Whitepaper | Crowdfunding and Direct to Consumer Platforms: Where The Opportunities Can Be Found For Wealth Managers

What Is Crowdfunding? A way for small businesses and projects to fund themselves by raising small amounts of capital from a large pool of investors

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As a result, many crowdfunding platforms began to enter the real estate arena, flooding the market with cheap capital. Initially, many platforms hoped to target middle to upper-class investors that historically didn’t have access to this asset class. However, many were already able to buy into real estate via rental apartments or shares in a REIT.

Soon enough, demand outweighed supply, leaving investors scouring the crowdfunding platforms only to find risky and less appealing projects. Additionally, platforms are volume-driven, making money from placement fees, rather than based off the quality or performance of the transactions they offer.

“Proponents thought a tactic that could raise large sums while lowering marketing costs would transform real-estate investing the way Airbnb changed hospitality or Amazon changed retail.”

Wall Street Journal

In the days since the World Health Organization declared the pandemic in mid-March, the offerings on CrowdStreet’s site have declined by 70%.

 

But investor demand for those deals has increased by 50%, according to Ian Formigle, CrowdStreet’s chief investment officer.

As the real estate crowdfunding industry shifts and evolves to adapt itself to current trends, many real estate veterans have opened up their platforms directly to investors.

Direct-to-consumer refers to selling products, or in this case offering investments, directly to consumers or investors, bypassing any third-party groups or middlemen.

Among others, private wealth managers are increasingly turning to real estate sponsors to add real estate to their clients’ portfolios. DTC platforms have made it easier for wealth managers to get connected with sponsors and get their clients invested.

Why invest through a DTC platform?

By investing directly with real estate sponsors, wealth managers benefit from:

  1. Avoiding additional fees from middlemen: Crowdfunding sites charge per transaction adding to fees already charged by the sponsor of the transaction

  2. Enhanced transparency into the transaction: Direct access to sponsor’s models, marketing material, and ongoing reporting throughout the life of the deal

  3. Direct Relationship with Sponsors: Ability to create long-standing relationships with sponsors who can give you market insight and updates on specific investments

  4. Alignment of Interests: Typically, sponsors will co-invest alongside their investors in all transactions ensuring an alignment of interest between the sponsor and their investors

Why invest through a DTC platform?

Similar to other investments, investing in real estate carries a fair amount of risk. It’s important to not only research the sponsor’s track record within real estate, but within the sector or type of real estate that they are offering.

Secondly, it is important to match your client’s risk profile with the offering as there is a wide spectrum of risk involved ranging from core assets, considered lower risk, to opportunistic, considered higher risk.

Lastly, wealth managers should have a good understanding of the various fee structures used by real estate sponsors.

Given our successful track record, we’re looking to expand our investor base and deepen our relationships with wealth managers. As such, we’ve recently launched HLC Direct, our DTC investment platform, where you can view our current offerings and receive updates from us.

Important Disclosure Information

This presentation/document is being furnished on a confidential basis. By its acceptance hereof, each recipient agrees that this presentation/document may not be reproduced or distributed to others, at any time, without the prior written consent of HLC Opco LLC (“HLC” or “HLC Equity” or “we”) and that the recipient will keep permanently

confidential all information contained herein not already in the public domain.

 HLC has prepared this presentation/document for informational purposes only. HLC does not give investment advice, endorsements, analysis or recommendations with respect to any securities. Nothing contained in this email constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. Any such offer or solicitation will be made only by means of an offering memorandum and organizational documents (collectively, the

“Offering Documents”). This presentation/document excludes material information

detailed in the Offering Documents, including, but not limited to, risk factors. Investors may not rely upon the information set forth herein and should only make a decision to invest based solely on the information provided in the Offering Documents. Furthermore, information regarding HLC’s investment opportunities are intended and available for US accredited investors only (criteria HERE). HLC urges potential investors to consult with licensed legal professionals and investment advisors for any legal, tax, insurance, or investment advice.

 

This presentation/document may include forward looking statements that involve risk

and uncertainty. Sentences or phrases that use words such as “expects”, “believes”, “anticipates”, “hopes”, “plans”, “may”, “can”, “will”, “projects”, and others, are often used to indicate forward-looking statements, but their absence does not mean a statement is not forward-looking. Such statements reflect HLC’s current opinion and are designed to help readers understand HLC’s thinking. By their very nature, however, such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Investors are cautioned not to place undue reliance on

these forward-looking statements, which speak only as of the date hereof. Moreover, past

performance is no guarantee of future results, therefore no guarantee is presented or implied as to the accuracy of specific forecasts, projections, or predictive statements contained herein.

HLC has prepared this presentation/document based on information from various sources that are believed to be reliable (including clients and other third parties), but no guarantee is made as to its accuracy or completeness and HLC accepts no liability related to information provided.

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