Ouch. Major ouch. Per Bisnow, the "music has stopped on the once-booming" real estate crowdfunding space. The article is rife with examples of actual people who made actual investments in what they thought were actual good deals. Then they weren't.
A rough chronology of the music starting, then fading, then stopping:
— Interest rates stayed low for a really long time, propping up real estate markets and making everyone feel good about their portfolios.
— Real estate crowdfunding platforms came along and coasted on both of those factors.
— Interest rates stopped being low. Shit hit the fan.
Has the music really stopped? Let's consider both sides. A brief debate...
Yes, the Music Is No More. The Shit Has Hit the Fan
Well, most of it is there in the Bisnow article. This isn't even that new. At one point Yieldstreet's collateral literally sailed away, leaving investors holding the bag. Less than a year ago, a CrowdStreet sponsor literally walked away with millions in investor capital and starting buying watches and shit.
Seems like now there's a critical mass of investors rattling sabres. Like many of life's big questions, Reddit offers some of the best answers these days.
New investors are skeptical. Old investors are pissed. Seemingly, now, old investors are trying to warn new investors to stay the F away, and trying to get in touch with each other to do some damage.
If that weren't enough, some guy actually SET UP HIS OWN SITE to shed light on the purported fleecing that YieldStreet has visited upon his portfolio and the portfolios of other investors.
The Google reviews more or less corroborate investor fed-up-ness. If you were picking a restaurant based on reviews, you would not eat at any of these real estate crowdfunding platforms.
At the same time, interest rates are high and are going to stay high. So these platforms are probably not going to have an easy time sourcing appealing deals. You wonder if this becomes a vicious cycle. The reviews scare new investors away. The ones that aren't scared away become more selective. The real estate crowdfunding platforms stretch further for appealing deals. More deals go wrong. More investors get pissed. So on and so forth until the music has truly stopped.
NO! The Show Will Go On.
This is a bad news cycle for the real estate crowdfunding industry. But news cycles come and go. Everyone forgot about YieldStreet's boat floating away, and investors kept investing.
Interest rates are high, but this may end up being a phase of the cycle for real estate. Valuations will bounce back, and real estate deals will get done. And it isn't like every deal from every platform is a loser. You can find plenty of good reviews, even recently, and even for the platforms getting pooped on the most.
The glass-half-full case here is that we're at the low point, both in terms of the real estate market and how investors feel about the real estate crowdfunding space. Investors will still seek alternative options from 401Ks and robo-advisors and such. People will forget this Bisnow article. The real estate crowdfunding platforms will still be around (some of them, at least).
Where It Shakes Out
It's probably a little of column A, a little of column B. A few of these real estate crowdfunding platforms have real investor perception problems. This likely won't go away. We think there's a real sense that investors don't totally understand the risk, and platforms don't always present the risks honestly. Going forward there may or may not be more regulation. The investment product that these platforms offer will likely change some. The average real estate crowdfunding investment will be less speculative, or entail more investor protections (in exchange for lower returns). Maybe the platforms get more serious about broadcasting the risks and asking investors to check a big ol' box saying they understand. Maybe both.
We can probably expect the space to consolidate some, with the players that can't figure it out getting forced out by a mob of pissed off investors. Live by the crowd, die by the crowd.