CompStak was mentioned as one of the new tech firms that's shaking up the real estate industry in the Silicon Valley Business Journal! Thanks, Nathan, for the mention!
Nov 7, 2013, 2:45pm PST UPDATED: Nov 8, 2013, 9:07am PST
The Prune Tree shopping center sold this week as part of a crowd-funded acquisition.
The Prune Tree shopping center in Salinas looks like countless other Safeway-anchored retail projects — there's a Starbucks Coffee, doughnut shop, CVS and AutoZone.
But one startup is betting the 133,600-square-foot center at 17601 Vierra Canyon Road could represent the future of real estate investment.
Realty Mogul, a Beverly Hills-based crowdfunding company, acquired the center this week in what it says is the first crowdfunded sale of a shopping center. The purchase price was $15.2 million, according to public records. Realty Mogul was joined in the deal by U.S. Realty Partners and JG Management, which are both established players in commercial real estate.
The transaction is the latest example of how technology and new platforms are shaking up the traditionally staid domain of real estate. Other examples include Auction.com, which is seeing strong growth in the Internet-enabled sale of commercial property (witness the Borland campus sale in Scotts Valley) and Compstak, the crowdsourced real estate data firm.
Realty Mogul describes itself as a marketplace "for accredited investors to pool money online and buy shares of pre-vetted investment properties." The word "accredited" is important here, because it means investors are required by the federal government to meet certain income guidelines (basically a net worth that exceeds $1 million). More on that later.
Jilliene Helman, the company's CEO, explained that Realty Mogul looks at two types of investments: cash-flow equity investments in real property (including apartments and single-family-home pools) and real estate loans. For equity deals, Realty Mogul pools money from investors, usually with a minimum $10,000 buy-in (loan investments start at $5,000).
That's where Realty Mogul differentiates itself from larger funds: "Historically, you have to write a million-dollar check to get access to this," Helman told me.
Realty Mogul is generally brought into a deal as an equity partner after it is already in contract with a buyer. Technically, its investors purchase shares in a LLC as a limited member, giving investors a share of an investment property. (You can read more about the nuts and bolts on Realty Mogul's Frequently Asked Questions page.) The firm looks for opportunities that will generate cash flow, and is fairly conservative in its criteria. In other words, you likely won't see Realty Mogul going after lower-yield opportunities in pay-any-price, overheated markets. "We're looking to send off monthly or quarterly distributions to all our investors," Helman said.
In the case of Prune Tree, Realty Mogul contributed $3.5 million in equity. (The rest was bank debt.) The investment is expected to earn an initial yield, or cap rate, of about 8 percent. At 75-percent leased, the center is profitable but stands to benefit from further occupancy. That's why Realty Mogul built in more than $1 million in building improvements, tenant improvements, leasing commissions and miscellaneous costs. "We don't want there to be a capital call," Helman said.
The property was attractive for a number of reasons, including the tenant mix. Investors included locals who knew the property well as shoppers and were therefore comfortable investing in it.
"There's really strong anchor tenants that our investors can relate to," Helman said. "For a real estate investor who hasn't made investments historically, they shop at centers like this all over the country."
If it continues to grow, Realty Mogul could signify a new source of capital in the marketplace, a good thing for landlords, Helman said. (Already, it has underwritten $700 million in investments in less than a year in business.) That impact could grow more if federal rules allow for companies like Realty Mogul to open up their platform to the broader marketplace under what's called the JOBS Act. (Read more about the JOBS Act and crowdfunding here.) Realty Mogul is considering going in that direction if it makes sense, but will know more in the coming months, when new federal rules are announced.
"We want to grow quickly but conservatively," the CEO said. "Today we have thousands of investors, but we want to have tens of thousands of investors. Still, we don't want to fund transactions we don't think make sense. We have an underwriting team that came out of institutional world. Really it's doing more, being active in more spaces, having more investors, doing larger deals."