Anna-Marie Lieb is the head of Multi-housing at CrowdStreet, where her team identifies and renews potential multifamily, student housing, and BTR offerings. In this episode, Anna-Marie tells us what kind of investors and operators access CrowdStreet, why sponsors with established track records choose to use the platform, and how the state of the economy is impacting CrowdStreet’s investor base.
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TRANSCRIPT
Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel and I'm with today's guest, Anna-Marie Lieb. Anna-Marie is joining us from Portland, Oregon. She's the head of multi-housing at CrowdStreet, the largest online private equity real estate investing platform. Her team identifies and reviews potential multifamily student housing and build to rent offerings. In 2021 CrowdStreet funded $700 million, and year-to-date 2022 they have funded $600 million in various asset classes. Anna-Marie, thank you so much for joining us, and how are you today?
Anna-Marie Lieb: Doing great, Ash. Thank you so much for having me on the podcast today.
Ash Patel: It's our pleasure. Anna-Marie, before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?
Anna-Marie Lieb: Definitely. So I've been in the commercial real estate industry dating back to, call it 2006-2007; went right into that after graduating from the Wharton School, where I did my undergraduate degree, and had a focus on real estate finance. I started off in investment sales, at CBRE at their Boston office. I spent a few years there, and then moved into working with [unintelligible 00:02:28.14] where I underwrote low income housing tax credit and historic tax credit projects that were syndicated out to large groups across the country. So I kind of got that taste of how institutions underwrote deals, and a little bit of the bureaucracy that you kind of have to deal with to get deals done.
From there, I spent a few years outside of the real estate world, working for a family business; we had a winery, which probably could be a whole different podcast talking through that... And then most recently, for the past six years, I've been working with CrowdStreet. And again, we bring institutional quality real estate to accredited investors; we look at assets across the country, across asset classes... My team, we oversee and kind of underwrite and help structure deals that are multifamily, build to rent, student housing, senior housing... And again, this is across geographies and across risk profiles. So we'll do acquisitions, developments. recapitalizations... So we see a lot of deal flow.
Ash Patel: Already I have a lot of questions, but I know the question that the Best Ever listeners are going to want me to ask - why did you not stay with the family business and help the winery out?
Anna-Marie Lieb: I think winery is definitely a tough business. I think I learned a lot there. The time when I was working at it, we started small, [unintelligible 00:03:42.29] 250 cases; we were expanding. I think we've got up spread over 2000 cases while I was there. And if you think about wine and kind of the working capital that goes into it, you're building a product, and then it takes about three years until you're actually seeing some profits from it due to the growing the grapes, processing the grapes, putting it in bottles, letting it age before it goes out to market... So that had its challenges. And then also kind of working with family, and having those tough conversations can be difficult. So it's a little bit family over work. But in the end it ended well, and overall it was a great experience, and learned a lot, but realized that my passion probably really was in real estate instead of winemaking.
Ash Patel: And you went to one of the best undergrad business schools out there, and you had a focus on real estate... So you are in the real estate industry. Back to CrowdStreet. I've gotta tell you, just from a layman's perspective, we see CrowdStreet as this big institutional heavyweight out there. What kind of clientele is CrowdStreet accessible to, both in terms of investors and operators?
Anna-Marie Lieb: Yeah, so on the investor side we cater to accredited investors. So those are investors who earn over $200,000 annually, or 1 million net worth; 2 million if it's a joint account. We currently have about 18,000 active investors, 153,000 registered accredited investors, and I think the profiles of those look like people who are new to commercial real estate, they may be making their first investment ever in commercial real estate, trying to diversify their portfolio by adding this alternative asset class in there. We've got a lot of doctors, people in the tech field, lawyers... And then we also have very sophisticated commercial real estate investors that come to the platform and invest, who have amassed large portfolios, to even sponsors who invest in other deals through the platform as well.
Our average investor currently has - call it more than one investment; I think seven is above average in an investor's portfolio on CrowdStreet. Close to 70% of our investors are repeat investors at this point in time, and the average portfolio that they have on the platform is getting close to $400,000. But I will say the minimum check size to get into a deal is $25,000, so it is accessible, and gives investors that ability to diversify their portfolio and get into more than one deal instead of potentially running their commercial real estate deal on the side, outside of their business.
