Advisors now have two new real estate investment options to offer their clients – and they’re not REITS.

CityFunders and Acquire Real Estate are among the latest entries into the fast-rising field of real estate crowd investing, and they’re courting advisors to help grow their business.

Online real estate investment platforms like CityFunders and Acquire Real Estate let individual investors participate directly in real estate projects.

For just a few thousand dollars, investors can get exposure to a shopping mall, a new residential tower – even 3 World Center, whose Class 1 bonds are currently listed on real estate crowdfunding site Fundrise.

A relatively new sector, real estate crowd investing was made possible by the landmark JOBS Act of 2012, which made it easier for private companies to solicit funds from individuals.

The nascent industry is on a tear: Last year, real estate crowdfunding worldwide crossed the $1 billion mark, according to crowdfunding research firm Massolution. That amount is expected to rise by 150% this year to $2.57 billion.

“People have an appetite for investing in real estate,” says Acquire Real Estate CEO Steven Bettinger. “While nothing is guaranteed, high quality real estate has typically proven to be a strong investment over the long term. In our opinion, this is the future of real estate investing for individual investors.”

WHOLESALE PRICES

CityFunders, which launched on June 4, has started talking to advisors and will be working on “a case-by-case basis” to come up “with a process that suits all parties,” the company’s CEO David Behin says.

Acquire Real Estate is offering wholesale prices to RIAs and has built a module into its platform that allows advisors to access and monitor all of their clients’ investments with one login.

Both websites target only “accredited” or wealthy investors, and are looking to set themselves apart from the crowd.

Started by a group of New York real estate veterans, Manhattan-based CityFunders is focusing exclusively on the city.

“Between myself and my partners, we have $85 billion worth of transactions under our belts and New York City is where we have done the bulk of those transactions,” says Behin, who previously co-founded New York City real estate brokerage firm MNS Real Estate.

'SKIN IN THE GAME'

CityFunders is offering both debt and equity deals, with minimum investments starting at $5,000. The company has secured a $40 million credit line to pre-fund the investments offered on its web site.

Its first two projects are a new construction luxury rental apartment building in Long Island City and a rehab of two mixed use, side-by-side low rise properties in Chinatown.

The Long Island City project is an equity offering with an estimated internal rate of return of 10% to 11% and an estimated hold period of four to five years. The Chinatown project is a debt offering paying an interest rate of 8% on a two-year mezzanine loan.

CityFunders makes money by charging fees to sponsors. On debt deals, it also earns money on the interest rate spread between its loans to sponsors and what it sells to the crowd. On equity deals, it shares in profits generated by projects.  

Manhattan-based Acquire Real Estate invests in the projects listed on its site, and remains in those deals, so that its interests are aligned with its members’ interests.

“We are not a listings service, we are an investment firm,” says Bettinger who previously ran an asset-based lending hedge fund specializing in real estate bridge financing. “We have skin in the game.”

Since its launch in January, Acquire Real Estate has done six deals. 

“All of them had existing cash flow and stable, predictable income with an average return of between 8% and 10%,” Bettinger says.

The startup just raised $6 million which it will use for working capital and funding real estate.

The company currently charges investors a 2% annual management fee and a one-time acquisition fee of 5%.

LIQUIDITY CONCERNS

Individuals have been able to invest in commercial real estate for decades, via REITs.

But online sites like CityFunders and Acquire Real Estate let people put their dollars directly into projects, giving them more control, more transparency and even a sense of pride.

REITs, in contrast, invest in companies that derive their revenues from multiple real estate investments. 

On the negative side, real estate equity crowdfunding sites don’t offer the liquidity that publicly-traded REITs do.

And of course there is the risk that a real estate investment will fail, especially when the cyclical industry heads into a down phase.

“The real questions will come when the market turns,” says Scott Picken, CEO of Wealth Migrate, a real estate crowdfunding site based in South Africa.

Both Acquire Real Estate and CityFunders rely on an experienced team of real estate pros to vet projects.

“We do our homework first and invest for ourselves,” Bettinger says. “Only then do we allow others to participate.” 

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