AUSTIN, Texas, March 10, 2022 /PRNewswire/ — Even before the war in Ukraine brought more uncertainty to an already turbulent stock market, 2022 held great promise for online property investing platform CrowdStreet. Its 2022 Investor Benchmark Survey found 98% of respondents plan to make at least one private equity real estate investment in 2022, while 65% plan to invest less in stocks and bonds. While CrowdStreet raised $1.2 billion from retail investors last year—twice as much as ever before in a single year—funds raised since January 1 show it will likely outpace its 2021 performance.
Investors are diversifying their portfolios—and balancing risk—with commercial real estate.
CrowdStreet, the nation’s largest online private equity real estate investing platform, drew respondents from its network of accredited investors. All 1,111 survey participants were in complete agreement on their plans to invest in private equity real estate enthusiastically this year. Key survey findings showed:
- 66% plan to allocate more of their investment portfolios to CRE,
- 32% plan to make four or more CRE investments,
- More than 25% would like to invest $200,000 in CRE, and
- 82% are interested in investing at least $50,000 in CRE.
Enthusiasm for commercial real estate investing stems in part from the conventional wisdom that Wall Street faces a bumpy ride this year as evidenced by pervasive first-quarter volatility. “Clearly, investors aren’t expecting outsize stock market gains another year in a row,” CrowdStreet’s CEO Tore Steen said. “They’re diversifying their portfolios—and balancing risk—with commercial real estate.”
Most Investor Benchmark Survey respondents had at least one year of private equity real estate investing experience, while a quarter had five or more. A plurality of these investors have made at least one investment in CRE projects, while an impressive three-quarters of those who self-identified as experienced investors have made seven or more.
One survey participant expressed forward-looking optimism that captures the mood among many high-net-worth investors regarding their portfolios: “If it proves to be a way to grow wealth beyond stock returns, I will invest more.”
What are investors’ top reasons for adding private real estate to their portfolios?
CrowdStreet’s survey responses revealed three key reasons investors are increasingly turning to real estate investing: the desire for portfolio diversification, the passive income it can offer and the ability to earn above-market returns. Investors also cited investing for the long-term and wealth preservation as further relevant reasons for investing in CRE.
But an underlying concern motivating real estate investing came from investors’ desire to temper stock market exposure “by allocating more of their portfolios to alternative investments, including real estate,” Steen said. “Given current market volatility, it’s not surprising that 35% of respondents ranked portfolio diversification first among the reasons they invest in CRE.”
What do investors value about commercial real estate investing?
When asked to rank which factors matter most when they evaluate a commercial investment opportunity, investors named the following:
- Cash flow. Commercial real estate properties, which can include anything from multifamily apartment buildings to medical office space to industrial warehouses, are often attractive to investors since they can potentially generate returns in two ways: through monthly rental income that may be shared with investors as ongoing cash flow, and from any appreciation when a property is refinanced or sold.
- Business plan. Here, CrowdStreet’s deal review process plays an essential role, resting on an uncompromising three-step evaluation process that concentrates on the firm, the asset and how the deal is structured. Before accepting deals for inclusion on the Marketplace, sponsors must meet CrowdStreet’s criteria that run the gamut from background checks on the firm and principals to evaluating the asset and the legal documents for discrepancies. Complete business plans for each deal are also described when CrowdStreet lists the project in its Marketplace.
- Risk profile. Like any investment, there is a balance between risk and reward. CrowdStreet groups investments into one of four common risk profiles: core, core-plus, value-add and opportunistic. Core and core-plus investments may target lower returns but are generally considered a “safer bet,” while “riskier” deals may target potentially greater rewards to compensate for the additional risk. As of March 4, 2022, CrowdStreet CRE investors since 2014 have successfully funded more than 615 deals; 98 of those realized have earned a 18.5% IRR and 1.49 equity multiple.
- Geography. The 2022 Investor Benchmark Survey indicates a staggering 90% of investors are likely to invest in the Southeast and/or Southwest regions, which points to a shift from 24-hour city living and into midsized, but growing, markets. The benchmark survey findings jibe with CrowdStreet’s recently released 2022 Best Places to Invest report that ranks Austin, Raleigh-Durham and Nashville in order as the top three, with Orlando and Seattle rounding out the top five.
There is a noteworthy difference between how new and experienced investors evaluate their deals. While potential cash flow was the top factor for both, “experienced investors know the value of a proven track record, and thus placed a stronger emphasis on sponsor experience, ranking it as their second most important factor,” Steen noted. That compares to a 6th place ranking for newer investors.
What types of CRE deals interest investors most?
The Investor Benchmark Survey shows that investors in 2022 will take these priorities into account:
- What and where count. Breaking down the numbers above, investor preference puts the Southeast at 92% and Southwest at 89% as “somewhat” or “very likely.” This aligns with where investors can expect to see opportunity in 2022, as reflected in the top 20 markets nationwide in the 2022 Best Places to Invest report.
- Solid performance in 2021. Investors favor property types that performed well last year. Their top picks were multifamily housing (94%), industrial real estate (84%), build-to-rent (72%), medical offices (71%) and life sciences (68%).
- Making individual deals. Investors are most interested in these (93%), although 74% indicated they are “somewhat” or “very likely” to invest in CRE funds at the same time. Interest in REITs has gone down slightly to 55%, compared to 65% last year.
Putting it all together: What next in 2022?
CrowdStreet sees the U.S. in the early phase of a rapidly expanding growth cycle. The recently updated Investment Thesis breaks down where the company sees opportunity across ten property types including multifamily, life sciences, student housing, and more. Overall, with less polarization in 2022, they view the market as more balanced and better positioned for broader, albeit moderated, growth across the board. “While the recovery isn’t taking hold at the same pace in every asset class or market, we see more reasons to be optimistic than not,” Steen said. “Given that 98% of respondents are planning to make at least one CRE investment in 2022, survey respondents seem to agree with us and see commercial real estate investing as an informed, smart option this year.”
About CrowdStreet: Since 2014, CrowdStreet has launched more than 600 private equity real estate investment opportunities across the U.S. Our investor community has committed more than $3 billion in investment dollars, including more than $1.2 billion of equity in 2021 alone, and has earned more than $500 million in distributions. Based on the performance of CrowdStreet’s 98 fully realized deals, the investment opportunities on the platform have realized an averaged 18.5% IRR. Some of the world’s largest sponsors have used CrowdStreet to raise capital. CrowdStreet has consistently been named Best Overall Real Estate Crowdfunding Site by Investopedia. Most recently, it was named a Benzinga 2022 Alternative Investments Listmaker and recognized as one of America’s Best Startup Employers 2022 by Forbes and Statista. Learn more at www.crowdstreet.com.
This article was written by an employee of CrowdStreet, Inc. (“CrowdStreet”) and has been prepared solely for informational purposes. CrowdStreet is not a registered broker-dealer or investment adviser. Nothing herein should be construed as an offer, recommendation, or solicitation to buy or sell any security or investment product issued by CrowdStreet or otherwise. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. CrowdStreet’s review process of an issuer, deal, investment type or strategy, market, or other investment criteria should not be construed as a recommendation or a solicitation to buy. All investors should consider their individual factors in consultation with a professional advisor when deciding if an investment is appropriate.
Contact: Allie Kuopus, [email protected]
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