The RealFirma Advantage

Commercial real estate is generally defined as income-producing property that contains more than four residential units under one roof. The general categories that commercial real estate can be grouped under are office buildings, retail properties, apartment complexes, medical office buildings, industrial facilities or warehouses, student housing properties, hotels, mixed-use properties and self-storage assets.

At a total market cap estimated at upwards of $15 trillion in the U.S. alone, commercial real estate is the third largest asset class behind equities and bonds.

U.S. commercial real estate sales topped $435 billion in 2015, according to JLL.

Real Estate has a proven track record of being an effective hedge against stock market fluctuations while providing its investors with attractive returns. The National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index, which measures the performance of a large pool of individual commercial real estate properties on an unleveraged basis has reported an average annual return of 8.8% over the past 15 years, which is 200 basis points above the average performance of the S&P 500 for the same period. However, unlike the stock and bond markets, which tend to be fairly straightforward investment alternatives, commercial real estate investment opportunities have a higher level of complexity; as a result, the number of participants in this asset class have been very limited. When Title II of The JOBS Act which was enacted in September of 2013 allowing small businesses and startups to publicly advertise for raising capital. it began to break down the walls that had been keeping control of commercial real estate concentrated amongst fewer investors.

In the wake of the JOBS Act of 2013, a slew of well-funded crowdfunding real estate sites arose that could be grouped in two broad categories:

1. Those that acted purely as a middleman connecting small investors and property owners/sponsors/developers
2. Those that qualified investment opportunities offered by the owners/sponsors/developers for the individual investor, while in some cases investing alongside them the individual investors

Over the last few years, there has been a significant consolidation in the crowdfunded real estate space with very few remaining players. The key reasons are the following:

1. Those that acted purely as middlemen exposed small, unsophisticated investors to complex investment opportunities, thus creating a reluctance to invest. For those that did take the plunge, this created a challenge for the owners/sponsors/developers: having to deal with multiple, small, unsophisticated investors
2. For those sites that vetted each deal for its investors, offering sufficient and varied opportunities to their investor base was difficult because of the logistical challenges in evaluating deals in various local markets

We believe that the solution to these two problems is to:

1. Leverage local expertise of current investors by making them responsible for assessing the deals in their individual markets and property types
2. Provide these local experts the incentive to perform this service on behalf of the small investors by compensating them based on the success enjoyed by the small investors
3. Keep the interests of the investors and the local real estate experts aligned by requiring a minimum co-investment by these local syndicators
4. Leverage technology to create a platform that syndicators could leverage to meet all their compliance, regulatory, and reporting needs. The RealFirma marketplace is responsible for the establishment of the investment entities, the tax documents, the financial reporting to individual investors. It also affords investors ability to compare opportunities on a consistent basis by requiring all syndicator-provided pro-forma documents to be on standard templates
5. Focus the underwriting process more on ensuring that only qualified syndicators can bring investment opportunities to the RealFirma platform
6. Provide investors full transparency on actual performance of syndicators versus their original projections