Founded in 2015, Sharestates is one of the oldest real estate investment crowdfunding platform (“old” being a relative term in a very young industry). Like a number of other platforms, Sharestates serves primarily as a direct lender for real estate loans on residential and commercial projects. Borrowers apply directly to with Sharestates, and if approved the loan is “pre-funded” by Sharestates. That means the borrower can start the project right away without waiting to be fully funded by investors.
Types of investments ShareStates offers
Sharestates investments across a range of real estate asset classes, including residential, mixed-use, commercial, and land assets. Investments are across all development phases, from land and construction, to rehabilitation. They offer almost entirely senior loans, but do also offer some subordinated loans as well as occasional equity investments (none were listed as of this writing). Loan sizes range from 100K to 10M, and interest rates start at 6%. They lend up to 85% LTV, and up to 100% of the construction budget. Loans are generally short-term (around 12 months), though the parts of their site with information for borrowers lists loan programs of up to 30 years. Loan extensions may be granted, on a case-by-case basis, up to two times. An auto-invest feature is also available.
Sharestates also offers a novel Non-Performing Loan investment program to select investors (it’s unclear what the criteria are to qualify, though Sharestates says they “take a great degree of care in vetting … NPL buyers”). These NPL notes are loans from their own portfolio that have experienced defaults and are in a workout process that may include sale of those loans through an auction process in order to recover principal for their investors. What that means for investors is arguably a stronger likelihood of at least recovering principal in the event of a default (Sharestates reports $0 principal lost to date).
What do you get when investing with ShareStates?
One of the appeals of real estate investing (especially debt investments) is that the investment is backed by a tangible asset that can be sold off to recover investor money if something goes wrong. But as with many of the crowdfunded real estate investment platforms, many of the investments offered are not, strictly speaking, not actually secured by the underlying property. Instead, when you invest with Sharestates, you typically get a Borrower Payment Dependent Note (BPDN), which entitles you to a specific share of the principal and interest payments received by Sharestates for the property. With some of the investments, you receive membership units in an LLC that owns the property , which entitles you to a share of the profits and losses of that company.
How does ShareStates make money?
There is a 1-5% origination fee charged to the borrower of each issued loan. Investors are not directly charged any fees as of this writing, although if you need to withdraw their funds early, subject to certain terms and conditions, there is a discount applied on the purchase price of the investment.
Potential returns and cashflow
According to their website as of this writing, since their launch they have funded $1.78B private loans, with an average annualized return of 10.34%. They report not having not lost any investor principal, and have provided $670M in returns. The Sharestates statistics page is an outstanding example of investor-friendly platform transparency, and it’s one more platforms should follow.
Investments are typically short-term, and there is a liquidity program in place for individual investors (not institutional ones) should they need to withdraw their funds early, subject to certain terms and conditions, and involving a discount on the purchase price of the investment.
Returns are tracked, and updates received, through the investor account. In debt investments, investors generally receive a monthly interest payment, as well as a balloon principal payment at term maturity (typically, twelve months). For equity investments, net proceeds are typically distributed at the sale of the asset.
Breadth of offerings on ShareStates
As of this writing, Sharestates’ website boasts having made 1,941 loans across 27 U.S. states. However, the number of investments available for funding at any given time appears to be quite limited. As of this writing, there are only four projects available for funding, all of which are located on the U.S. East Coast. There are all senior loans, with a total investment size ranging from $680K to $2.6M. Three of these have a 12-month maturity period, while one has an 18-month maturity period.
Regulatory framework and due diligence expectations
Sharestates currently offers investments only to accredited investors, under SEC Reg D (though according to their website they have previously offered at least one investment under Reg A+). They are not a registered broker-dealer or investment advisor. Their loans are originated through a wholly-owned subsidiary (Sharestates Investments, LLC).
While many platforms tout their curation and selection process, Sharestates deserves kudos for being incredibly transparent about their model, and including detailed information about each offering’s rating. Their investor information page includes two matrices showing clearly how they rate borrowers as well as how they determine yields. I wish every platform published the same information!. This 34-point mofel includes an automatic prequalification, followed by property underwriting, risk profiling, and research on the borrower. Specific factors considered include: LTV ratio, lien position, location, occupancy, development phase, sponsor’s track record, sponsor’s experience, sponsor’s credit score, and whether the sponsor has given a personal guarantee.