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Only recently opened doors to crowdfunding investors (2016), but not new to commercial real estate, ArborCrowd is an offshoot of an already successful real estate company with a focus on selecting and acquiring one Multifamily deal at a time, rather than going after high de…
- Very high level of skin in the game
- Seasoned real estate executives doing due diligence on every deal
- Transparency and deal documentation is stellar
Bankruptcy Protection 9/ 10
Deal Flow 2/ 10
Deal Transparency 5/ 5
Diversified Fund Options 1/ 5
Due Diligence 10/ 10
Ease of Use 9/ 10
Fees & Commissions 8/ 10
Investment Minimums 2/ 5
Investor Resources 9/ 10
Leadership 4/ 5
Non-accredited Investor Offerings 0/ 5
Platform Financials 3/ 5
Skin in the Game 5/ 5
X Factors 3/ 5
Total 70 / 100
What is ArborCrowd?
ArborCrowd is a niche real estate crowdfunding marketplace. It offers equity investments in multifamily commercial real estate projects, which is generally defined as residential real estate with four or more single-family units, such as apartment buildings.
Requiring millions of dollars per project, these commercial deals were previously only available to institutional investors and family offices. Through crowdfunding, ArborCrowd provides accredited investors access to institutional-quality commercial real estate opportunities with a typical minimum investment of $25,000.
Founded by seasoned real estate executives, ArborCrowd is part of the Arbor family of companies, independent companies that share common leadership. The Arbor family includes Arbor Realty Trust (NYSE: ABR), a leading publicly traded commercial mortgage real estate investment trust (REIT). ArborCrowd leverages the Arbor family of companies' proprietary network of successful real estate dealmakers to source its investment opportunities. On top of that high-quality industry backing, ArborCrowd's "skin in the game" includes acquiring interests in each property prior to syndicating opportunities to the crowd.
Unlike many other commercial real estate crowdfunding platforms, ArborCrowd's approach to investment selection is very methodical, often offering just one opportunity at a time on its platform. This one-deal focus ensures deep due diligence and deal transparency.
Summary: Is ArborCrowd a good investment?
ArborCrowd is a relative newcomer to the real estate crowdfunding party, opening its doors for business in 2016. Since inception, the company has offered and fully funded a total of nine deals, primarily multifamily value-add investments, in a variety of metropolitan areas across the U.S. like Miami and New York City. Three of their multifamily projects have completed the full investment cycle with better-than-projected investor returns.
At the helm of ArborCrowd are seasoned real estate professionals with deep experience in commercial projects, and the affiliated Arbor family of companies has a strong track record of success spanning decades.
What are ArborCrowd's pros and cons?
- Executive team and sponsors with a very high level of "skin in the game" and real estate experience. All deal sponsors have an established track record with the Arbor family of companies. Started without venture capital funding, ArborCrowd is an offshoot of a successful real estate company with a proven track record.
- Prefunded deals. Each deal is personally vetted by CEO Ivan Kaufman and pre-funded by ArborCrowd.
- Provides crowdfunded access to prearranged multifamily deals that weren't available to investors before.
- Extensive due diligence: Management’s priority is to select the best few deals rather than going after high deal volume. It reviews more than 500 deals per year but have only offered nine on the platform at the time of this review.
- Excellent track record of success: All three realized deals generated IRRs above the projected target range.
- Not much deal flow, but this is by choice -- the business model is to invest deal by deal, and ArborCrowd's site typically offers only one investment opportunity at a time and had none open at the time of this review.
- Deals can be oversubscribed (receive too many offers, resulting in a waitlist, which is tapped in the event an investor is unable to fund in a timely manner).
- No liquidity -- no secondary market. Once the property closes, you're invested until the property sells.
Is ArborCrowd legit? How strong is it?
As part of the Abror family of companies, ArborCrowd has legit backing. Arbor has originated more than $6.2 billion of loans and has more than $2 billion of assets under management.
To date, ArborCrowd has raised approximately $30 million of equity for assets with a total capitalization of more than $370 million. It screens 500+ deals a year and has, as of this review, only offered nine deals on its site.
It had fully realized three at the time of this review. The first is a three-property, 607-unit multifamily portfolio in Alabama and Mississippi. It was funded in February 2017 with a two-to-three-year projected term and expected internal rate of return (IRRs) of 17% to 20%. It actually sold in 15 months, delivering 29% IRR to investors.
ArborCrowd's second fully-realized deal was another multifamily in San Antonio that was projected to deliver 16% to 19% IRR in two to four years. It closed in 22 months, delivering over a 20% IRR to investors.
The third fully-realized deal was a multifamily portfolio in Sioux Falls, South Dakota. It had a targeted hold period of three to five years and a projected net IRR of 12% to 14%. However, the actual hold period was 13 months and the realized net IRR was 16.15%.
There are six other fully-funded deals on ArborCrowd's platform with varying projected timelines and IRRs that look promising.
