Updated 5 Feb 2020. Please note that I have an affiliate relationship with Streitwise but would recommend them even if I didn’t. The big change for 2020 is the 8-9% return rather than historical 10% returns.
Crowdfunded real estate is a relatively new “asset class” or investment opportunity, and a way to diversify beyond the stock market. These platforms allow you to get into real estate in a more passive way, without tenants, maintenance, or any other problems. Most funds pay in the 6-15% range, but 10% is a commonly marketed return.
Thanks to the JOBS Act, which was passed in 2012, normal folk are able to participate in these deals. Historically this was limited to high net worth or high income investors with certain connections. Streitwise is making it possible for the average American to invest in commercial real estate.
Table of Contents
What Is Crowdfunding?
Most people think of Kickstarter or GoFundMe when they heard the word crowdfunding. Those sites pool together small sums of money to fund larger projects, products, or financial needs. I recently posted about Kiva, which crowdfunds small business or education loans to entrepreneurs and students in 3rd world countries. Applying this concept to real estate allows experienced real estate investors to do larger deals. In exchange for funding these projects, the crowd collectively assumes risk but will share the reward if all goes well.
When it comes to Real Estate Crowdfunding (RECF), and platforms affected by the JOBS Act, you are limited to investing 10% of your net worth or 10% of your annual income. If you make 50k a year and don’t have much savings, you can only invest 5k. But if your net worth was 150k, you would be able to invest 15k. Most of the platforms have self certification, and I don’t know that anyone would check on this, but I chose to follow this guideline (based on net worth).
REIT stands for Real Estate Investment Trust and it simply is a company that owns, operates and/or finances income-producing real estate. You can read more about REITs here.
How I Chose stREITwise
When I first learned about this I wanted to jump in, but there wasn’t a lot of information about the different platforms. Since the legislation passed in 2012, these companies have only operated in a bull market, and real estate has made a major comeback. It is still unknown how these companies would weather a recession. Despite all this, I had some capital to deploy from a recent home sale and wanted to keep some money allocated to real estate. Somehow I came across the Facebook Group for real estate crowdfunders. I watched the comments and posts for a while, and searched around. The two that stood out were AHP Servicing and stREITwise, but there was a lot of talk about Groundfloor as well.
I made a post in the group basically acknowledging my ignorance and asking for some advice. To my surprise I got a response from the CEO of Streitwise himself. Here’s a portion of his response:
“We focus on acquiring primarily stabilized office properties that we believe have a tenant profile and location that can provide for consistent cash flows over a longer period. We try to acquire properties with good rent rolls and quality tenants, as a mitigant during downturns.”
Eliot Bencuya – CEO of stREITwise
The confidence of many of the people in the group, along with a personal response from the CEO provided me the needed assurance to move forward with my decision to invest.
What Does Streitwise Invest In?
Another member of the Facebook group gave this synopsis:
[Streitwise] invests in Class A midsize commercial projects in secondary markets, mainly in the Midwest. While this is a… quality asset, diversity is a concern as until recently they only had one project in their portfolio. However, they just picked up a second new development and further acquisitions will improve diversification.
Facebook group commenter
They currently own the Panera Bread HQ in Sunset Hills, St. Louis. It’s a 290,000 square feet Class A office park. Other tenants in this building include New Balance’s Regional HQ, Wells Fargo, Edward Jones, Nationwide Insurance, and a few others.
The second building is the Allied Solutions Building. It is a $32 million building located in an affluent Indianapolis suburb, Carmel. There is a lot of construction in that area linking it to downtown. A biking and walking trail are going in, along with apartments and more retail space.
The building is 142,000 square feet and a class A project. At almost 4 years old, it is the “centerpiece of the greater Midtown Carmel redevelopment.” Streitwise owns a parking garage on one side, with a regional brewery/distillery on the other side. Other than Allied Solutions LLC, tenants include F.C. Tucker (15,750 leased until 2029), and Fork+Ale House (3,191 leased until 2029), and Penn and Beech Candle Company. They are around 90% leased. Allied Solutions is looking to double their work force over time and there is still room for a few more tenants on the ground-floor.
You can read more about the tenants in the offering circular by clicking here. They also have a page explaining their investment strategy which focuses on value oriented investments, modest leverage, non-gateway markets (focus on Midwest region) and creditworthy tenants. They want their properties to have a track record of sustained occupancy, high quality construction and a base of established employers and industries.
How To Invest
Setting up the account was fairly easy, but it does takes a couple weeks. One thing that separates them from other CFRE platforms is that they outsource IT to 3rd party vendors. Streitwise has a small team, with about 10 employees. They mostly focus on actual real estate, so they are not coding their own online account, etc. The investment team is part of Tryperion Partners, which has co-founders including Eliot Bencuya. stREITwise does their own marketing and product but they use ComputerShare for their accounts, FundAmerica for SEC-Compliant tech tools and other 3rd party resources.
