The emergence of real estate crowdfunding (online syndication as I like to call it) has completely altered the way real estate sponsors need to conduct business. No longer is capital raised from a closed group of friends & family investors, private real estate deals are now open to all accredited investors and soon anyone with an internet connection.
This Titanic shift creates a massive opportunity for best-in-class real estate sponsors with strong track records, access to quality deals, and a history of execution, to scale their investor base through crowdfunding. However, success in crowdfunding requires companies to go beyond doing good deals, they must build trust with investors and create brands that transcend the real estate business.
Here are a few things real estate sponsors can do to build trust with investors and cultivate a strong investor network.
1. Provide Detailed Deal Memo’s: Investment deal memos range from high-level 2-page overviews to detailed 20-page memos. When dealing with inherently skeptical investors, the more detail you can provide the better. Remember that you’re writing for non-real estate professionals, so don’t be overly esoteric. Instead, walk through the highlights of the opportunity, clearly detail the business plan and why you’re fit to execute it, show the various downside scenarios, run sensitivity analyzes, and express the risk clearly. If it’s a quality downside-protected deal with a solid story, investors will see that and respect your detail and transparency.
2. Make the Investing Process Painless – Investing in your deals should be seamless. Provide a detailed deal memo, set up online doc signing for subscription docs, allow investors to contribute funds and receive distributions through ACH, get them their K1’s in a timely manner etc. Being a passive investor means the investment process should be passive.
3. Great Quarterly Reporting – Many firms look at quarterly reporting as a tedious requirement that adds no value to the deal, however it should be looked at as an opportunity to build trust with your investor base. Every touch-point is an opportunity, so take it seriously. Provide plenty of detail, lots of photos and show your investors how you’re going above and beyond. This is your opportunity to highlight what a great job you’re doing.
4. Year-End Gifts – Investors like to feel like their part of an exclusive club. This year we sent all investors a dozen Atlas-branded Pro V-1’s with a hand-written note thanking them for choosing to invest with us. It was a ton of work, but it was worthwhile.
5. Deal-Level Gifts – In addition to year-end gifts, we look for opportunities to send investors deal-specific gifts. At one of our properties we had a well-known graffiti artist paint a mural. We sent each investor in the deal a signed and framed photo of the mural along with the artist’s book. Small unexpected things get investors talking.
6. Real Time Insights – Real estate is an emotional investment. Investors like the tangible nature of real estate, they enjoy telling their friends about their investment, and driving by the property. Tap into that emotion by giving investors what they want – we created this video.
7. Exclusive Investor Events – While the internet makes it simple to connect with investors, there’s no substitute to meeting face-to-face. Rather than 1-on-1 meetings which may be too time-intensive, organize dinner or drinks in various cities where multiple investors live. Connect on a more personal level, introduce them to other investors, and allow them to get to know you, the person.
8. Transparency – Investors have options. Why should they invest in your deal? While there’s no site today that publicizes private real estate company track records, there will be one soon. One of the benefits of crowdfunding deals is that your track record will be out there. If you’re doing good deals, that’s a great thing. When choosing between investment opportunities, investors will pick the firm with the proven track record.
9. Do Good – All companies today have a social responsibility. As part of our ‘Atlas Cares’ program, we commit 1% of our corporate profits to select charities.
Although it’s early, crowdfunding is creating a unique opportunity for quality brand-conscious real estate firms to scale their investor base. Get creative and do things differently.
What are you doing to build your investor base?