In terms of sponsorship, we have a range on CrowdStreet; we kind of give designations to sponsors that we work with. So we have four designations. We have emerging, seasoned, tenured and enterprise. The emerging category, we are very selective there; that's typically a sponsor that has a track record of less than 100 million, and has not been around for five years. And I'd say these days, probably that emerging sponsor's looking like someone who probably has spun off from a larger group, that has kind of a track record there, but is starting a new entity.
Seasoned - again, that's about 100 to 250 million of track record. We're selective in that group as well, doing less deals. And I think the majority of the deals that you're going to see on our marketplace today is in that tenured or enterprise category. So tenured, that's the 500 million to 5 billion AUM. Enterprise is 5 billion and more. And I think why we've trended that way is, you know the volatile environment we're in right now; we're going into probably a recession, we've been in kind of an expansionary cycle for over 10 years now... So really, to get us comfortable, we really want to be working with those sponsors who have been around the block, and have been through those hard times, and have navigated those previously.
Ash Patel: Thank you. Anna-Marie, to be clear, the minimum in terms of being an operator is having done about $100 million in total deals.
Anna-Marie Lieb: Yes, that is correct.
Ash Patel: And let's dive into the asset classes. Obviously multifamily, student housing, build to rent, and what are the other ones that you do?
Anna-Marie Lieb: So that's kind of where my team focuses; across CrowdStreet we're also obviously looking at office deals, and industrial, self-storage, mixed-use developments, retail... So really, we cover most asset classes. We even recently were looking at an RV and self-storage deal, Boat storage deal... We've done mobile home parks... I think the only asset classes that we strictly stay away from are condo developments, so for sale condos, and land sales, just because we think that the risk there is quite high compared to some of the other asset classes, and not necessarily suitable to retail investors.
Ash Patel: The question - because I mostly invest in office, industrial, retail... Is it still $100 million in historic deal flow?
Anna-Marie Lieb: Yes.
Ash Patel: Okay, I'm going to push back a little bit, because there's plenty of 30, 40, 50 million dollar apartment communities throughout the US. There's not that many 30, 40, 50 million strip malls in the US. So I would ask you to reconsider that. Because a lot of strip malls, even your class A Whole Foods-anchored strip mall could be in the $10 $15 million range, right?
Anna-Marie Lieb: Yeah, I think we're, again, just looking for that track record and making sure that we've seen that execution occur. Maybe they've done 10 of those strip malls to get to that 100 AUM of historical track record. And I wouldn't say that necessarily has to be under management today, but if you look at it since inception, how many deals have they invested in and executed their business plans on? And I think especially - because if you look at a CrowdStreet, I think the one thing that sets us apart with the equity compared to maybe some institutional investors that invest into deals is that it's passive. So our investors truly are relying on sponsors to execute the business plan, make rough decisions, and really are empowering them to run the deal and be great stewards of their capital. So I think that's why it's so important to make sure that that track record is in place... Because we're not having any voting rights to say investors are going to vote and say, "Hey, we want to sell now." That power sits with the sponsor.
Ash Patel: Do you know what ratio your underwriting team approves versus denies?
Anna-Marie Lieb: So if we look through the history of CrowdStreet, so there's two buckets. We have a capital markets team that's kind of our boots on the ground, spread across the country, who are out there sourcing deal flow. Along with that they also get inbound leads from sponsors looking to come on our platform. They are doing that first scrub to weed through deals and see what they don't think it makes it fit for the marketplace. Once they find deals that they think have a chance, that's when the investments team and my team comes in and starts underwriting deals. What we see - typically, we're averaging 25% to 30% of the deals that we look at, and kind of dig into, and get to the sponsor that we will approve for the marketplace, that we'll go up and show to investors.
Ash Patel: Got it. And you also mentioned you recapitalize deals...
Anna-Marie Lieb: Yes.
Ash Patel: So explain to me a scenario in which you would recapitalize a deal, please.
Anna-Marie Lieb: A recent deal -we looked at - a sponsor brought us a deal, so the owner-operator; it was a multifamily deal, and they had invested with an institutional investor who had a fund, and that fund [unintelligible 00:10:57.22] so they needed to get out of the deal. The sponsor still felt strongly that there was still value in this property, they still thought there was room to push rents, and get more juice before they wanted to exit deals, so they wanted to stay with it.
So they brought the deals to CrowdStreet, we took a look at it, got a sense of where we thought the market value was, and came to a price that made sense for us to bring investors in, and take out that other equity.
