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By Erik Dolan-Del Vecchio | November 17, 2016 Commercial real estate crowdfunding platforms promise to democratize real estate investing, but before diving in it’s important to know the basics. There are tons of crowdfunding platforms online, but not all of them are necessarily good places to put your money. From direct equity sponsored investments to auto-investing in debt, we’ll cover the five different types of commercial real estate crowdfunding platforms and then explain what the trend as a whole means for developers.
Commercial Real Estate Crowdfunding Explained
Traditionally-huge barriers to entry have kept real estate investments accessible only to high net worth individuals — until now. Today, individuals can throw as little as $1,000 into real estate investments through certain types of crowdfunding, going a huge way towards opening the sector to more investors. Simply put, crowdfunding opens real estate investment beyond the traditional circle of owners, developers, and lenders to include anyone and everyone who is interested and want to pony up the cash.
While it’s a great idea in theory, in practice it can be confusing. Since the JOBS Act of 2012, real estate crowdfunding has evolved continuously. Crowdfunding offers an array of deals, nearly all with varying structures, and many investors have not looked into l the differences between platforms. Atlas Real Estate Vice President Joe Stampone put together a comprehensive guide that explains the nuances between the different methods, and we’ve borrowed his categories below.
1. Direct Equity Investment
These platforms allow accredited investors to directly fund real estate projects that are sponsored on the platform. People who choose this method typically need a minimum of $25,000 to invest (although some platforms allow for $10,000 investments) and a basic knowledge of real estate since the deal’s structure and terms are set by the project’s sponsor. The sponsor also handles all accounting and uses the crowdfunding platform primarily as an investor reporting and management tool. These platforms typically require between a three to ten year holding period. RealCrowd and CrowdStreet are strong platforms that use this model.
2. Direct Investment in a New Entity
This select group of crowdfunding platforms manages their investors by forming a new entity for each particular deal. So, people invest in the new entity rather than the actual project. The resulting entity issues the securities, while the platform takes care of all payments and accounting. These platforms invest in either debt or equity and often require at least a $25,000 investment to buy in, although some platforms offer investments for $5,000 or less. This method tends to be less risky than others due to its focus on preferred equity and debt, but the upside is capped with a fixed rate of return. Typical holding periods run between one and three years. Good examples of this crowdfunding option include RealtyShares and Realty Mogul.
3. Auto-investments in Debt
Auto-investing is perhaps the most common type of real estate crowdfunding platform, and its rise is not without reason. These platforms simplify the entire process by allowing investors to set particular investment criteria, upon which the system automatically allocates a certain amount of funds into investments that fit their guidelines. This saves the investor the hassle of analyzing each individual investment opportunity and is perfect for people without much knowledge of the industry.
The obvious drawback to this technique is the potential to invest in deals that, if more closely inspected, an investor may have stayed away from. The algorithm that analyzes the investor’s criteria tries to avoid this, and it’s usually successful. Auto-investing is open to people with as little as $1,000 to invest and deals typically offer returns between 6% and 12% while holding periods last anywhere from 6 months to 36 months.PeerStreet is a good example of an auto-debt real estate crowdfunding platform.
Focused on debt investments, the eREIT is an innovative real estate crowdfunding model that offers investors a fixed rate of return, quarterly distributions and low fees for investments of $1,000 or more. Fundrise even offers an eREIT that charges no fees over the first two years until your investment earns a 15% annualized return. Another key aspect of this model is its liquidity.
Real estate is an inherently illiquid investment yet this platform offers investors the option of quarterly liquidity, and while it’s not an iron promise (the eREIT cannot redeem more than 5% of total outstanding shares a year) it’s a more liquid option than other real estate crowdfunding platforms. With that said, investors should know that typical holding periods range from one to three years.
5. Real Estate Crowdfunding “Fund of funds”
These platforms allow you to invest across other real estate crowdfunding platforms, helping to diversify holdings. A lot depends upon the talent of the team handling each deal, since they handle nearly all aspects of the investment. These funds allow investments as small as $1,000 access to a huge variety of deals, deals such a small investment wouldn’t usually have access to. The major downside to these platforms is the potential to pay double fees, where investors may be subject to one at the deal level and another at the fund level. AlphaFlow offers this type of crowdfunding platform with holding periods typically between one and three years.
