A who’s who of Boston-area commercial real estate investors are testing the potential of crowdfunding platforms in a sign that the model is gaining traction as a source of equity for big-ticket transactions.
Recent deals – including Cabot, Cabot & Forbes’ $49.6 million purchase of a 4-acre industrial property in West Cambridge – included investments pooled on CrowdStreet. The Portland, Oregon-based platform has raised $1.3 billion since its founding in 2014, including over $200 million during the COVID-19 pandemic.
“We’re seeing more flight to high-quality sponsorship on the platform, and raising larger and larger equity offerings,” said David Govshtein, managing director at CrowdStreet. The platform enables accredited investors to invest directly in individual properties, funds and real estate portfolios.
Leading platforms such as CrowdStreet, Cadre and Fundrise offer an alternative to traditional sources such as private equity funds and high-net worth individuals, while potentially giving owners more flexibility over investment timelines and strategies.
Boston-based Taurus Investment Holdings dipped a toe into the crowdfunding arena in April with its $74.5 million acquisition of an office building at 300 Baker Ave. in Concord. It followed that up last week with the acquisition of a commercial property and development site in Miami.
Previously, Taurus has relied on family offices – the lightly regulated investment vehicles for high-net worth individuals and their relatives – for its fundraising.
“CrowdStreet has a very large U.S. client list and we’re built to serve that kind of client,” Taurus CEO Peter Merrigan said. “[CrowdStreet] comes into our standard structure, and they introduce the investors to us. We’re hoping it will become more significant.”
At 93 percent occupancy, Taurus’ 300 Baker Ave. transaction fits many of the criteria that are important to crowdsource investors, said Ben Sayles, managing director of capital markets at JLL Boston.
“Crowdfunding is just a different profile,” Sayles said. “It’s looking for higher-yielding cash flow, and the institutional world is looking for capital preservation or value creation, so it’s filling a natural void.”
Other Boston-area developers that have participated in CrowdStreet deals include Novaya Real Estate Ventures, Grander Capital, Rhino Capital, Spaulding & Slye Investments and Griffith Properties, according to the firm.
More Flexibility for New Ownership
Unlike private equity funds that have fixed timelines, CrowdStreet gives sponsors the ability to exit an investment at their discretion.
“If the sponsor wants to liquidate and sell, they can do that. This is not a private equity fund with a five-year term,” Govshtein said. “If you want to hold it for three years or eight years, you have that flexibility.”
Along with less predictable timelines, investors have less control over the sponsor’s strategy for a property. That element appeals to Cabot, Cabot & Forbes CEO Jay Doherty as he considers options for the newly acquired 67 Smith Place in West Cambridge’s Quadrangle section. CC&F paid $49.6 million for the 4-acre property this month, including $21.4 million raised through CrowdStreet.
Although the property sits next to a 12-acre site where CC&F is seeking approval for a 1.1-million-square-foot mixed-use development including life science space and multifamily housing, it’s not a given that 67 Smith Place will be redeveloped as well, Doherty said. Industrial companies have expressed interest in leasing 60,000 square feet of warehouse space that will become available at year’s end. At the same time, the firm plans to meet with neighbors in the nearby Cambridge Highlands residential neighborhood to gauge their reaction to a redevelopment, he said.
If the acquisition had received private equity money with specific investment criteria, it would have limited CC&F’s options in shifting market conditions.
“If there were a change in the business plan, you’d have to go back and work with them and take out those investors who don’t want to go along,” he said. “Many institutional investors say they don’t want to do condos or life science, and the prospectus doesn’t allow that investment. You end up trying to fit square pegs in round holes.”
Editor’s note: This article has been updated to correct the financing Taurus Investment Holdings used for its acquisition of a Massachusetts senior housing portfolio from Welltower. It did not use crowdfunding.