Unlike the technology entrepreneur founders of many crowdfunding companies, co-founder and CEO Ivan Kaufman has four decades of experience operating several real estate finance companies -- a great asset to have at the helm. He's the founder of Arbor Realty Trust, a leading REIT that became publicly traded in 2004. He's successfully navigated companies through several real estate cycles, and he provides insight and final signoff on every single deal that makes it onto ArborCrowd's platform.
He co-founded the company with his son, Adam Kaufman, who serves as ArborCrowd's COO and oversees the company's day-to-day operations and corporate growth.
How ArborCrowd works: How are investments sourced?
Only deals from sponsors that have a proven track record of success, often with ArborCrowd's family of companies, are offered to investors on the site. All deals on ArborCrowd's platform are extensively vetted by CEO Ivan Kaufman and pre-funded by ArborCrowd.
Additionally, all sponsors are required to invest in their deals alongside ArborCrowd and investors. That is serious skin in the game and demonstrates a lot of deep due diligence of both the deals and the sponsors on ArborCrowd -- and gives us peace of mind that the deals are worth investigating further.
The transparency and deal documentation on ArborCrowd is stellar. Offering overview documents provide a depth of information about the project, projections backed by market research, rent and sales comparables, pro forma financials, and the business plan for the project. You'll know the project's sources of debt and how it'll be used, the timeline details, the nature and plan for all improvements and renovations which will be done to improve the ARV -- everything you need to understand the value of the acquisition, the scope of the project, and the viability of the projected IRR.
Who can invest with ArborCrowd?
To invest, you must qualify (and be verified) as an accredited investor, meaning you meet at least one of the two following requirements:
- An individual net worth (or joint net worth with a spouse) exceeding $1 million. You can't include the net equity in your primary residence as part of the $1 million.
- An individual income of more than $200,000 in each of the two most recent years, or a joint income exceeding $300,000 in those years. You must also have a reasonable expectation of reaching the same income level in the current year.
ArborCrowd is not a registered broker-dealer or investment advisor. Their role is curating and selecting investments using the company's 30-year-plus real estate experience and then acting as an asset manager on behalf of investors once the deal closes.
What is the minimum ArborCrowd investment?
The minimum investment is typically $25,000. While higher than the typical $5,000 minimum required by many crowdfunding real estate platforms offering non-traded REITs, this minimum investment is on the lower end of that typically required in stand-alone commercial deals for accredited investors.
What are ArborCrowd's fees?
ArborCrowd generally charges an asset management fee of .25% to .5%, an acquisition fee of 1% to 1.25%, and a disposition or refinance fee of 1%, and these fees are charged only on ArborCrowd's pro rata share of ownership in the transaction. While this may seem high when comparing fees between platforms, the total of all fees together ends up being equivalent to other real estate crowdfunding sites when you add up what's paid to sponsors.
Investors pay investment fees directly to ArborCrowd, and there are no sponsor fees, calls for additional funds to complete a project, or surprise expenses.
ArborCrowd returns: What should you expect?
ArborCrowd's deals so far have included seven multifamily value-add investments, one value-add mixed-use deal, and one ground-up multifamily project. Typical deal-projected Internal Rate of Return (IRR) is 12% to 20%, with an equity multiple of 1.5x to 2.5x. The typical project term is three to seven years. At tax time, you'll receive a Schedule K1 to report your share of the income received by the LLC.
When you invest through ArborCrowd, you receive a membership interest in an LLC that's created for that specific offering. The LLC holds the interest in the property. There is no explicit indication of quarterly income distributions to investors. Deal sponsors often mention distribution targets, although actual distributions are at the sole discretion of the property's LLC manager.
When (and how) can you sell ArborCrowd investments?
ArborCrowd offers no secondary market. As a result, once the property goes through settlement, investors are locked in until the investment goes full cycle. The target hold period for most deals is between three and seven years. However, its first three realized deals had holding periods ranging from 13 to 22 months. So, while investors need to commit to a multi-year holding period, a deal could go full cycle much faster.
Going mobile: Is there an ArborCrowd app?
ArborCrowd doesn’t have a mobile app. However, the ArborCrowd website is optimized for mobile devices and works well across every feature, whether you're looking for a new deal to invest in, reviewing past deal offerings, or reviewing your current portfolio.
ArborCrowd risks: Is ArborCrowd safe to invest with?
A resounding "yes" on this one. The founders have a strong track record of business success in real estate ventures, including going public with several companies. With a strong track record of financial and management success in the real estate industry and a conservative approach to deal-making, their business is well established to fare well in any real estate cycle.
ArborCrowd has also set up all deals to be bankruptcy remote, and the mechanism to select a backup administrator is specified in advance. So if ArborCrowd were to go out of business, deals would keep moving forward.
Add to those factors its skin in the game and ultra-selectivity and Arbor Crowd is one of the safer real estate crowdfunding platforms for accredited investors.
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