Crowdfunding hit the scene just in time. While the technology isn’t perfect and investors still have a lot to learn, crowdfunding serves a critical need in the industry. Real estate deals always need funding and investors are always looking for ways to make their money work better for them, and real estate crowdfunding provides the platform to make those two ends meet.
Omnichannel has become an integral strategy for pretty much all retailers today. But the multi-channel approach is starting to make its way into other, adjacent industries. Like commercial real estate.
Some smart retail owners and operators have been watching how their tenants use omnichannel strategies — and are trying to incorporate the same things into their properties. One of those companies is Pine Tree, LLC.
“We’re not in the business of selling goods, so we’re not focused on omnichannel in the traditional sense.” said Graham Grochocinski, Senior Vice President of Omnichannel Marketing at Pine Tree. “But there is a lot we can learn from the approach and incorporate those experiences into our shopping centers.”
A New Interpretation Of OmniChannel
Since Pine Tree isn’t a retailer, they’ve tailored omnichannel marketing concepts to their own needs: “We’re taking the best of what omnichannel marketing has done to redefine retailers today and repurposing it to create an enhanced community experience at all of our shopping centers. Just like some retailers – who are attempting to build seamless shopping experiences – we’re also attempting to build a unique experience at our centers that is ultimately seamless or channel agnostic,” said Graham.
“One of the biggest benefits of omnichannel strategies, retailers today are able to develop a completely 360-degree view of any given customer,” he continued. “We’re trying to do something similar at our centers= .”
To better understand what the community is interested in, Pine Tree is focused on a few main initiatives at their shopping centers: hosting events, leveraging social media, and offering free WiFi. These practices embody much of the omnichannel thinking: attract people to a location and enable them to interact with it both physically or digitally.
“One of the first things we did at one particular center was implement WiFi. While, it’s often par for the course at bigger enclosed malls, it’s practically unheard of for traditional strip centers — so naturally there were quite a few skeptics,” said Graham. “But it’s now not only proving to be an amenity that our shoppers and tenants enjoy, but it’s allowing us to create a database of relevant shoppers in the community as we ask for users’ email addresses as part of the login process.”
Pine Tree isn’t providing any of this data to tenants, but they are beginning to use those email addresses to grow attendance at their hosted events. “We are very excited about hosting community events, and the WiFi is proving to be a critical part of the strategy.” The feedback loop continues: get more people at events, get more emails, repeat.
Attracting The Best Tenants
Creating an experience at Pine Tree’s shopping centers has the double benefit of attracting new customers and engaging tenants. “A lot of tenants are excited about what we’re doing,” said Graham.
He continued, “It demonstrates that we’re committed to building an ideal environment for both customers and tenants – creating a great experience for both.”
To do so, Pine Tree’s marketing team tries to really understand what each tenant is thinking. “After we first begin managing a particular center, or if a tenant is first moving in, we go around and interview each tenant to get an idea of what has been successful for them in the past, what they would like to be doing now, and so on. We can then learn some of their best practices to apply to our centers, and then offer them advice on more tailored marketing programs or how to best interact with the shopping centers’ general marketing campaigns.” This is an ongoing conversation between Graham, his team, and their tenants.
Although the omnichannel mindset has been successful to-date, Graham admitted they are only just beginning. “The commercial real estate industry needs a good shake-up if it wants to thrive in a retail landscape where convenience and experience are king,” said Graham. “Though the e-commerce continues to often be an upward trend, we’re trying to change the conversation in brick-and-mortar retail by building great brands and creating real experiences that communities will want to keep on visiting.”
For any business, finding ways to decrease costs and eliminating unnecessary expenditures is important for improving the overall bottom line. Companies that own their own buildings or have triple net leases can exercise control over operating costs to reduce expenses and increase profitability. Following these tips can help you better manage operating costs:
1. Establish a budget and review expenditures often
Most businesses have funds allocated for operating costs in their general budgets, but if your company doesn’t, you need to start by creating one. Each month, review actual costs to your budgeted amount. This will help you quickly see when you’re spending is no longer in line with projected amounts, so that you can identify the cause of the variance andrespond to it with cost reduction measures.
