In recent years, dozens of online platforms have popped up to cater to commercial real estate investors—everyone from everyday investors to high-net-worth (HNW) investors and family offices. Given the plethora of platforms that have emerged and that continue to emerge, any investor, no matter his or her level of sophistication, might be befuddled by which ones to choose.
One of these new platforms is operated by EquityMultiple, a start-up based in New York City. The EquityMultiple platform offers equity and debt deals to accredited commercial real estate investors; it leans toward investments in the multifamily, hotel, industrial, office, manufactured housing and self-storage sectors.
Charles Clinton, a real estate attorney, and Marious Sjulsen, a real estate investment veteran, co-founded EquityMultiple in 2015 with the idea of bringing direct investment in commercial real estate to all investors, not just institutional players. By the end of 2018, the start-up expects to have corralled more than $1 billion in real estate investments since its launch. EquityMultiple, backed by New York City-based capital markets firm Mission Capital and former Wall Street executive Ken Pasternak, boasts that it seals fewer than 10 percent of the deals that it looks at.
Clinton, CEO of EquityMultiple, and Sjulsen, its chief investment officer, talked with NREI about how HNW investors and family offices should approach online real estate investing, which Clinton says is in the “very, very early innings.”
This Q&A has been edited for length, style and clarity.
NREI: What are the advantages of online platforms versus more traditional routes of investing in commercial real estate?
Marious Sjulsen: One of the things in direct investing that you get the benefit of that you don’t get the benefit of when investing through a traditional fund is that you get to pick the investments you want to be part of, and the overall costs are far lower.
NREI: What recommendations do you have for HNW investors and family offices when it comes to online investment platforms for commercial real estate?
Charles Clinton: First and foremost, get information about the platform. Look at the backgrounds of everyone involved. How much experience does the team have? How much real estate experience do they have? How are they sourcing the transactions that come to the platform? What is the platform actually doing?
There’s a bit of a divide between how these platform business models work. Some platforms, like ours, intentionally stand between the real estate company and the investor, and they do due diligence on the sponsor, they do due diligence on the deal itself, they go out and visit the property; they function a lot like an institutional or private equity firm might function. Then you have another set of firms that are really just providing a technology solution that’s sitting in the middle between the sponsor and the investor, and their job is really not to do property-specific due diligence; they’re more of a software solution.
Also, what type of products is the platform investing in? Is it debt? It is equity? Is it something in between the two? Matching those to the level of risk is one way that investors can get more comfortable the first time they invest in one of these platforms.
NREI: What red flags should investors watch for when considering an online real estate investment platform?
Charles Clinton: At this point, there are five or 10 platforms that have been around for a few years, that have done a significant number of deals, that have people with strong real estate backgrounds on board, and that pick up the phone when you call them, answer questions and walk you through what they’ve done historically. You need all of that. You want to make sure that this is something that’s not fly-by-night; a few years of experience makes a world of difference. We’ve done deals with $700 million in real estate value. That kind of experience is a major protective benefit for investors and something that they should expect every platform to have—that kind of credibility and experience.
NREI: What can you say to someone who might be skittish about online investing in commercial real estate?
Charles Clinton: As much as we are a business that’s transacting online, there are human beings standing behind all these deals, doing due diligence, doing what many real estate companies have done for a long time. Investors should realize that isn’t a totally new thing—this is more a new method than a new thing. People have invested in these sorts of real estate deals forever.
You might start with an investment that’s either a shorter duration or is a safer investment structure, like a debt investment or a preferred equity investment—something with lower volatility and a lower return, something with a different risk profile.