These days, you can crowdfund just about anything—business ventures, vacations, weddings—so it makes sense that crowdfunding platforms are popping up in the commercial real estate space, as well.
Once such company, New York City–based ArborCrowd, part of the Arbor family of companies (including Arbor Realty Trust, a public REIT), came to market in 2016. In 2012, lawmakers changed investment rules to allow companies to generally solicit accredited investors—individuals with an income exceeding $200,000 annually or $300,000 together with a spouse, or those with a net worth of more than $1 million (either alone or together with a spouse), excluding the value of the individual’s primary residence.
Previously, explains Adam Kaufman, co-founder and managing director at ArborCrowd, if you wanted to invest in real estate or source investors in real estate, you had to have a first-degree connection with the person and proof of it. “Now, with technology, they understood there was an ability to get other investors online and invest in commercial real estate,” he says of lawmakers.
In 2015, another law became effective that allows companies to raise up to $50 million from investors and to then invest those funds as they see fit. ArborCrowd has resisted a shift to this model in favor of one that gives gave online investors the option to decide which specific investments they’d like to put money toward, rather than passively investing in a fund that made the decision for them.
“We strongly believe in the investment model where you choose the deal and get the insight into the deal you want to invest in,” Kaufman says. “Arbor has 30 years’ experience on the mortgage side of commercial real estate and this basically opened up the doors to the same deals we were seeing come across our desk.”
ArborCrowd focuses on multifamily workforce housing. To date, it has funded six deals, including a 141-unit property in Mobile, Ala., in March. Kaufman says workforce housing is vital to the multifamily industry and the nation as a whole, so it makes sense from an investment standpoint. “It’s workforce housing, so people need these places to live; it’s affordable; it’s the core of the industry; and there’s a lot less risk involved,” he adds.
Kaufman says ArborCrowd is selective with the deals it brings to its investor pool. “We don’t need to post a deal on the site at all times to show growth or trajectory,” he says. “We’re only going to post what we think is a quality deal, so we’re very selective. Given where the real estate industry is as a whole right now, it’s not a buyers’ market. People are overpaying for assets and the returns aren’t going to be great when that pans out.”
While Arbor Realty Trust looks at deals from a debt perspective, ArborCrowd is on the equity side. The minimum amount to invest with ArborCrowd is $25,000, and there's no maximum.
Kaufman says many of ArborCrowd’s investors are real estate professionals who don’t have the opportunity to invest with the principals of their companies or their company’s transactions.
ArborCrowd provides accredited investors with access to real estate investment opportunities that are managed by tenured commercial real estate professionals. The investors get access to tools such as market reports, rental and sales comparables, and the sponsor’s track record.
Investors receive a return on their investments when the project’s sponsor—a person or company who sources, underwrites, and executes real estate investment opportunities—distributes profits. All investors can review the pro forma for each deal to get insight on how and when the sponsor estimates distributions will be made.
Although ArborCrowd is relatively new, the Arbor family of companies has decades-long relationships with sponsors that it capitalizes on. And what sponsors like about the ArborCrowd model, Kaufman says, is that the company writes a check up front and the deal is closed before it ever brings the investment opportunity to its investor pool.
The company raised $2 million in five days for a 607-unit portfolio in Alabama and Mississippi last year and $4 million in 30 days for a 79-unit deal in New York in 2016.
Kaufman expects more crowdfunding companies to pop up in the commercial real estate space in the coming years. “I think crowdfunding is obviously a big space outside of real estate in and of itself, and it’s really important to look at it less so as being crowdfunding in the traditional sense, as it is in real estate, but it’s really an investment vehicle,” Kaufman says. “It’s just using the internet to access the investment, and it serves as a conduit.”
