole 4% at the beginning.
On top of this there is a 1% additional equity multiple annual servicing fee. Another way to look at this is that effectively the asset management fees together are 3%, while the average is 1.5-2%. This is extraordinarily uncompetitive.
For me these two things together are deal breakers, since there are literally hundreds of sponsors a month with deals that are much better terms. Someone who really loves the sponsor and deal will feel differently.
The waterfall is a dual waterfall.
Sponsor has a 7% preferred return which is within the average of 5 to 8% and to me is perfectly fine. After that there appears to be no return of capital. That's not super great compared to some other sponsors who do. Then they take their cut with 70% the investor and 30% of the sponsor. This is very un-competitive as the typical split gives the investor 75% to 85%. I would personally have to really really have to love this deal and sponsor to accept such un-competitive terms.
Then on top of the above is another waterfall to Equity multiple. It's very unusual to have another hand grabbing money from the pot like this, before the investor gets it. In this waterfall there appears to be no preferred return (very uncompetitive as typically there is 5 to 8% preferred return). Then there is a return of capital tier which is pretty typical and good to see. The next tier is 90% investor/10% EM up to 70% IRR. And then the next tier is 85% investor/15% EM.
With the two waterfalls together, it's hard for me to think of another deal I've seen recently that is this un-competitive. Investor can search through hundreds of deals on other platforms like Crowd Street and Real Crowd, and never see a double charging scenario like this.
For me personally: I see no reason to invest in a deal like this when there are so many others to choose from (but don't put investors through this double wringer). Someone who really loves this deal and sponsor might be fine with all of this
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 Equity Multiple 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 Equity Multiple Competitors?
Here are the reviews and rankings for other similar sites.
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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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.