“Commercial real estate could be the largest asset opportunity in the online lending space,” said Brian Korn who is a partner at law firm Manatt at a panel event at the Urban Land Institute Fall Meeting in Boston. The panelists included Chad Cooley, co-founder and managing partner of AWH Partners; Darren Powderly, co-founder of CrowdStreet; and Greg Rush, partner and managing director at Cadre.
“Right now, consumer lending has outstripped real estate in terms of overall volume, but the number of commercial lenders that have scale is somewhat limited,” said Korn. He added that there is now a great opportunity in the real estate space.
Today, commercial real estate is the third largest asset class at $14 trillion, just behind stocks and bonds. Additionally, the United States is home to the largest, most liquid commercial real estate market in the world. From 2015 to 2020, alternative investment is projected to grow by 15 percent for accredited investors.
There are several types of online commercial real estate syndication platforms, colloquially they are known as real estate crowdfunding services. Companies like Cadre and CrowdStreet are leading the space in the equity investment model. There are also platforms that make debt investments such as residential loans and smaller 30-day notes. For non-accredited investors, there is the opportunity to invest in an eREIT, which has its transactions registered with the Securities and Exchange Commission.
“There used to be hundreds of [online syndication] startups, now there are only six,” said Powderly. The six that are still around are run by a team of reliable and responsible professional that come from the industry; these startups operate on an institutional level.
The benefits of online syndication platforms are cost and transparency. “When you invest in traditional real estate fund, usually you are doing so because you know the principal and you trust the process and that they are going to go out and find the best transaction,” said Korn. That model is quickly replaced with one of transparency. Sometimes investors want to invest in one property but not another. Investors that have the desire to pick and choose which transactions they want to invest in are able to get access to deals without “knowing someone” thanks to the advent of these platforms.
Five to 10 years from now, Powderly predicts that “there is going to be tremendous innovation.” He said there would be startups offering privately managed accounts that look like Vanguard-like services. Asked about the industry outlook, Cadre’s Rush answered that better use of data when applied to investing would make players in the industry smarter investors.
Securities law seems to be the biggest challenge for startups expanding internationally. Powderly said, “We would love to [expand], but it’s a matter of opportunity cost, we are only scratching the surface in the United States, we have to continue to focus what we know locally, but also because of securities law.” He added, “To try to solve multinational securities law is a big challenge, somebody will do it, maybe it will be Blackstone with lawyers and offices all over the world, but we are not big enough.”
If there is a key takeaway from this panel event, it’s that even though the industry is growing, the number of players is shrinking. Companies that are succeeding in this space offer institutional-level services and products.