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What’s the deal with CrowdStreet, one of the oldest real estate crowdfunding platforms?
Let’s get real.
Intro — CrowdStreet's History
CrowdStreet, founded in 2013, has established itself as the most prominent “accredited only” platform in the real estate crowdfunding space. The platform connects accredited investors with commercial real estate opportunities, offering a range of investment options including single-property investments and multi-property funds. CrowdStreet has made its bones on significant deal flow, especially during the go-go years before interest rates shot up. The platform’s model directly connects individual investors with sponsor deals, a “marketplace” for real estate investing and finance. As an investor, you’re pretty much on your own, for better or for worse.
Despite its significant market presence, CrowdStreet has faced mixed reviews from investors, particularly concerning due diligence, customer support, and investment performance. CrowdStreet also has some significant egg on its face after recent whoopsies. We’ll get into that.
Key Features
Pretty down-the-fairway UX/CX. One thing to know, CrowdStreet is a 506c platform. In other words, if you want to invest with them, you have to prove you're an accredited investor (letter from lawyer, CPA, etc... or show 'em your taxes!)
Investment Opportunities
CrowdStreet offers a diverse array of commercial real estate investments, including equity, debt, and preferred equity deals. The platform is known for its extensive selection, often featuring between 5 to 15 private equity investment opportunities at any given time. However, the minimum investment requirement is relatively high, typically set at $25,000.
Fee Structure
CrowdStreet does not charge investors a direct fee to use the platform. Instead, it earns revenue by charging sponsors fees to list their projects. However, some investors have reported hidden fees, such as a "technology fee" on certain deals, which can add to the overall cost of investment.
Minimum Investment
The minimum investment on CrowdStreet is generally $25,000, which is higher than the industry average of $10,000. This high threshold may be a barrier for some investors but is justified by the platform's focus on high-quality commercial real estate projects.
User Experience
CrowdStreet's platform is user-friendly, featuring detailed video webinars and a comprehensive library of educational content. However, the platform is only available on desktop, which may be inconvenient for some users.
Customer Support
Customer support has been a significant pain point for many investors. Numerous reviews highlight issues with responsiveness and the quality of support provided. This has been a recurring theme, with some investors expressing frustration over the lack of timely and effective communication.
Investor Testimonials
Common Praise
- Diverse Investment Options: "Diversity of investments, good sponsors, informative overviews for new investments."
- Educational Resources: "CrowdStreet maintains a large library of educational content, including insights from its chief investment officer."
Common Complaints
- Due Diligence and Vetting Issues: "They don't vet out the sponsors and no due diligence. The quality of the deals and the sponsors are less than stellar."
- Financial Losses: "Total loss of my investment over about 5 years."
- Customer Support Problems: "I was planning to invest but can never get a hold of their customer support team."
- Transparency and Communication: "Scammer with their sponsor together. Minimum $25000. I lost them all without any explanation."
Similar Real Estate Crowdfunding Platform Comparison
CrowdStreet vs. Fundrise
Fundrise is another popular real estate crowdfunding platform that caters to both accredited and non-accredited investors. Unlike CrowdStreet, Fundrise offers lower minimum investments, starting at $500, making it more accessible to a broader range of investors. Fundrise also provides a more diversified investment approach through its eREITs and eFunds, which can be more appealing to those looking for lower-risk options. For any more risk-tolerant investors who want to pick their own deals, CrowdStreet would be a better option.
CrowdStreet vs. RealtyMogul
RealtyMogul offers a mix of individual property investments and REITs, similar to CrowdStreet. However, RealtyMogul has a lower minimum investment requirement of $1,000 for its REITs, making it more accessible. RealtyMogul also has a more robust customer support system, which has received better reviews compared to CrowdStreet.
CrowdStreet vs. EquityMultiple
EquityMultiple also offers direct investments into equity deals. Like CrowdStreet, it’s only open to accredited investors. Generally, EquityMultiple features lower investment minimums (generally $10K or $5K for first-time investors). Unlike CrowdStreet, EquityMultiple also offers short-term notes and debt-based investments.
EquityMultiple uses a SPV structure to aggregate investor capital and create more substantial investing entities for the purpose of negotiating and dealing with sponsors. They also tout their “full-cycle” asset management. In other words, EquityMultiple purportedly does more to protect investors from bad deals and bad sponsors. This may come with slightly higher fees. For investors who still want to pick their own deals but want more backing, EquityMultiple might be a better option. For those with more time and who want to do their own due diligence, CrowdStreet may be the better choice.
The Dirty Dirt — CrowdStreet’s Fraud Allegations
All these real estate crowdfunding platforms have black eyes at this point. CrowdStreet has the biggest and blackest eye. Long story short, one of the sponsors on the CrowdStreet platform, Nightingale, ran away with $53M in investor capital. This is bad!
Chronology of CrowdStreet's Legal Issues
2023
July 2023: Lawsuit Filed Against CrowdStreet
Issue: Allegations of investor fraud.
Details: A class-action lawsuit was filed, claiming that CrowdStreet misled investors about the safety and returns of certain investment opportunities. Investors accused the platform of failing to perform adequate due diligence on the projects listed on its site.
August 2023: SEC Investigation Announced
Issue: SEC investigation into potential securities law violations.
Details: The U.S. Securities and Exchange Commission (SEC) began an investigation to determine whether CrowdStreet violated federal securities laws by not properly vetting investment opportunities and misrepresenting potential returns to investors.