So the owner-operator still had the deal, but they could make those investors happy, and then bring in fresh capital. So this one, there's a little bit more capital improvements that they wanted to do to the assets, we helped fund that, and then had to take out that equity that needed to get out due to the their funds come to end of term and being able to liquidate assets.
Ash Patel: Alright, so if I'm a sponsor and I meet your 100-million-dollar metric, I'm ready to get onto CrowdStreet, I go through, I would imagine, a very extensive deal flow check, background check, and all of the -- very extensive.
Anna-Marie Lieb: Yeah.
Ash Patel: Now, I've already got a track record, I've already raised money for other deals... Why do I come to CrowdStreet?
Anna-Marie Lieb: I think a lot of sponsors a) they never have enough sources of capital to go to. You may have a group of investors, if you're raising from friends and family currently, that are funding your deals, but maybe you want to move to do more deals, you need more capital... Or maybe you're working with institutional investors, and you - as I mentioned, passive equity versus equity that has control is different. So I think we've shown that we can raise capital efficiently, and raise substantial amounts,. I think through 2022 here we've averaged about $10 million per raise on the marketplace. Our largest rates to date - it's about 35 million funded through close to 700 investors.
So we can bring large chunks of equity to the table, it's passive, and the process is fairly quick. So you'll go through our vetting process, we approve you for the marketplace, we'll help you set up your online page that has all the information on the deal, the metrics, property, whatnot, we'll announce the deals for our investor base, so it'll be going out to 250,000 potential investors... And then the sponsor is going to host a webinar where they get on, all those investors attend to listen to kind of the pitch of the deal, there's a Q&A, and then the deal opens for offerings. So instead of having to pick up the phone and call investors, or set up in-person meetings, we've really made the process very efficient of raising capital through individual high net worth investors.
Investors will go through the portal, they will fill out their paperwork and submit their offers. And we've seen deals that have raised in minutes $20 million. I wanna say typically, from when the deal opens for offers to getting those funds, it's about two to three weeks to get that circled. So it can be pretty efficient.
Break: [00:13:48.00]
Ash Patel: Anna-Marie, what is the range of hold times, as well as returns?
Anna-Marie Lieb: Sure. So I think it varies dramatically. Typically, the shortest holds that you're going to see on the marketplace that we target is a three year hold on a [unintelligible 00:15:00.13] developments. I'll say typically, we've seen historically those are exiting a bit sooner. Probably the average hold across the marketplace is five years, but we also go up as far as 10 years.
I think specifically now a lot of those deals are the opportunity zone deals, that offer great tax benefits to investors, where they can defer capital gains if the asset is held for for 10 years. And then returns, again, they range depending on asset class and risk profile. I think four, four plus deals, probably in that 10 to 12 IRR return range. More opportunistic or development deals, you're probably looking at north of 20 IRR, the shorter-term hold. So it definitely varies across the marketplace.
Ash Patel: What are tips to get my deal filled up the fastest?
Anna-Marie Lieb: I think investors obviously are pulling back a little bit just given kind of the volatility and the shifts we've seen with increasing interest rates, and the overall changes in the economy that we're going through... So I think a) there has to be some sort of why this deal, why now, why should I invest today, versus six months from now. And I think what we've seen is deals that have a great kind of discount story... So if we can say, "Hey, this steel was valued at x at the peak in 2020, but we were able to secure this deal at 10%, 15%, 20% discount to that pricing", and show that that basis feels good today. I think that's always a way to get investors interested in the deal.
I think the other area that investors really pay attention to is structure and making sure that those incentives are aligned between the owner-operator and investors. So they're looking at things like co-invest. I'd say on average the co-invest for the sponsor, what they're investing into the deal alongside investors is 10%. So if you're above that 10% threshold, investors are going to look really favorably on that.
Ash Patel: Interesting. Okay.
Anna-Marie Lieb: There are other areas... Our fees - investors pay very much attention to fees the sponsors are taking, so acquisition fees...
Ash Patel: And do you highlight those fees, or do you bury them in the PPMs?
Anna-Marie Lieb: We do. [unintelligible 00:16:57.19] offering pages; when people go to the CrowdStreet website and click on the offerings, and all the deals that are on the marketplace are up there, and it'll list out "This is the acquisition fee. This is the disposition fee. Development fee. Co-invest." All the stats are on there. Especially when you're a sponsor, you have to consider "Okay, I'm not just showing one deal to investors. Investors are gonna see my deal, and they're gonna see the other deals that are on the marketplace, and they're gonna compare, and kind of shop around and see what makes sense to them."