2. Rethink your policies to promote conservation
Utilities make up a large portion of operating costs, and while some of the cost is beyond your control, there are ways that you can keep expenditures to a minimum. Take the time to evaluate energy use in your facility. Are there areas where energy is being wasted? Draft policies that encourage energy conservation. For example, you can make turning off the lights in unused rooms a mandatory part of the daily routine in your workplace.
3. Assess the health of your space
As buildings age, they can become inefficient, leading to increases in utility costs. Have your plumbing and heating and cooling system checked out by professionals to ensure that everything is still in good working order. Also, inspect doors and windows for any gaps, cracks or other signs of wear and tear that could be creating drafts and overtaxing your HVAC system. If problems are found, having them repaired or contact the landlord about making repairs to reduce operating costs over time.
4. Invest in upgrades
It may seem counter intuitive, but spending money on upgrades to your facilities and equipment can often lower operating costs going forward. You might install LED lighting, which consumes a fraction of the energy as other types of commercial lighting, add solar cells to your roof or invest in energy-saving computers and appliances. If you’re leasing your space, you’ll need to consult your lease agreement to see what types of upgrades you can make on your own. In the event that your lease doesn’t give you the right to upgrade, consider renegotiating early if you plan to stay in your current space when your lease expires.
5. Make it everyone’s job
Ultimately, reducing operating costs can’t be left to just one person or one department. To keep costs to a minimum, it takes everyone working together. Foster a culture where employees are encouraged to reduce energy and water wastage and let your team know that their feedback about operating cost reduction is always appreciated. Employees in various positions can provide unique insights into how to reduce costs that you may overlook, but they need to be empowered to share their ideas. When you make managing operating costs a part of everyone’s job description, you’ll be in the best position to succeed with your efforts.
There’s no question that commercial real estate is becoming an increasingly mobile industry – brokers are constantly on the move and they need to run their leasing business from their phone. Here’s a list of go-to apps for commercial real estate brokers.
If you’re a real estate professional and haven’t checked out Floored, you are seriously missing out. One of the hardest parts about marketing an under-construction building is selling the space’s potential. Floored creates 3D renderings of any space that allow prospects to visualize the space they need. Maybe you have an unfinished building and your client wants to see what it would look like as a finished office. Or maybe you have a space that is finished and furnished and they want to see it as a blank slate. Floored can do it all.
The nice thing about Evernote is it’s like a dozen apps in one. You can use it to take notes, record audio clips, snap photos, scan documents, share notes, make presentations on the fly, and more. The best thing about Evernote: besides being like a digital brain, the platform automatically syncs across all devices – computer, tablet, and phone without skipping a beat. It is also easily searchable, since the notes are stored as structured data, meaning your notes and thoughts are never more than a few keystrokes away.
We all have our favorite news sources, but it’s nice to have an app that is specifically for industry news. The News Funnel is free and streams aggregated real estate news 24/7. You can create a customized feed and get instant access to relevant local and national news. And if you’re part of a real estate company, you can use The News Funnel as a distribution and advertising platform for your own content.
Using cloud storage is key to being a mobile broker. Box is one of the best out there because it’s secure, business-focused, offers a bunch of free space (10 GB), the collaboration tools are great, and the mobile app is comprehensive and easy to use. You can pull up contracts, forms, and plans from anywhere.
CompStak is a free lease comp exchange for CRE brokers, appraisers, and researchers. All comp submissions are completely anonymous so user privacy is protected and they guarantee their comps are recent and accurate. CompStak has in-house expert analysts that review and cross check every transaction for legitimacy and take care of data entry so you can send your comps in any format in about a minute. It can be extremely helpful to access comps when out with prospective tenants.
DocuSign allows for fast, easy, and totally secure electronic signatures. Completely legal and lifechanging. Once a client is ready to sign, you don’t want to waste a single minute getting the contract in their hand. You can also store and send documents within the app. DocuSign has specific plans designed for real estate professionals, so it’s customized to exactly what you need.
Hightower is the leading leasing management platform that puts all of your leasing data at your fingertips in real time. Your business is mobile and Hightower is too. Our mobile app enables commercial real estate professionals to run their leasing process from anywhere at anytime. The platform is intuitive and collaborative, and increases visibility, productivity and results.