September 2023: Temporary Suspension of New Offerings
Action: CrowdStreet announced a temporary suspension of new investment offerings.
Details: In response to the lawsuit and SEC investigation, CrowdStreet decided to pause new investment offerings to review and strengthen its due diligence and compliance processes.
October 2023: Settlement Talks Begin
Action: Initiation of settlement negotiations.
Details: CrowdStreet entered into settlement talks with the plaintiffs in the class-action lawsuit, aiming to resolve the allegations without a prolonged court battle.
2024
January 2024: Implementation of Enhanced Due Diligence Processes
Action: Introduction of new due diligence protocols.
Details: CrowdStreet announced the implementation of more stringent due diligence and compliance measures, including enhanced vetting procedures for investment opportunities and increased transparency for investors.
March 2024: Preliminary Settlement Agreement Reached
Action: Preliminary settlement agreement with plaintiffs.
Details: CrowdStreet reached a preliminary settlement with the plaintiffs in the class-action lawsuit, agreeing to compensate affected investors and improve their business practices.
April 2024: SEC Issues Consent Decree
Action: Consent decree with the SEC.
Details: The SEC concluded its investigation with a consent decree, requiring CrowdStreet to pay fines and submit to ongoing oversight to ensure compliance with securities laws.
May 2024: Court Approval of Settlement
Action: Court approval of class-action settlement.
Details: A federal judge approved the settlement agreement between CrowdStreet and the plaintiffs, allowing the compensation process for affected investors to begin.
June 2024: Resumption of New Offerings
Action: Resumption of new investment offerings.
Details: After completing the required compliance enhancements and resolving legal issues, CrowdStreet resumed listing new investment opportunities on its platform.CrowdStreet's legal issues have significantly impacted its operations, leading to increased scrutiny and changes in its business practices. The resolution of these issues and the implementation of new compliance measures aim to restore investor confidence and ensure the platform's long-term viability.As of June 2024, CrowdStreet has a new CEO (after naming an ‘interim’ CEO after all this shit went down). Their old CEO, for whom the bell tolled as a result of all this, is now at a much smaller real estate investing startup. In addition to registering as an RIA. CrowdStreet claims the following enhancements to their operations as of earlier this year:
- Offering capital call overviews to affected investors whenever possible, highlighting important considerations and information provided by the sponsor related to the capital requested.
- Working to enhance deal and portfolio reporting to provide investors with more insight into the deals in their portfolios.
- Proactively monitoring active deals to mitigate potential issues and keep investors informed by striving to ensure each investment receives its due attention.
- Challenging sponsors who are not meeting investor expectations and expressing our concerns more openly about the areas where they need to improve.
None of this bodes well for the future of CrowdStreet. However, an optimistic reading is that their issues have forced them into a better operating model for investors (maybe at the expense of their own margins). The best time to fly is after an airline has a safety scare. Maybe the same principal is at work here?
Scoring CrowdStreet
Platform Details
- Years in Operation: 10
- Minimum Investment: $25,000
- Types of Investments Offered: Debt, Equity, Preferred Equity
- Accreditation Requirement: Yes
User Experience
- Ease of Use: 4.5 Stars ... The platform is user-friendly with a wealth of educational resources, but the lack of a mobile app is a drawback.
- Account Setup: 4 Stars ... The registration and verification process is straightforward but requires proof of accredited investor status.
- Customer Support: 2.5 Stars ... Customer support is a significant area of concern, with many investors reporting poor responsiveness and support quality.
Investment Experience
- Investment Options: 4.5 Stars ... CrowdStreet offers a wide variety of high-quality commercial real estate investments.
- Returns: 2 Stars ... While some investments have performed well, many have underperformed, leading to significant financial losses for some investors. As noted, if you can do your own due diligence and are comfortable dealing directly with sponsors, you may find your way to better-than-average returns.
- Risk Management: 1 Star ... The platform's due diligence and vetting process have been criticized, raising concerns about risk management. While CrowdStreet may well have instituted new safeguards after their Nightingale brouhaha, it’s a big hole to climb out of.
Platform Transparency
- Disclosure of Information: 3 Stars ... There are complaints about the lack of transparency and communication, especially when investments underperform.
- Fee Structure: 3.5 Stars ... While CrowdStreet does not charge direct fees to investors, hidden fees have been reported.
Overall Rating — 3 Stars
- Summary: CrowdStreet offers a robust platform with diverse investment options and educational resources. However, issues with customer support, transparency, and investment performance detract from the overall experience.
- Pros: Diverse investment options, educational resources, user-friendly platform.
- Cons: Poor customer support, high minimum investment, transparency issues, underperforming investments.
- Would Recommend? Maybe... depends! If you are a non-risk-averse investor with time on your hands and solid familiarity with real estate, it may be your best bet. But even so, it's worth waiting to see how things play out with their, uhhhh, legal troubles.
Conclusion
CrowdStreet is a suitable platform for accredited investors looking to diversify their portfolios with commercial real estate investments. The platform offers a wide range of investment options and valuable educational resources. However, potential investors should be aware of the high minimum investment requirement, issues with customer support, and the need for thorough due diligence. While CrowdStreet has the potential for high returns, it also carries significant risks, making it more suitable for experienced and risk-tolerant investors.