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, and is built on an outsourced platform (in this case via CrowdStreet).
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. ArborCrowd is only open to accredited investors, and the the minimum investment is $25,000
What do you get when investing with ArborCrowd?
When you invest through ArborCrowd, as with many real estate investment crowdfunding platforms, what you actually receive is a membership interest in an LLC created specifically for that investment. The LLC in turn is what holds the interest in the property. For each investment you make with ArborCrowd, 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 ArborCrowd, also include other real estate investment funds 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 there are typically a variety of origination and annual fees paid out by the LLC. 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. Unlike some other platforms, there is no explicit expectation of quarterly or annual distributions – distributions are at the sole discretion of the LLC manager. 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 is one open investment at the time of this writing, and ArborCrowd has offered 3 additional properties since their founding in January 2016.
Regulatory framework and due diligence expectations
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.