It is a bit weird signing up as ComputerShare makes an account for you and then emails your login information after a couple of weeks. The money gets transferred over in the meantime and is invested in the REIT.
Many other platforms set up their own IT infrastructure and in doing so might be more of a FinTech company. Streitwise outsources all IT work and focuses just on what they know: commercial real estate. While the sign up process is a little more tedious, it allows their team to stay lean and avoid paying for in house developers.
Fund Performance
Since inception they have paid 10% interest, which comes to your account in quarterly payouts. The 10% rate is not guaranteed and may increase or decrease. They are upfront about the fact that this rate is not guaranteed, but it should continue to perform well if they execute well. So far I’ve received a 10% return.
Their fund can be closed or paused but it is rare. The most common reason would be when they are putting together regulatory documents, or updating their offerings.
Streitwise doesn’t correlate strongly to the stock market, and they have a 1 year lockout before it is possible to withdraw your funds. This is to protect the integrity of the investment for them and for the customer.
Streitwise should be considered a long term investment. See the table below for how your your investment is returned if you cash out early.
| Year 1 | No redemption |
| Year 2 | 90% of net asset value |
| Year 3 | 92.5% of net asset value |
| Year 4 | 95% of net asset value |
| Year 5 | 97.5% of net asset value |
| Year 6+ | 100% of net asset value |
They reserve the right to disallow redemption’s to protect the investment, similar to other platforms. Only invest money you won’t for 5-6 years to get the full return of principal. If the account holder dies or becomes disabled, it is possible to get all the money back. Streitwise does not allow redemption’s to exceed more than 5% of shares in a year, or 1.25% within a quarter.
Other Considerations
They require a minimum of $1,000 to invest. You can set up a scheduled investment and contribute money on a regular basis. The dividend can be automatically reinvested or be pulled out quarterly.
It is possible to invest in Streitwise offerings within tax advantaged accounts, like a 401k or IRA. You would likely have to use Millennium Trust Company, Equity Trust, Pensco Trust Company. You can find out more here.
The three founders of the company have over $5 Million of their money invested through this platform. I like that they have skin in the game.
As far as taxes go, expect a 1099-div to be mailed around January 30th. 20% of the dividends can be deducted from your taxable income.
Right now their Loan-to-Value (LTV) is 55%, but they try to keep it between 40-60%. If this ratio is too high there is greater risk. For example, putting no money down on a house can be dangerous if home prices fall and you find yourself to sell without paying the difference. If the LTV is too low, then there is likely opportunity to leverage the equity at a higher interest rate than the debt. This is a conservative LTV and I’m happy with it.
They’re actively looking for other acquisitions, particularly in Ohio, Minnesota, the Kansas City area, Phoenix AZ, St. Louis, MO and perhaps more in Indianapolis.
With my money invested in Streitwise, it is not exactly clear how the money is split out between each property. But as long as I make 8-10%, I don’t mind.
Conclusion
I’ve enjoyed learning more about crowdfunding and owning some class A Commercial real estate. While it may not be for everyone, I think it’s a neat part of my portfolio and I’m excited to see what the acquire next. Commercial real estate has never been more accessible to the masses thanks to Streitwise.
Also, for anyone interested, here is a link to their SEC documents.
More on the Allied Solutions building.
The offering circular can be found here but it’s a hefty read.
Updates February 2020
I’m perfectly happy with my investment in Streitwise and the solid and steady returns they have provided me. You can read what the CEO of Streitwise has to say about 2020 and beyond here, but I’ll sum things up:
- You can now make recurring automatic investments.
- It’s easier to invest with them through a tax advantaged IRA account.
- You can use the Computershare mobile app to manage your account. Customer support and onboarding improved.
- Their investors grew 100%+ in 2019, and a lot reinvest their dividends.
“Our investment strategy and our thesis remain the same: We believe that buying quality, stabilized office buildings in desirable suburban-urban locations at high cap rates will result in outsized risk-adjusted returns over the long term.”
Eliot Bencuya – CEO Streitwise
- They will come out with more video and blog content to interact and keep in better touch with customers.
- Their investment in Indiana has proven very strong.
- Their leases don’t expire until 2022-2024 and may renew early.
” …We are excited about creating the first REIT focused on sub-institutional, modern, mixed-use, walkable suburban-urban cores within secondary markets.”
Eliot Bencuya – CEO Streitwise
- This is a big one, but they are not planning on paying 10% for 2020, but rather 8-9%. Still a strong return in my book.
- They are carefully considering new investments, while paying down debt to become more conservative.
- They are planning to spend $1.1 million on capital improvements.
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