Proptech is Making Waves in the Real Estate Industry

Posted by Jack Power on Aug 2, 2019 9:42:48 AM

As you may have read in the Real Estate Crowdfunding 101, 102, and 103 articles, crowdfunding is a relatively new phenomenon that has changed traditional methods of raising capital for real estate investments.  However, crowdfunding is just one piece of the larger picture: namely, that technological innovation is inherently disruptive.  How has this disruption affected the world of real estate elsewhere?

Historically, the real estate industry—particularly the commercial side—has been slow to adapt to rapid increases in technological innovation.  While other industries have welcomed innovation with open arms, real estate has not been so quick.  However, the efficiency and success in other industries have inspired many property technology companies (dubbed “proptech”) to quickly rise in the real estate world.  Although real estate has not caught up to other sectors quite yet, there has been a significant change in a relatively short amount of time.  This article will discuss some of the emerging trends in the real estate industry spurred by technological innovation.

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Topics: Crowdfunding

What Do Lenders Want to See in CRE Debt Packages?

Posted by Marcus Goodwin on Jun 12, 2019 10:59:43 AM

Obtaining commercial real estate debt financing is no easy task.  In certain scenarios, gathering and organizing the required information can be a monumental undertaking.  Many times, closing timeframes or difficult sellers can make it impossible.  However, when presenting an opportunity to a lender, the more information you can provide the better.  More importantly, you can expect more accurate feedback.  From a lender’s perspective, the overall focus or theme is “don’t lose.”  Because of this directive, lenders can be seen as “Debbie Downers” or “Negative Nellies”, seemingly unable to focus anywhere but on the downside scenario of the opportunity.  Because typical debt structures do not allow the lender to participate in the upside, the downside risks take the majority of the lender’s focus.  From this perspective, it is easy to see why lenders will tend to take a conservative approach.  As a broker (or sponsor), it is important to try and not let a lender replace missing information with overly negative assumptions (sometimes they just can’t help themselves).  A debt package that provides a complete picture of the opportunity will help manage any lender concerns upfront.  This allows the lender to focus on the business plan presented, rather than stalling out with questions about missing information. 

Below is an outline of important parts of any debt package that, when included, will help to keep the lender’s attention on the deal.

  1. Background
  2. Sources & Uses
  3. Capex Budget
  4. Historicals + Pro Forma
  5. Sponsor Background
  6. Market Data

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Topics: Brokers, Sponsors

Real Estate Crowdfunding 103: The World of Real Estate Crowdfunding Sites

Posted by Boots Dunlap on May 8, 2019 12:06:15 PM

In the last two articles in this series, we discussed two key differentiators in real estate crowdfunding: differentiation of platforms and differentiation of offerings

  • Differentiators in offering refer to the regulatory offering types (accredited vs non-accredited investor offerings), which are of the utmost importance to real estate sponsors thinking about raising capital online. 
  • Differentiators in platform refer to both the purpose (marketplace vs captive) and the incentives behind the platform, which is a critical investment due diligence item for anyone intending to invest through crowdfunding.

To date, the most successful real estate crowdfunding websites tend to be crowdfunding marketplaces focused on accredited investor offerings.  These include CrowdStreet.com, RealCrowd.com, and EquityMultiple.com.  Because these sites attract multiple sponsors (a marketplace) and can bring more money to real estate transactions (no fundraising cap), they garner the highest quality deals and attract the greatest quality and quantity of investors.  In addition, they protect their brand by vetting the deals and sponsors before permitting them to market their offerings on their platform. 

There has been a glut of crowdfunding platforms erected with the hopes of emerging as the real estate crowdfunding market leader.  However, this glut has outpaced user-adoption.  As a result, numerous crowdfunding companies have closed down or consolidated as they have struggled to generate the fee income required to outpace their large overhead. 

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Topics: Investment, Investors, Crowdfunding

How Do Interest Rates Change at Different LTVs for a Typical CRE Bridge Loan?

Posted by Ted Van Brunt on May 1, 2019 10:29:51 AM

In December 2018, RRA Capital conducted an annual mortgage broker survey to explore how interest rate pricing changes at different leverage points for a typical commercial real estate (CRE) bridge loan.  The inspiration for this survey came from the desire to give borrowers the sharpest pricing we can at different LTV exposures by getting a better idea of current market pricing.

For the purposes of this survey, a “typical commercial real estate bridge loan” was assumed to be the following:

  • Debt Assumptions: Acquisition financing, non-recourse, 2-year term
  • Property Assumptions: General multi-tenant commercial property, class B, partially-stabilized, $15 million value
  • Borrower Assumptions: Has experience in the product type, good credit, an acceptable net worth as limited guarantor and ability to accept leverage between 40%-95% LTV
  • Market Assumptions: Well-located, infill location, in a stable secondary market


The below chart displays the survey results, which came from some of the most active mortgage brokers across the United States.  The black bold line in the middle is what RRA extrapolated to be a good average rate (internally referred to as the “Yield Curve”).  More specifically, the black line is the exponential trend line of the rate of change between the data points.  And to control for some outlying data, any data points where either the rate of change or the rate of acceleration were more than two standard deviations from the mean of the sample were excluded.

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Topics: Market Update

Real Estate Crowdfunding 102: What Investors Should Know

Posted by Boots Dunlap on Apr 4, 2019 2:22:15 PM

In the previous post on real estate crowdfunding, we covered the regulatory structures of crowdfunding offerings and the impact that those offerings have on sponsors.  In this post, we’ll look at two distinctly different types of crowdfunding platforms that every investor should be aware of and how each affects the investor’s ability to find great deals.  The differentiators discussed below expose the business strategies, and more importantly the incentives, behind crowdfunding platforms that impact the investor.

