The world of crowdfunded, high-priced, commercial real estate is quickly becoming more accessible thanks to the JOBS Act. The once exclusive, alternative asset class has some individual investors drooling to get a piece of the action.
As more companies kickoff, the more choices you have. More options mean lower costs, competitive rates, and timely customer service.
If you’re an investor looking to get some “skin in the game” and considering diversifying your portfolio with real estate, we’ve got one worth a look:
In this Equity Multiple review, we’re going to take a look at what they’re offering, what makes them unique, and if you should take them for a test drive.
But first, what are you drinking?
Bird’s Eye View
- Individual Taxable (may also invest through your LLC or LP)
- Self-Directed IRA
- Multi-family, Office, Retail, Industrial, Self-Storage, Manufactured Home Communities and Student Housing
- Real Estate Debt, Preferred Equity, and Common Equity
- Equity Deals 0.5%-2% and 10% of profits
- Debt and Preferred Equity Deals ~1%
- 6 months – 5 years
Who’s It For:
- Accredited Investors Only
Equity Multiple is the only online investing platform backed by an established real estate company – not venture capital firms. Their backer, Mission Capital, is a leading national real estate capital markets firm with over 100 years of combined experience, $1B in total Equity Multiple deal value, and over $80B in closed transactions.
They’re also featured in numerous reputable publications including:
- Fast Company
- Market Watch
- The Huffington Post
Who Is Equity Multiple
Equity Multiple is an online real estate investment platform which connects accredited individuals with exclusive, pre-vetted commercial real estate investments from seasoned sponsors and lenders.
Their focus is on value-add or stabilized cash-flowing commercial real estate projects. The asset classes found on their platform concentrate in larger, higher-quality deals like hotels, multi-family units, and office retail.
In their words:
We were brought together by a shared vision of transforming real estate investing through technology – providing a new level of access to private transactions and streamlining the investment process. While we believe in the transformative power of technology, we recognize that our platform is only as good as the people and experience behind it. We’re committed to transparency, rigorous underwriting, and investor support.
Equity Multiple isn’t a REIT. Equity Multiple lets you hand-pick each investment based on your risk profile. REITs don’t offer that kind of customization as your money swims in pools of investments that were picked by someone else.
The private real estate market was once a playground for institutional investors. Now, you can start playing in it too for as low as $5,000.
Equity Multiple isn’t a registered broker-dealer or an investment advisor. All of their securities offered are through Growth Capital Services, a member of FINRA, SIPC, and their oversight manager.
Equity Multiple was founded in early 2015 by Charles Clinton and Marious Sjulsen. Before that, Mr. Clinton worked on over $10B in transactions as a real estate attorney. Sjulsen has over a decade of real estate experience and is responsible for all underwriting, sourcing and transaction executions posted on the platform.
The company is headquartered in New York.
So Far, So Good
April 2019 was a big month for them, doing $5.7M in transactions. Compared to their entire first year of $4.7M, Equity Multiple looks to be on track to hit even higher numbers as time progresses.
How Equity Multiple Works
You’ll invest in professionally managed commercial real estate that has hurdled through a multi-layered due diligence process.
It’s kind of like being the CEO of your own real estate company. They’ve vetted all the properties for you. Your only job is to pick one.Tweet This
You can find deals across all 50 U.S. states. A few investment opportunities I found on their site included:
- Cash-flowing Seattle-area office portfolio
- Downtown Brooklyn residential loan
- Chicago-area office and data center loan
Their national network of real estate companies identifies sponsors and lenders with exceptional track records and meticulously vets each one. Equity Multiple also invests in some of the deals with their own funds, aligning their interests with yours.
After vetting the project sponsors, they focus on market evaluations and transaction metrics. Every deal must pass their proprietary due diligence process for consideration.
Equity Multiple only chooses between 5% to 10% of the projects submitted to them. It’s during this phase that they “stress test” every data point including:
- Underwriting assumptions
- Key legal documents and third party reports
- Transaction structure
When it’s all said and done, you’re left with the cream of the crop of investment opportunities. Or, in their words, a “highly curated set of deals.”
The intense process does have a downside: limited investment deals. Per their website, you’ll typically only see three investment opportunities due to the high level of vetting that occurs.
However, Equity Multiple prefers it that way, citing quality over quantity as their M.O.
