Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Tuesday, 15 January 2019

Crowdfunding Platforms Preparing for Rising Interest Rates, Potential Market Turn

In their short existence, crowdfunders have enjoyed a frothy real estate market. But with the future of interest rates unclear, many in the sector are becoming more selective in what assets they target.

Commercial Real Estate Direct Staff Report

In 2017, when property investor 10 Federal launched a $10 million fund to invest in self-storage properties, the Raleigh, N.C., company hoped to raise $1 million of equity through CrowdStreet, a Portland, Ore., crowdfunding platform.

The remainder would have come from its existing network of high net-worth investors. But it didn't need to tap them, as it ended up raising the entire $10 million through crowdfunding. It used that capital to fund the purchase of 10 properties.

The company, formed in 2010, is now in the process of launching its second self-storage fund and is aiming to raise $20 million to $30 million, solely through CrowdStreet.

Brad Minsley, co-founder of 10 Federal, expects the company will achieve that goal, but he's also realistic. If interest rates increase, the company's operating expenses and financing costs would increase as well, while property values and investor returns could decline.

"Something could turn in the market, and we may get nowhere near $20 million," he said.

"We're all competing for investor dollars," said Minsley, who had founded the company with his brother, Clifton. Both previously were with Phillips Development and Realty, a Tampa, Fla., multifamily developer. If yields that his investments generate decline, "we'll be less competitive raising investor dollars," he said.

Crowdfunding's Evolution

So far, crowdfunders have not had to deal with high interest rates, a recession or a prolonged downturn in the market. The industry took off soon after President Obama signed into law the Jumpstart Our Business, or JOBS, Act in 2012. A provision in that legislation allowed sponsors to market their offerings directly to individual investors and raise capital in small increments, paving the way for crowdfunding.

At first, most platforms offered equity or debt investments in so-called "fix-and-flip" single-family residential properties. They then turned to commercial properties, making it possible for sponsors to raise capital from a group of investors who previously did not have access to such assets.

Crowdfunding's relatively short tenure has coincided with a booming real estate market. As of the end of October, prices for commercial properties had increased 94.77 percent from their low point in 2010 and were 25.4 percent higher than their pre-recession peaks in 2007, according to Real Capital Analytics.

While crowdfunding platforms have become more mainstream, they're still a tiny player in the overall commercial real estate market. Since inception, they've raised only about $3 billion of capital from their "crowds." Contrast that with the $464 billion of property sales that Real Capital calculated took place in 2017, and the $530 billion of commercial mortgages that the Mortgage Bankers Association estimates were originated that year.

While dozens of crowdfunding...





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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

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