There are two major types of crowdfunding platforms: crowdfunding marketplaces and captive crowdfunding sites

  • Crowdfunding marketplaces are websites built to be a truly independent and free marketplace for investors and sponsors.  The crowdfunding marketplaces are created to provide the investor community with deals from numerous sponsors, most often pre-approved for quality control. 
  • Captive crowdfunding sites are sites created by a real estate sponsor to satisfy a specific business need.  They do not necessarily find the investor the absolute best deal in the available market.
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Topics: Investors, Crowdfunding

Real Estate Crowdfunding 101: What Sponsors Need to Understand

Posted by Boots Dunlap on Mar 20, 2019 11:48:17 AM

Real estate crowdfunding has been quietly evolving on the sidelines during the latest commercial real estate bull market.  Critics dismissed this new form of capital raising as just another fad or buzzword du jour.  However, crowdfunding platform founders claim that it is destined to overtake traditional capitalization methods in the not too distant future.  Regardless, the major objections to crowdfunding are dissipating rapidly as advancements in supporting technology trends (to be discussed in a subsequent post) allow for greater investment transparency and growing user-adoption.  As this industry matures, real estate investors and sponsors will be able to connect more efficiently, creating greater competition for capital and deals.  This increased efficiency and competition will result in a broader demand for quality deals and cheap equity.  However, before market participants may hope to reap these benefits, they should first be aware of the basics of crowdfunding.

Over the course of a series of posts, I intend to cover some of the key differentiators of crowdfunding platforms that affect investors and sponsors.  These consist of two major areas: differentiation of platforms and differentiation of offerings.  While both platforms and offerings have significant effects on both investors and sponsors, investors should be more concerned with understanding the platform, and sponsors with understanding the offering.

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Topics: Private Credit, Sponsors, Crowdfunding

Counting the Costs When Purchasing a 25-Year or Older Building - Part 3

Posted by Charlie Dunlap on Mar 11, 2019 9:51:50 AM

In Part 1 and Part 2 of this series, we discussed the definitions as well as what factors decrease the useful and physical life of a commercial building.  In this article, we examine a specific property type of commercial real estate that has important deviations from a “typical” older commercial property: residential rental property.  We will explore why residential rental buildings (primarily apartments) have shorter economic useful life expectancies and what the main limiting factors in extending a property’s economic useful life is.

Economic Life of an Apartment is 27.5 Years

When considering the purchase of an older residential rental property (such as an apartment) it is important to understand that the useful economic life of an apartment building is significantly shorter than that of a commercial building.

As a reminder, the IRS allows 27.5 years over which you can depreciate residential rental buildings and 39 years for retail and other commercial structures.  This shorter depreciation schedule was established to encourage construction of new rental housing, however, it also reflects the fact that residential rental structures have a significantly shorter useful lifespan than commercial structures.  The tax code presumes that the useful life of a residential rental building is only 70% of the useful life expectancy of a commercial building.

What factors contribute to a shorter useful life for residential rental housing properties?

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Topics: Sponsors

Counting the Costs When Purchasing a 25-Year or Older Building - Part 2

Posted by Charlie Dunlap on Feb 22, 2019 12:38:01 PM

In Part 1 of this series, we discussed what the useful and physical life of a commercial building is, as well as the five stages of a building's life.  In this article, we will explore some of the factors that can decrease the physical and useful life of a commercial building. We will also touch on building obsolescence, which can be a major threat to older buildings.

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Topics: Sponsors

Counting the Costs When Purchasing a 25-Year or Older Building - Part 1

Posted by Charlie Dunlap on Feb 15, 2019 10:10:12 AM

*This is the first in a three-part series on considerations when purchasing older buildings.

Purchasing a building that is 25-years-old or older requires a significant historical investigation and analysis to determine the risks associated with the building.  These articles are intended to aid any investor attempting to answer the following questions:

  • How do you identify the risks that come with the ownership of an older building?
  • What factors can hurt the future net cash flow of an older building?
  • How much more economic life is left in the building
  • How many years are left that will produce reliable income from the ownership of the building?
  • How do you determine the current value of an asset with a shorter economic life?

A building’s “useful life” depends on its previous ownership, intended use, and prior maintenance regime.

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Topics: Sponsors

5 Ways To Invest in Commercial Real Estate

Posted by Marc Grayson on Jan 24, 2019 9:11:08 AM

Back when we were young, fresh-faced students coming out of school and entering the real world we likely had a basic understanding of investing that was limited to publicly traded stocks.  Then, as we matured, we all came to realize that investing in publicly traded stocks was only one of the many ways that we could invest our money in the hopes it would grow.  Such options are now more diverse and more available than ever and are no longer the exclusive domain of large investors and financial institutions. 

One such investment is commercial real estate.  This investment class typically takes significant amounts of capital and historically has been a relatively illiquid investment.  Over the years, however, those features have significantly changed, and now there are more ways to invest in commercial real estate than ever before. 

But before we discuss the ways you can invest in commercial real estate, it must be emphasized that all investments in commercial real estate are not equal.  It stands, as with all efficient markets, the greater the risk, the greater the reward (or loss).  Commercial real estate is no different.  And those risk profiles have designations that are common among most investment classes: debt and equity.

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Topics: Investment, Investors