And then obviously, the waterfall structure. There are preferred returns that you're offering investors, your promote splits... I think all that matters and can make a difference. If you want to give them an outsized preferred return, that's something that investors are going to look at.
Ash Patel: Anna-Marie, you guys do an extensive background search on both the individual, the teams and the historic deals. Me as an investor, do I get to see any of that?
Anna-Marie Lieb: We don't provide the background checks, but we do - typically, there is something that we've found if there has been... Well, we'll post the track records on the Detail page, and that'll list the returns and then what the sponsor's done... And if there has been any previous bankruptcy or anything that we've gotten comfortable with, typically we'll put up a disclosure for investors, so they can see what occurred.
And then again, we're going to put up the designation. So investors also get a sense of [unintelligible 00:18:19.28]enterprise, seasoned, emerging, tenured, on there. And I think the other part is that investors get access to the sponsor too, and can ask their own Q&A. Again, during the webinar there is a questions box on the Detail page, where investors can type in a question that will go to the sponsor and get responses on a deal before they invest. We try to provide that transparency for investors.
Ash Patel: At any one time, how many open deals do you have?
Anna-Marie Lieb: It definitely ranges. I think right now we're being more selective. I think just deals that make sense are a little bit harder to come by, just given where debt's falling, it's harder to circle debt... So understanding -- it feels like we're coming out of the peak of the market, and prices are kind of contracting... So again, finding those discount stories that we're looking for, that I mentioned earlier, is getting harder.
So we're targeting right now launching approximately two deals a week. I think historically, during a more normal environment, we're probably three to four. So we've definitely pulled back, and I think kind of raised that quality bar, just given the current macro environment that we're in. So I'd say anywhere -- again, two to four deals a week, depending ...
Ash Patel: Alright, if I am an operator, I am a syndicator, How much is this costing? This sounds expensive.
Anna-Marie Lieb: So we charge a per-investor room fee. So when an investor comes into the marketplace, they make an investment, CrowdStreet becomes the investor's portal, kind of like their [unintelligible 00:19:42.24] account, where they can go and check out how their whole real estate portfolio is going, login, see kind of all their quarterly reports in one place, for all their deals. So we set up an investor room for each of those investors, and that's what we charged by. It doesn't matter if an investor invests, call it $25,000, or a million; it's going to be the same price for that investor. Typically, what that works out to is about, call it a 3% cost of capital, and then there's an ongoing kind of fee associated with the upkeep of those rooms going forward.
Ash Patel: What about the syndicator? What do I have to pay to get my deal on CrowdStreet?
Anna-Marie Lieb: That's basically a fee that I've just described there.
Ash Patel: 3%.
Anna-Marie Lieb: About 3%.
Ash Patel: Okay, and as an investor, does it cost me anything?
Anna-Marie Lieb: No, we do not charge --
Ash Patel: Okay. And you mentioned we're heading into a recession. And I'm sure you've seen it's only people in the real estate industry, and in the finance industry, that think any economic headwinds are temporary. "Next year, we'll be fine. Next year, the market will be back up. Interest rates will be down." So again, thank you for being forthcoming with that. There's definitely some economic headwinds that we're seeing. And how this relates to your potential investors - are you seeing that start to dry up, number of people investing on CrowdStreet?
Anna-Marie Lieb: There's definitely been a pullback on that. Like I said -- or not pullback, but I think it's been probably flat. So if we look at what we did in 2021, which was a banner year... Great commercial real estate industry, rent growth was great, a lot of investment happening... CrowdStreet ended up with about 1.2 billion funded on the platform. Fast-forward to where we are today - we're looking to be closely aligned with that. So I think we were projecting continued growth into the sphere; I think definitely that's pulled back, and I think we saw that happen kind of in the last six months.
But that being said, I think investors are still investing. I think they're just being more selective, and then picking the deals that makes sense. I think, again, as I mentioned, we're launching less deals, but we've had some of our largest raises happen in the last six months, that have gone well. So I think it's picking those right deals that have that story of the "Why now? What makes this deal stand out?" And I think what we're seeing is a bit of that distress, is kind of what investors are leaning towards... And then I think the other area is we've seen opportunity zones do very well in the marketplace as well. I think that's just due to the tax benefits, and investors having capital gains to place.