In today’s connected world, everything from watches to refrigerators is smart and getting smarter. Real estate is no exception.
Talk of so-called “smart” buildings first emerged in commercial real estate more than a decade ago. These buildings are known for their state-of-the-art systems that are integrated into motion-controlled light sensors, security key card access, fire safety, and more. Today, it is clear that such smart buildings are becoming more prevalent, as more capital flows into the technology.
What is considered smart?
Smart buildings are somewhat loosely defined. Think of the differences that exist between an iPhone 4 and iPhone 6s. Both are technically smart phones, but each version gets a little better, faster, smarter. The same is true with smart buildings. There is a wide range of capabilities supported by innovative technologies that are constantly evolving.
Real estate is continuing to shake its image as an “old school” industry and is embracing network connectivity or the Internet of Things (IoT) to do a variety of tasks automatically. IoT typically refers to the connectivity of physical objects – such as light switches and thermostats – that are embedded with electronics, software, or sensors that collect and exchange data. Smart buildings can leverage that IoT to perform a variety of functions, such as:
Monitoring equipment performance
Managing routine maintenance
Conducting diagnostic checks
Making automatic adjustments
Issuing alerts to problems or changes
Capturing data for building analytics and benchmarking
Studies have shown that more property owners are installing “smart solutions” into all parts of their portfolio. A forecast by IDC Energy Insights predicts that global investment in intelligent building systems will triple from the $5.5 billion spent in 2012 to an anticipated $18.1 billion by 2017, according to a report on Smart Buildings: High Performance Real Estate.
Why go smart?
There are a number of incentives compelling owners to adopt smart technologies. Smart solutions help to deliver greater efficiencies, reduce costs, improve operational performance, enhance the value of a property, and reduce risks from equipment failure.
#1 – Better Data: Most of these advantages are driven by data — data that can be used to enhance building usage and performance, and forecast for future developments. Owners access powerful analytics for individual assets or entire portfolios to collect and analyze key performance metrics and conduct benchmarking on property performance. This data can also be combined with other information — like leasing or tenant data — to make smarter leasing decisions.
#2 – Energy Efficiency: Another key driver behind the rise of smart buildings has been the keen focus on energy efficiency. The growing momentum behind sustainability and LEED building standards has helped to further the cause for smart buildings as a number of the smart tools developed focus on monitoring and reducing a building’s use of natural resources. Certainly, owners are motivated by a desire to “do the right thing” by helping to lower energy consumption and reduce emissions that can be harmful to the plant. In addition, there is more documentation that investment in these energy efficient controls also delivers tangible ROI. According to JLL, owners can expect energy efficiency to improve 15 to 20 percent in the first year – even in buildings that already have strong energy management programs in place.
#3 – Tenant Requests: Advanced technology is also a big selling point to today’s tenants. Many tenants are drawn to buildings that allow them to control temperature or lights automatically or remotely. It also affords them opportunity to be more creative about how they respond to system failures or staff maintenance teams.
The path ahead
There is no question that the future for smart buildings is continuing to move forward at a rapid pace. It also is a future that is expanding beyond individual buildings as corporate owners and investors look to smart technology to manage larger real estate portfolios. Such connectivity is poised to take an even bigger step forward as major metros around the world develop their own master plans for creating “smart cities.” These urban environments promote connectivity among city-wide systems such as telecommunications, transportation and utilities to better manage core functions and drive their own efficiencies in today’s competitive global market. Ultimately, smart buildings could help drive transformative change across the real estate industry and play an integral role in achieving that broader vision.
When you put the term ‘warehouse space’ side by side with the term ‘industrial space’, you will usually presume that there is no difference between the two. Well, you are not the only person who thinks that. The truth is that many are confused when it comes to distinguishing between the two. There is actually a difference between these two terms. Let us look closely into those dissimilarities.
If you haven’t read at least one piece this month on how the millennial generation is influencing society, you’re the exception. It seems that everywhere we see the effects of this group’s preferences and priorities being played out. Their numbers in the U.S. exceed baby boomers by more than 10 million, and they are the dominant demographic in today’s workforce.
