stREITwise is the latest real estate investment crowdfunding platform to offer a public non-listed REIT investment using Reg A+, joining similar offerings from Rich Uncles, Realty Mogul, and Fundrise. Current selection is limited, but growing, with the recent addition of a large mixed-use complex near Indianapolis. The fee structure is attractive, with the exception of the early-redemption fees, which are higher than similar Reg A+ REITs.
- Website: https://streitwise.com
- Investment Types: Real Estate
- Security Types: Equity
- Sectors: Real Estate
- Minimum Investment: 1000
- Advertised Returns: 10%
- Open to all investors
- Low minimum investments ($1,000)
- Open to non-accredited investors
- Simpler fee structure than similar REITs
- Automated investment option
- Automated dividend reinvestment program
- REIT currently owns only 2 properties
- Steep fees to redeem shares before 5 years
- Dividends paid quarterly, rather than monthly
stREITwise is a fast-follower entering the market proven out by other Reg A+ REIT platforms. As with a number of other real estate investment crowdfunding platforms, stREITwise is the offshoot of an existing commercial real estate investment firm (California-based Tryperion Partners).
Like the other major platforms offering Reg A+ REITs, stREITwise features low minimums, and an easy way for non-accredited investors in particular to get some exposure to commercial real estate, with both regular (quarterly) cash distributions and the potential for long-term equity appreciation.
Types of investments stREITwise offers
The REIT you invest in via stREITwise invests primarily in income-producing office and mixed-use commercial space, with a focus on properties requiring less than $20M in equity, which stREITwise believes represents a promising gap in the current market. From their offering circular:
We believe there is an abundance of investors targeting deals that require more than $20 million of equity, but there are far fewer investors targeting deals requiring less than $20 million of equity. This mismatch in the marketplace provides us the opportunity to acquire smaller deals - deals that fall below the radar of the large institutional real estate investors, but are too expensive for most high net worth investors to capitalize – at prices that we believe represent a discount to intrinsic value.
While their first REIT focuses on those sub-$20M office properties, according to founder and chief investment officer Jeff Karsh, stREITwise intends to expand their lineup over time with more property-type-specific REITs, such as apartments, industrial, or retail.
What do you get when investing with stREITwise?
Investors in the REIT offered by stREITwise receive common stock in a Maryland Corporation (priced at $10/share, with a minimum investment of 100 shares, or $1,000). The REIT in turn is the sole General Partner in a Limited Partnership, which is the entity that actually invests in the properties (often through yet another layer of special-purpose entity). Notably there are several other Limited Partner investors in that Limited Partnership (including the father of stREITwise chief investment officer – and former CEO – Jeffrey Karsh). (The specific structure at work is known as an “UPREIT”.)
stREITwise fee structure
As with the other Reg A+ REITs, stREITwise emphasizes the lack of commissions typically paid to broker-dealers for traditional REIT investments, capping the offering fees at 3% of the total amount raised (which ultimately does limit the amount actually invested in properties – for example, if they succeed in raising the full $50M maximum on their initial offering that would translate into approximately $48.5M going into actual investments). There is also an ongoing 2% AUM fee paid to the management company, which is run by stREITwise.
Potential returns and cashflow
stREITwise currently pays a quarterly dividend (though as with similar REITs, that is subject to the discretion of company management).
All REITs are required to distribute 90% of their taxable income annually to retain the favorable tax treatment REITs receive from the IRS (in short, they don’t pay income taxes as long as they distribute at least 90% of their annual income back out to shareholders). stREITwise advertises a targeted “10% annualized dividend”, though actual distributions and performance will of course vary with the income and performance of the underlying properties owned by the REIT (according to stREITwise, through 2018 they have paid 10% dividends for 7 quarters in a row). stREITwise also offers a dividend reinvestment program so investors can choose to automatically have their distributions reinvested in the REIT.
As with most equity real estate investments, the expected hold term for the stREITwise REIT is several years. stREITwise does offer limited redemption options if you want or need to sell your shares back early, but that is both subject to a range of restrictions and to a relatively steep fee (for example, if you sell your shares back after 12 months, you’ll only get 90% of their value – or put another way, there’s a 10% fee for that early redemption!).
Breadth of offerings on stREITwise
stREITwise currently offers one real estate investment crowdfunding option, a REIT investing in office space. The underlying Limited Partnership that the REIT will invest in currently owns two properties – one a $44M office complex near St. Louis, comprising three buildings and multiple tenants; the other a $32M mixed-used commercial development near Indianapolis. In an email exchange with founder and chief investment officer Jeff Karsh in 2017, he mentioned plans down the road to both add additional offerings for this REIT to raise more capital, as well as add new REITs focusing on specific property types, such as apartments or industrial (that is consistent with what’s happening among some of the other Reg A+ REITs, which have also been adding new property-type-specific REITs to their lineup).
Regulatory framework and due diligence expectations
stREITwise is offering shares in a REIT under Tier 2 of SEC Reg A+, which carries with it several mandatory disclosure and reporting requirements. Prospective investors can review the full SEC offering circular here.
REITs like the one from stREITwise are “blind pool” investments, so investors are not able to opt-out of particular properties, and are relying entirely on stREITwise’s judgment about which properties to acquire and all the terms of the purchase, any renovation, etc. Prospective investors should also note that as is the case with a number of other real estate investment crowdfunding platforms, the REIT acquired its initial property from an affiliated company. This is not uncommon (especially as a way to have several properties owned by the REIT before opening the offering), but investors should be sure to understand the inherent potential for conflicts of interest and conflicting incentives in such transactions. According to founder and chief investment officer Jeff Karsh, stREITwise intends to limit those kind of related-party transactions when sourcing new properties.
stREITwise in the news
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