- Real Estate
ArborCrowd Review
ArborCrowd stands out among real estate crowdfunding investment platforms because they’re an offshoot of an established commercial real estate firm, rather than a VC-funded startup. Accredited investors invest alongside traditional real estate investment funds in commercial multi-family properties and portfolios. Selection is limited and deal structures can be complex, but for investors already familiar with commercial real estate, ArborCrowd is well worth a look.
ArborCrowd
- Investment Types: Real Estate
- Sectors: Commercial Real Estate
- Minimum Investment: $25,000
- Advertised Returns: 12-20%
- Must be accredited
Pros
- Strong real estate industry pedigree
- Detailed due-diligence on investments prior to offering them
- Digestible online presentation of sometimes-complex investment details
Cons
- Relatively high minimums ($25,000+)
- Only open to accredited investors
Overview
This ArborCrowd Review will help you learn more about ArborCrowd's investment offerings, including how the alternative investments on ArborCrowd are structured, and what your potential returns might be. You can read more about the criteria we use to review investment platforms here.
Many of the real estate investment crowdfunding platforms are first and foremost tech companies (drawing talent from places like Google and Uber), while others approach the market as real estate operators applying technology to what they already do. ArborCrowd is squarely in the latter camp, and is a relatively new entrant started by a successful group of existing commercial real estate companies, including Arbor Realty Trust, Arbor Commercial Mortgage and AMAC.
Types of investments ArborCrowd offers
ArborCrowd’s offerings to date have included multi-family portfolios, apartment complexes, and mixed-use buildings, and are equity investments with 2-5-year hold times. They have also offered both SFR (single-family rental) and BTR (build-to-rent) developments. ArborCrowd is only open to accredited investors, and the minimum investment is typically at least $25,000, though varies by offering.
What do you get when investing with ArborCrowd?
When you invest through , as with many real estate crowdfunding investment platforms, what you actually receive is a membership interest in what’s known as a special purpose entity, typically an LLC created specifically for the investment. The LLC in turn is what actually holds the equity, preferred equity, or debt interest in the property. For each investment you make with , you’ll receive a separate K1 at tax time to report your share of the income received by the LLC.
Commercial Real Estate investments can be complex, with multiple interrelated entities involved. Prospective investors should be sure to review the offering documents in detail to understand the relationship between the LLC they’re investing in and the other entities, which in the case of , may include other real estate investment funds or entities acting as limited partners. Investors should also be sure to understand the relative control rights of each party; for example, in some cases other investment funds participating as equity owners in the property may have the right to force a sale.
How does ArborCrowd make money?
Details vary by investment, but typical fees include an annual Asset Management fee of 0.25-0.5%, an acquisition fee of 1-1.25%, a disposition fee of 1% and a refinancing fee of 1%.
Returns are typically shown net of these fees, but investors should be sure to review the offering docs so they’re clear about the fees paid out by the LLC they’re investing in.
Potential returns and cashflow
The projected return varies with each investment, but ArborCrowd advertises returns in the 12-20% range, and they report an average IRR of more than 18% net of fees.
Hold time for the offerings vary, but in general the expected hold time for an investment with ArborCrowd is 3-5 years.
Unlike some other platforms, there is no explicit expectation of quarterly or annual distributions – distributions are at the sole discretion of the LLC manager, and vary by deal (though when there is an explicit cash flow, it’s paid quarterly). The offering documents also outline the Capital Stack and the “Waterfall” which means the order and proportion of payout of proceeds when the property is sold or refinanced.
Breadth of offerings on ArborCrowd
There are no open investments at the time of this writing, though ArborCrowd shows 10 fully funded deals on their website. According to ArborCrowd, the relatively low dealflow is a result of their extensive diligence process:
ArborCrowd is extremely selective in the deals we choose because we only offer deals to investors that we first invest in with our own affiliate money. This, coupled with ArborCrowd’s focus on offering one deal at a time, means there may not always be an active deal on the platform. It also means that investors know when a live deal is presented, ArborCrowd has thoroughly vetted and underwritten the transaction and is willing to put its money on the line. Since its inception, ArborCrowd has reviewed thousands of deals and has only brought 10 to the crowd.
Regulatory framework
ArborCrowd offers investments only to accredited investors, under SEC Reg D. They are not a registered broker-dealer or investment advisor.
They emphasize their role in curating and selecting investments, though it would be nice to see more detail on their site behind typical references to cash flow, local market indicators, and sponsor quality. It’s notable that they do say:
Every deal we present to the crowd has been vetted by ArborCrowd’s CEO – who has more than 30 years of experience in the industry.
While a platform’s process should not be a substitute for your own due diligence before making any investment, it is a different approach than some other platforms offering similar investments, and which function more like marketplaces, offering minimal curation themselves.
This review was first published on .
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