With their energy and technological expertise, millennials are also in demand in all types of businesses, including CRE. Attracting them is an important concern for brokerage firms, and understanding what makes them tick can help in creating the work environment and company culture that will bring them in and make them want to stay.
Technology is a given
For the millennials, technology has always been a part of daily life, and its rapid development is something to which this generation can easily adapt. The CRE industry has not been known as a cutting edge user of technology, but that is beginning to change. The ability to utilize digital tools to improve service and efficiency is important to millennials, and CRE will do well to provide those tools.
Millennials take their values into the workplace, and they’re looking for companies that share them. Providing tools that enable employees to work in the ways that suit them best is a powerful recruiting strategy, and it also makes for better performance. A robust CRM platform brings these tools together in a powerful and cohesive way.
Millennials favor collaborative projects, and a well-designed CRM platform provides the forum for working with colleagues and forming partnerships regardless of location. Document sharing keeps everyone informed and saves time that can otherwise be spent tracking down needed information.
Cloud-based CRM platforms also increase flexibility with regard to scheduling and location. Millennials prefer to have options when it comes to where and how they work. That’s part of what’s driving the open-office movement; millennials want the option to work in a comfortable lounge or meet with their team over coffee on the patio. Working in the cloud offers them the flexibility that they prefer.
Millennials are concerned with company culture, and they want to work in an atmosphere in which management is accountable and ethical. In a recent survey, 86% of the millennial respondents stated that ethical leadership was either “extremely” or “very” important. In fact, a lack of ethical leadership had the highest “deal breaker” rating of all cultural factors, where 54% responded that it was extremely important and a potential deal breaker.
The extensive information and inherent transparency provided by technology solutions like CRM platforms helps to establish an ethical company culture. These platforms are also useful in the development of mentoring relationships, which are extremely important to millennial workers.
For the millennial employee, technology is an integral part of the desirable workplace. A strong CRM platform is as much a part of the job as fast WiFi, competent staff, and a clear mission. With access to these tools, millennials can feel confident of reaching their potential in your firm.
Many companies sign commercial leases during peak periods only to find that it becomes difficult to keep up with rental costs when business slows down. When you’re locked into a lease, you can’t simply move to look for a place with a lower cost per square foot whenever you choose, but there are still ways that you can reduce costs.
Here are seven methods of cost reduction that corporate tenants can take advantage of:
If your business has slowed down to the point where you need fewer employees, you likely now have unused office space that you’re needlessly paying for every month. Subleasing that space to house one or two departments of another company, a small business or a one-person operation will prevent you from paying every month for empty space.
When you need to replace furniture or office equipment, compare the cost of renting versus buying. Renting can spread your costs out over a longer period of time, and in some cases, is a more practical option, especially if you need to purchase something like a computer that can become quickly outdated.
Your landlord may be willing to adjust your rent if you renegotiate now and extend the length of your lease. This is especially true if you’re in a market where general demand for real estate is low or in a building that already has a number of vacancies.
4. Go Green
Greening your business can cut down on your utility costs and save you money every month. While you don’t want to invest a lot in expensive renovations, there are inexpensive and cost-free ways that you can reduce energy consumption. For example, some lighting fixtures can be fitted with money-saving LED bulbs without requiring any modifications. You can also put a lock on your thermostat or turn off lights in rooms that aren’t being used.
5. Use Contractors
Hiring independent contractors that work from home can help you save money. You won’t need additional space to accommodate these workers, and you won’t have all of the expenses associated with hiring employees to deal with. Just make sure you familiarize yourself with the laws regarding independent contractors; treating employees as contractors can get you into legal trouble.
6. Move to Telecommuting
If the size of your team hasn’t shrunk, you may still be able to sublease or at least avoid having to take on additional space to accommodate all of your employees. Experiment with having employees telecommute instead of working in the office. Even if it isn’t feasible to have an employee out of the office every day, he or she may be able to work from home 2 or 3 days per week and share a work area with an employee that comes in opposite days.
7. Store On Site
If you’re paying for offsite storage to keep furniture and other items that don’t require temperature control or extra secure environments, use empty rooms in your office as a holding place for them. This way, you can give up your storage locker and save money every month.