RealtyMogul is one of the larger real estate investment crowdfunding platforms, and part of the first generation of venture-backed platforms that emerged in the wake of the changes brought by the 2012 JOBS Act. As with many of their peers, RealtyMogul seems to be evolving their model over time. There are fewer individual property investments on offer and the ones that are available or coming soon have relatively high minimums).There’s an emphasis on their “MogulREIT” offerings.'
Types of investments RealtyMogul offers
RealtyMogul offers direct debt and equity investments in real estate, as well as “blind pool” investments via their Reg A+ REITs (MogulREIT I and Mogul REIT II), which invest in various kinds of commercial real estate properties (as well as potentially other “real estate-related asset”). From the offering circular for their MogulREIT I:
We will seek to acquire a diversified portfolio of commercial real estate investments consisting primarily of commercial real estate loans (including senior mortgage loans, subordinated mortgage loans, mezzanine debt, and participations in such loans (also referred to as B-Notes)) and equity and other investments in commercial real estate. We may also invest in commercial real estate-related debt securities (including CMBS, CDOs and REIT senior unsecured debt), select commercial real estate equity investments, interests in publicly traded REITs and other real estate-related assets.
It’s notable that most of the properties and investment acquired by MogulREIT I to date were sourced from RealtyMogul or one of its affiliates or related entities. Arguably the benefit to investors is that RealtyMogul has an opportunity to identify quality properties and sponsors through its other lines of business. (And given the stated focus of MogulREIT II on multi-family apartment buildings, it’s unlikely a coincidence that most of the current individual offerings are also multi-family units – that’s perhaps part of the pipeline for the REIT).
What do you get when investing with RealtyMogul?
The details will vary considerably based on the type of investment, but in general there are three main kinds of securities available via RealtyMogul:
- Common Shares in a REIT. When you invest in one of the MogulREITs, you’re receiving a share in a Delaware LLC (which includes voting rights in certain limited circumstances).
- Membership in an LLC. When investing directly in an equity investment, typically you receive a membership in an LLC created specifically for that investment. The LLC then becomes a limited partner in the property itself.
- Platform Notes. When investing directly in a debt investment, you receive a promissory note from RealtyMogul entitling you to receive payments when (and if!) the borrower makes a payment on the underlying loan. Although quite common among real estate investment crowdfunding platforms, it’s important to understand that these kinds of notes (which are referred to by slightly different names among the various platforms) are not secured. From the RealtyMogul FAQ:
When you invest in a Platform Note, you are purchasing an unsecured note in Realty Mogul, Co., the performance of which is tied to the underlying real estate loan. This Platform Note allows you to receive periodic payments on the loan if and when the borrower on the underlying real estate loan makes interest payments.
How does RealtyMogul make money?
Details vary quite a bit based on the type of investment. For equity investments, projected returns are shown net of fees, but prospective investors should review the offering documents to be sure they understand how the various parties are compensated (including, for example, annual asset management fees, property management fees, and “sponsor promote”, which is similar to carried interest, and reflects a profit-sharing incentive for the deal sponsor).
For the MogulREIT, as with others offering similar Reg A+ RIETs (like Rich Uncles and FundRise), RealtyMogul emphasizes the drastic reduction in selling commissions under their model compared with traditional non-traded REITs.
However, as with those other platforms, there are a range of other fees that investors should be aware of beyond the up-front 3%, including ongoing management and other fees, as well as fees and expenses paid to other RealtyMogul affiliates and partners (for example, as with Fundrise, if the REIT doesn’t have enough capital to acquire a particular property, it can borrow money from another RealtyMogul company, and will then pay interest to that company). These arrangements are common, but investors may want to be sure to familiarize themselves with all of the various fees that may affect their return. (RealtyMogul deserves credit for drafting a relatively readable offering document for their MogulREIT.)
Potential returns and cashflow
Details will vary based on the specific investment, but most investment include either a monthly or quarterly distribution (indeed REITS are required to distribute the bulk of their income in order to retain favorable tax treatment).
The distributions to date for the MogulREIT I have been at an 8% annualized rate (consistent with their advertising), though there are no guarantees regarding distributions.
The distributions to date for the MogulREIT II have been at a 4.5% annual rate. Future returns may vary.
As with most equity real estate investments, the expected hold term for the MogulREIT is several years. RealtyMogul does offer limited redemption options if you want or need to sell your shares back early, but that is both subject to a few restrictions and to a fee (for example, if you sell your shares back after 12 months, you’ll only get 98% of their value – or put another way, there’s a 2% fee for that early redemption).
The only non-MogulREIT retail portfolio on offer as of this writing proposes a 6.1% annual cash flow as a percentage of investment, with a moderate increase over the years to a maximum of 6.49%
Breadth of offerings on RealtyMogul
Although RealtyMogul has helped to finance hundreds of properties (350+ according to their website), as of this writing, the offerings are limited to a $1K minimum investment in MogulREIT 1, a $5K minimum investment in MogulREIT II, and a $25K minimum investment in a single retail portfolio investment consisting of 19 single-tenant long-term net-leased retail assets.
MogulREIT I consists of investments in 18 different instruments, 27.8% senior debt, 27.8% Mezzanine debt, and 44.4% preferred equity, backed by a mixture of retail, office, multi-family, and industrial properties, for a total investment of approximately $56.7 million.
MogulREIT II consists of equity investments in 7 multi-family apartment buildings to date, for a total initial investment of approximately $13.5 million.
The last investment on offer includes a portfolio of retail names such as Dollar General, Auto Zone, and Walgreens. This particular offering is designed for investors seeking to participate in a 1031 tax-deferred exchange.
Regulatory framework and due diligence expectations
The individual debt and equity investments are offered under SEC Reg D, open only to accredited investors. Like several other real estate investment crowdfunding platforms, RealtyMogul has a contractual relationship with North Capital Private Securities, a broker-dealer. Broker-dealers have an obligation to perform certain kinds of due diligence, including background checks, on those raising capital.
Tier II investments may be available to both accredited investors and “qualified purchasers” as defined by Reg A, the latter limiting their investment size to no more than 10% of annual income or net worth.
Tier II investments may be offered by affiliate Mogul Securities LLC, a broker-dealer.
While each REIT invests in a large number of properties and investments (offering a degree of diversification), the REITs are “blind pool” investments, so investors are relying entirely on the judgment of the REIT managers in property selection and terms.
RealtyMogul discourages circumvention of its deal flow by prohibiting registered users within 2 years of being introduced to a particular real estate opportunity from attempting to contact the sponsoring companies and borrowers directly and trying to work around RealtyMogul, without permission.