Once the deals are available on the platform, you’ll invest and build a diversified portfolio. You’ll create an investor profile with deals to match your specific criteria and investing goals.
Equity Multiple lets you diversify across markets, asset classes, and project types. Accounts are created in under 5 minutes.
Real Estate Investing: An Example
Equity Multiple puts it this way:
Imagine you’ve got $50,000 to invest towards a downpayment on one rental property with one tenant in one market. That doesn’t leave much room for diversification.
Equity Multiple says you could invest in five pre-vetted commercial real estate projects in five different markets across the country. You’ll gain exposure to varying property types with risk/return profiles all on a single platform.
You can invest in multi-family, office, retail, and industrial properties. Equity Multiple also features emerging asset classes of self-storage, manufactured home communities, and student housing.
What’s Your Risk Tolerance?
You have a choice about how much risk you’re willing to take on by investing in either syndicated debt (a fancy way of saying financing offered by a group of lenders), preferred equity, and equity.
Syndicated Debt lets you invest alongside experienced lenders in asset-backed loans. All parties’ interests are aligned as the partner lenders originate and fund each loan.
The expected return on investment is between 7% and 12% with a Loan-to-Value (LTV) of 50% to 75%. Terms run between 6 and 24 months. This investment is seen as the least risky as loans are 1st lien and secured by a mortgage, deed, or trust.
Preferred Equity offers investors a fixed monthly or quarterly return along with a fixed allotment of the project upside during repayment.
This investment carries a target current preferred return between 7% and 12% and a target total preferred return between 11% and 17%. Terms run between one and three years.
The risk is somewhat higher with preferred equity, but you get paid before equity holders and project sponsors. You get the best of both worlds:
- Monthly or quarterly returns with lower risk
- You’re second in line to get paid behind syndicate debt investors
Equity investors assume the greatest risk, are the last in line to get paid, but the potential upside is enormous if the deal goes well.
Target annual cash return for this investment is between 6% and 12%, and a target internal rate of return (IRR) of 14%+. Terms on these deals typically last between two and five years.
Who Manages Once You’re Invested
Equity and preferred equity investments are usually managed by the sponsor or a third-party property management company. Your Offering Page covers each data point concerning your deal in great detail.
The lender is responsible for collecting interest from the borrower and making distributions to Equity Multiple with all debt investments. Equity Multiple handles all relations with both sponsors and lenders.
Sponsors are also required to submit ongoing financial updates on all deals which get relayed back to you in your portfolio. You’ll receive all project updates and distribution notifications on your Activity Page.
Opportunity Funds: A Tax-Advantaged Investment Strategy
In March 2019, Equity Multiple released Opportunity Zone Investments. What are these?
A new tax-advantaged investment vehicle to stimulate more private-sector investments in specific communities nation-wide. Opportunity Zones are census tracts picked by the state and federal government for economic growth.
The benefits of investing in an Opportunity Zone are threefold:
- Your capital gains tax is deferred on all recently sold investments through December 31, 2026
- If you hold your opportunity zone investment for seven years, your capital gains tax gets reduced by 15%
- When you hold it for ten years or longer, you’ll pay zero in capital gains tax
Real estate investors have a few options. You can invest in:
- An individual taxable account
- Trust and Joint accounts
- Self-directed IRAs (SDIRA)
You can also invest through an LLC or LP. If you’re thinking about setting up a SDIRA, Equity Multiple partnered with custodian Millennium Trust who has $26.8B in assets under custody with 1.3M client accounts.
Minimum Investment Requirements
You’ll find a few investments for as little as $5,000, but most require at least $10,000 to get started. Additional shares go for increments of $5,000 above the minimum.
NOTE: Self-directed IRAs require a $20,000 minimum
Who Can Invest
Anyone with a U.S tax ID or Social Security Number can invest through Equity Multiple. You must be 18, and you must be an accredited investor. If your net worth is less than $1M (single or with a spouse) or your annual earned income is less than $200,000 ($300,000 with a spouse), you’re unable to invest. To learn more about being an accredited investor, read here.
Funding Your Investment Account
Funding your account is all done through a secure online process. ACH transfers are the simplest. Once you link your bank account, Equity Multiple will verify your bank info with two micro-deposits. Once these deposits are verified, you can start investing.
The alternatives to ACH transfers are either by check or wire transfer. Your money is held in a separate account (until it’s invested) at Bank of America and is FDIC-insured.