Ash Patel: Do you have Q4 year over year numbers?
Anna-Marie Lieb: Not wrapped up yet. But like I said, I think we're trending probably to ending up at about a billion invested this year. So kind of --
Ash Patel: Okay, awesome. And do you invest in these deals as well?
Anna-Marie Lieb: I do. I'm an investor in our marketplace. That's kind of where I do my real estate investing. I'm not managing any properties on the side, so I kind of get my exposure to the asset class through the marketplace, along with many other people on the investments team as well.
One thing I will say, we do not get any preferential treatment in terms of getting into deals. So we have to submit our offers just like anybody else, and there's definitely been a few deals where I haven't gotten in, even though I wanted to, due to demand.
Ash Patel: And returns for office, industrial, retail - are they typically higher?
Anna-Marie Lieb: It depends on the risk profiles of the deals. I think retail, typically what we've seen or what we've posted to investors have been more kind of the [unintelligible 00:23:09.12] with cash flow. So your overall return probably is lower than what we'll typically see on multifamily, because I think we do a lot of value-add development on that side more so than [unintelligible 00:23:19.24] holistically. So it definitely varies. I think right now, in terms of the office deals, we're seeing definitely more of that opportunistic side, with higher returns over the last six months than probably historically, just given what's happening with the US market right now.
Ash Patel: Anna-Marie, what is your best real estate investing advice ever?
Anna-Marie Lieb: I think my best advice is sponsorship. I think, especially when you are making passive LP investment, you cannot underscore the importance of sponsorship. I think you need to understand the sponsor's track record, I think you also need to understand how they manage investors, what is their capacity, especially for [unintelligible 00:24:00.14] to take those on and handle reporting and be communicative. I think especially through COVID, and somewhat this year as well, we've seen that some of those larger sponsors with strong track records have just been able to navigate some of those challenges better than some of the emerging sponsors. a) Just due to the more extensive networks, banking relationships, deeper balance sheets... That can help solve some of those problems that come up. So even sometimes when we've seen we really liked the deal, maybe it's the sponsor's first time in a market, double check, "Does that make sense? Or would it be better with a different operator?" So I think that's my advice, that the sponsorship plays such a huge role in executing business plans and in making those decisions. You really have to do that deep dive there.
Ash Patel: Yeah, sponsorship, as well as the deal. A lot of people that I interview, they say the most important thing is the sponsor, is their track record. We've gotten burned on deals where we love the sponsors so much that we would have blindly put money into their deals, and we did, and we didn't vet the deal enough... And things got bad, right? So yes, thank you for that advice, the sponsor, and don't forget the deal as well. Anna-Marie, are you ready for the Best Ever lightning round?
Anna-Marie Lieb: Let's do it!
Ash Patel: Alright. Anna-Marie, what's the Best Ever book you've recently read?
Anna-Marie Lieb: The best book I've recently read was The Golden Spruce by John Vaillant. It was a great book, it dives into the [unintelligible 00:25:27.19] and its impact on culture and the world we live in now.
Ash Patel: What is the Best Ever way you like to give back?
Anna-Marie Lieb: I love giving back by giving my time. I'm part of the WLI mentorship committee here in Portland. I think that's so important, especially for women in the industry...
Ash Patel: What is WLI, sorry?
Anna-Marie Lieb: Women's Leadership Initiative. It's kind of a women-focused group. We put on networking events for younger women in the industry. And then also, I think just making time to take those phone calls, and meet up for coffee with people who are new in the industry and working their way up, and providing advice from what we know and sharing that knowledge.
Ash Patel: Anna-Marie, how can the Best Ever listeners reach out to you?
Anna-Marie Lieb: You can find me on LinkedIn, Anna-Maria Lieb, and then the CrowdStreet website, crowdstreet.com. It's where you can find all the deals, you can find information on the team, and check us out.
Ash Patel: Anna-Marie, thank you very much for your time today, giving us the ins and outs of CrowdStreet. A lot of valuable information that I didn't know, so thank you for your time today.
Anna-Marie Lieb: Yeah, thank you, Ash. I appreciate it so much. This was great.
Ash Patel: Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five-star review. Share this podcast with someone you think can benefit from it. Also, follow, subscribe and have a Best Ever day.
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