The concept of crowd funding really came to the fore with the passing of the Jobs Act of 2012. The Act relaxed regulations for private funding and encouraged businesses and startups to raise money from private investors through online portals. As per a Massalution report, the real estate crowd funding industry was valued at $1 billion in 2014, $2.5 billion in 2015, and is projected to reach more than $300 billion by the end of year 2025. By combining online crowdfunding, technology, and real estate, platforms are providing comparatively small investors the opportunity to partake in much larger real estate deals that they would otherwise never get to invest directly.
A Look at ArborCrowd Services
The company came up with its first deal, 1413 York Avenue, in 2016. After a successful launch, they launched six more deals and generated $20 million in equity capital to finance multifamily real estate projects.
Multifamily properties have the ability to generate healthy returns and survive in adverse market cycles because of the low level of risk involved. According to the founders, a new generation of investors will find it a secure way of investing in real estate.
ArborCrowd investors co-invest with a network of professional sponsors having an extensive knowledge base. Each deal is financed with different amount of contribution from sponsors ranging from 30% to 80% while the share of crowdfunding investors is dependent upon projected IRR of each project. The company has built strong relationships with industry leaders over the years as it has worked with institutional investors.
Crowdfunders’ pool of money is invested in capital stacks of $2 to $6 million. Sponsors at ArborCrowd bring money up-front and raise the balance from accredited investors. This assures the viability of the project to outside investors. The minimum investment per deal is $25,000. All investors are invited to invest on a deal basis so they can analyze where there money is being invested. The company aims for an IRR from 10%-15% for its projects.
Philosophy on Debt Investing
P2P lending, or debt crowdfunding, is the traditional method of arranging finance for customers and businesses. Despite offering steady income and priority of payment over other capital stacks, real estate debt crowdfunding is considered risky by ArborCrowd’s founding team. Most of the tech companies that offer debt on their RECF platforms are operating in a precarious environment. Debt investors sacrifice the potential of higher returns, which can be enjoyed only in equity financing, whereas faltering projects can usually wipe out equity and debt investors.
How ArborCrowd Works
Sponsors approach ArborCrowd with investment deals that are best suited for crowdfunding. Market presence of group companies including Arbor Realty Trust, Arbor Commercial Mortgage, and AMAC has helped ArborCrowd leverage their relationships with industry leaders. The whole group is determined to deliver one-stop solutions customers. The entire procedure of sourcing, underwriting, and closing the deal takes approximately one month, after which the distribution takes place.
The current strategy is to partner with people having extensive industry experience and a sound track record. People interested in crowd investments can register on the company’s online portal and download the details about the business plan as well as current and past deals financed to get an idea about the underwriting process.
Investors participate in the deals through effective marketing techniques including email, marketing pitch design, and organizing webinars while focusing on providing them with the best-sourced deals and sponsors.
ArborCrowd offers these investment opportunities to only accredited investors and ensures a proper vetting of these prospective clients. The process of online verification takes one hour for potential investors.
Each ArborCrowd project is tested on different parameters depending upon the nature of the underlying property. Most money lending institutions use inappropriate tools to evaluate each deal. Automated analytical tools are helpful in this regard, but no algorithm can replace the human touch. Arbor brings its management’s decades of experience and industry contacts to ensure that it can capture the deal first.
Who Are ArborCrowd Investors?
The company’s investor ecosystem includes tech millionaires, investment clubs analyzing different real estate opportunities in multiple markets, and real estate brokers. The founders shared an experience where an investor took out his life insurance money to invest with the platform. This highlights the trust the ArborCrowd brand name has in the market.
Who Are ArborCrowd?
ArborCrowd, a part of Arbor family of real estate companies that include Arbor Realty Trust, Inc. (NYSE: ABR), Arbor Commercial Mortgage, and AMAC, is focused on providing diversified real estate investment opportunities to accredited investors. Their deals are sponsored by sophisticated and experienced real estate deal makers and were previously available to only institutional and high net worth individuals. All the documents and reports related to financial projections, timelines, and business plans are made available to the investors to enhance transparency and build investor confidence.
Ivan and Adam Kaufman founded ArborCrowd with a motive to source investors in real estate through the amalgamation of technology and crowd funding. In the initial phase of real estate crowdfunding (RECF), the father-son team consciously stayed out of RECF. They were happy to let other tech-focused startups enter the space first. Their aim was to understand how the market evolved online and learn the best practices jumping into a nascent industry. In 2016, they entered the market with their own product offering.
Their ArborCrowd ethos involves a real estate company leveraging technology as opposed to a technology company leveraging real estate. The founders are experienced operators in the field and understand the nuances that will act as a moat to their business.
CEO and Co-Founder Ivan Kaufman has more than three decades of experience working in residential and commercial real estate. His background in mortgage loans, asset management, and real estate financing is an important asset to the company. His background and the Arbor brand name help attract top quality sponsor and marquee real estate deals.
Adam has worked with leading technology and real estate companies and has experience in marketing and business development.
ArborCrowd is privately owned and no outside investors other than the Arbor Group has a stake in the crowdfunding platform.
The Future of Real Estate Crowdfunding
Introduction of advanced tools, a growing fintech world, and a massive demand for online and user-friendly platforms assisting people to access commercial real estate transactions is expected to reshape the real estate industry. The long-term vision of the company is not to just increase the quantity of projects financed through its platform, but to be known for financing viable projects concentrating on quality.
Written by Heena Dhir.