Distributions: How’s the Cash Flow?
All distributions get paid out either monthly or quarterly. Debt deals get you a fixed rate of return during the loan’s term, and your principal is repaid once the loan matures.
Preferred equity gets you the same treatment as debt, but also entitles you to a possible additional accrued return once the deal is complete. All investments come with an offering page explaining when you’ll get distributions.
Payments will be either direct deposit if you signed up for ACH transfer or by check if you prefer (do people still pay by check?).
Equity Multiple structured their business model to align with your best interests. In their words:
A significant portion of our compensation is dependent on the performance of your investments.
Their fees explained…
Equity investments carry an annual asset management fee between 0.5%-2%. The average paid by you falls somewhere between 1%-1.5% according to their website. This fee gets reduced by 1% if you bring a friend on board to invest.
They also take 10% off the top of the total deal’s profit once you’ve gotten all of your investment back.
Preferred equity and debt investments charge a monthly fee in the form of a spread between the interest rate paid by the sponsor or lender and what’s paid to you. This usually falls in the range of 1%. This fee gets returned to you if you bring a friend on board to invest.
Equity Multiple justifies their fees by explaining it’s significantly less than what you’d pay a hedge fund or privately held REIT. Also, the multi-layered due diligence process and 24/7 monitoring throughout the deal’s lifetime makes them say, yeah, we’re worth it.
All returns are expressed net of fees, and Equity Multiple is transparent on what you can expect on a deal-by-deal basis. Each investment has a fully-detailed Offering Page, including an investor packet explaining all fees and expected returns.
For a highly-detailed breakdown of their fees and costs using one of their deals as an example, go here.
Are Your Investments Secure?
Debt investments are all asset-backed, 1st liens which significantly reduces risk. Preferred equity isn’t secured, but you have priority payment over common equity investors and sponsors.
Common Equity holders carry the highest risk and are last in line to get repaid. However, you have the highest return potential.
Can You Resell Securities?
Not usually. Think of them as illiquid. Equity Multiple’s platform categorizes their investments as restricted securities. It means you might be able to sell them to another member, but it’s uncommon. Plan on your money remaining locked until the deal is complete.
In their words:
We use bank-grade protocols to transmit and store your data, deploy state of the art physical security, like biometric scan access in our data centers… our engineers have years of experience in building secure systems that pass FDIC and retail bank compliance tests.
All your data is safely stored, encrypted, and managed as a Heroku application within Amazon’s secure data centers and also uses Amazon Web Service technology.
Real Estate Investment Legal Structure and Bankruptcy Remoteness
When you invest, your investment goes through a deal-specific LLC. You’re buying an ownership interest in the deal which turns around and invests in the underlying project.
Deals exist independently of one another, which means even if Equity Multiple goes out of business, the deal will remain operational and payout cash distributions. This structure “ensures bankruptcy remoteness” as they put it.
So far, over $700M has been invested through Equity Multiple with their team being hands-on at every step.
You can access their customer service team by phone at 1(646) 844 9918 9 am – 6 pm EST, by email: firstname.lastname@example.org, support: email@example.com, or on social media: Facebook, Twitter, Instagram. They also have a chat service on their website that lets you leave a message.
They did respond to my inquiries when I reached out via their chat service.
- Monthly or quarterly distributions
- Real estate crowdfunding platform backed by a real estate firm (Mission Capital)
- Hand-select individual deals
- The bulk of their compensation depends on your investment’s performance
- Multi-layered due diligence
- High-quality, institutional real estate deals
- Accredited investors only
- Small selection of deals available
- Deals are typically illiquid until completion
- Higher minimums ($5,000-$10,000)
If you’re looking for a generous return on your investment (ROI) and don’t mind locking up your money for the holding period, Equity Multiple might be for you. They target returns in the range of 7%-12%, carefully vet every investment, and handle the due diligence while coordinating with all sponsors and lenders.
However, their platform is only for accredited investors. The real estate deals are more sophisticated than what you’d find if you invested in a REIT. Initial investments require at least $5,000 (although the majority require $10,000), you’ll be paying roughly 1%-1.5% in fees along with a 10% cut on all profits with equity investments.
There are always risks involved with any investment, and Equity Multiple is no exception. But the amount of due diligence they put into each deal might ease your worries (they accept fewer than 10% of all deals submitted). They’re also the only platform backed by a highly reputable real estate firm.