One of the aspects of the real estate business that has me most excited today is the evolution of the real estate crowdfunding space. While I’m still concerned about real estate crowdfunding, new investment models and smart entrepreneurs are transforming the space. Last week, I highlighted PeerStreet, the Wealthfront meets E*Trade for real estate investing. Today, I’m joined by Josh Klimkiewicz, the founder of Acquire Real Estate, another exciting crowdfunding platform.
On the surface, Acquire Real Estate is similar to other real estate equity crowdfunding platforms, however, they’re taking a unique approach to the space by focusing exclusively on institutional-quality real estate with best-in-class Sponsors (something others say, but is rarely true). They also have their own fund and invest in deals alongside their investors. Their institutional focus, combined with co-investing, provides investors with a level of safety/trust that was previously unavailable to real estate crowdfunding investors. Josh provides further insights into their business model and the elements that make Acquire unique.
Describe Acquire Real Estate in 140 characters or less.
Acquire is a real estate crowdfunding platform for Accredited Investors. We pre-fund and co-invest solely in institutional-quality deals.
What makes Acquire unique in the crowded real estate crowdfunding space?
Three things set Acquire apart from the crowdfunding pack:
1. Pre-Funding: Acquire is one of the only platforms in the real estate crowdfunding space that pre-funds every one of our investment opportunities. This means that when we commit to a deal, we provide our entire investment up front so there isn’t any risk to our Sponsor that our investment won’t close. This allows our Sponsors to do what they do best—acquiring and managing real estate—and spend less time on capital raising and communications. This enables us to work with only the best Sponsors and properties. Because we fully commit to a deal up front, most Sponsors want to work with us, and we’re very selective about the Sponsors we do business with and the properties we choose to invest in.
Pre-funding also benefits our investors: our investors can take ownership of their investments almost immediately and start earning returns. There’s no lengthy escrow period where someone’s investment is just sitting around, waiting for a deal to close and not earning returns. We also offer our investors the ability to visualize their returns using our online cash flow calculator, located here: https://www.acquirerealestate.com/properties/doubletree-dfw-airport-north#returns
2. Skin in the Game: Unlike competing platforms, Acquire also keeps an active investment in every deal we offer. We call this having “Skin in the Game” and this provides a measure of comfort for our investors—they know that we’re investing right alongside them. We think our investments are not just great for our investors, but great investments for Acquire as well. We invest shoulder-to-shoulder with our investors, sharing the potential risks and rewards of every investment.
3. Quality of Real Estate: Acquire’s platform is home to only cash-flowing, institutional-quality real estate. The properties on our site range in value from more than $16 million to over $100 million. Acquire’s goal is to provide our investors with consistent cash flow and significant potential for appreciation, which is why we specifically target institutional quality, cash-flowing real estate located in strong-performing markets. Since we’re investing in these properties as well, we want to be sure we select the best investments possible.
Can you walk us through the Acquire deal-vetting process?
Real estate is a cyclical market and the majority of our investments are longer-term holds, so Acquire does everything we can to ensure that our investment opportunities have the best chance to withstand changing economic factors. When we first receive an investment opportunity, we thoroughly review its Offering Memorandum, financial models and all corresponding property information. Those materials first go through a screening process to ensure that the investment meets certain minimum criteria, i.e. does it have suitable near-term cash flow? Is it located in a strong market with strong demographics? Does it have the right tenant mix? Are the cash flow assumptions supportable?
If the opportunity meets our screening requirements, we then move on to a full underwrite of the property and prepare a Preliminary Investment Memorandum that gets presented to our five-person Acquire Investment Committee. The full underwriting process includes taking the model the Sponsor gave us and re-modeling it from scratch while layering in different stress scenarios. These stress scenarios include vacating certain tenants, lowering market rents, layering in static vacancy, reducing the exit value and increasing capital costs all the while checking how these changes would affect our overall yield.
We also talk to brokers on the street. They have real-time information on specific markets, tenants and how other properties are selling and performing. This ensures that our information is accurate and up to date. Once we’ve underwritten, stressed, and underwritten again, we take the opportunity to the Acquire Investment Committee for a vote. Our Investment Committee is made up of Acquire management and outside professionals who have decades of real estate transaction experience. Our committee operates under unanimous consent so all five Members must approve of the deal or we pass on it. After we accept a deal, we begin the process of negotiating as many protections and favorable terms into the deal as we can. Then we finally close and fund our portion of the transaction. Any deal that is posted on the Acquire site has already been funded and is open for investment immediately.
You can also check out our How It Works video for a quick overview of the Acquire Crowdfunding process: https://www.acquirerealestate.com/how
Most retail investors don’t understand the complexity of real estate debt or equity and have never invested in real estate (outside their personal residence which I don’t view as real estate exposure). What words of wisdom or advice do you have for a new real estate investor?
In real estate, a healthy amount of skepticism is essential, and it’s important that people understand what they’re investing in. In good times, when real estate is stable or even increasing in value, it’s easy to get complacent and less focused on the quality of a deal. The real test of a property’s quality will be realized in a downturn, and all markets—real estate included—have their ups and downs. Investing in Commercial Real Estate is not a sprint, it’s a marathon, and anyone who doesn’t appreciate this concept should not invest.
As real estate investors ourselves, we look to invest in properties that are run by conservative operators with the experience, knowledge and discipline to weather all market cycles. We invest this way so that when there is a pullback in the market, the safer, more targeted investments will be the ones to provide consistent and stable returns for our investors. The Acquire platform offers high-end deals that don’t chase the higher albeit riskier returns advertised by some of our competitors. In the long run, we believe investors are better off investing in properties that offer more stable, consistent returns rather than simply chasing high yield.
What’s a fun fact about Acquire (the company or team)?
Even though Acquire was started in 2014, the majority of our team has worked together for years. Most of our team worked together in different areas of the commercial real estate world at CB Richard Ellis and Katz Properties. When we decided to launch Acquire, we put together a team that not only had deep real estate and tech experience but one that had already accomplished big things in real estate together.
What gets you most excited about the real estate business today?
I’m most excited about the ability to truly change the commercial real estate industry. Commercial real estate as a whole has lagged far behind the technology curve of many other industries. These firms are managing multi-hundred-million dollar portfolios the same way they were 20 years ago. In that time, technology has increased exponentially and it’s time for commercial real estate to catch up. The technology we’ve created allows Sponsors to spend less time administering deals and more time uncovering great investment opportunities and growing their portfolios.
Where do you see the real estate crowdfunding space in 10 years? Do you have any bold predictions?
Real estate crowdfunding is the greatest change to real estate fundraising since the creation of the public REIT. Our platform leverages technology to connect investors to operators, while at the same time streamlining the investment process, lowering administration costs and saving time. As real estate crowdfunding matures, real estate operators will be able to raise more money from more investors in a more efficient manner than ever before. The Acquire team and many real estate experts agree that real estate crowdfunding will continually constitute larger pieces of the capital stack until it eventually becomes the single-source solution for operators’ funding needs.