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Streitwise Review 2021: Is This Platform Right For You?

Before you invest with this crowdfunding platform, here are the benefits and risks you should know.


[Updated: Apr 15, 2021 ] Feb 26, 2020 by Matthew DiLallo
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Streitwise

4.1 / 5 stars

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Summary

Streitwise offers both accredited and non-accredited investors the opportunity to its private REITs with as little as $1,000 and has a business structure that aligns well with those investing in their offerings.

4.1 / 5 stars

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Highlights
    • Available for non-accredited investors with low minimums
    • Attractive properties in portfolio with low use of leverage
    • Management team has invested significant stake in business

Bankruptcy Protection 8/ 10

Deal Flow 5/ 10

Deal Transparency 5/ 5

Diversified Fund Options 3/ 5

Due Diligence 9/ 10

Ease of Use 8/ 10

Fees & Commissions 9/ 10

Investment Minimums 4/ 5

Investor Resources 8/ 10

Leadership 4/ 5

Non-accredited Investor Offerings 5/ 5

Platform Financials 4/ 5

Skin in the Game 5/ 5

X Factors 4/ 5

Total 81 / 100

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What is Streitwise?

Streitwise is the website where investors can access 1st Streit Office Inc., the real estate investment trust that's sponsored and managed by Tryperion Partners and offered for sale on Streitwise. 1st Streit Office is a real estate investment trust (REIT) that invests in office buildings, producing a high-dividend yield from the cash flows generated by those assets. It has also been open to investors on Republic's real estate crowdfunding platform.

By investing in the Streitwise REIT, investors own a stake in the REIT, therefore benefitting from the earnings it generates and pays out in dividends and, eventually, from capital gains as the value of its real estate holdings goes up.

The 1st Streit Office Inc REIT is a long-term investment, and investors should only consider buying in if they have money they're willing to put at risk of losses and are okay having that money tied up for at least five years. There is a redemption plan that allows for selling after one year of ownership, but it comes at a discount -- and quite a substantial one in the first few years -- to the net asset value (NAV) if you sell within the first five years of ownership.

Summary: Is Streitwise a good investment?

Streitwise is a small operation at this stage, with one real estate investment trust (REIT) open to investors. That REIT, called 1st Streit Office Inc, owns two commercial office properties as of this review, with corporate tenants including Panera Bread, Allied Solutions, New Balance, and Well Fargo (NYSE: WFC).

Streitwise says it focuses on acquiring institutional-quality office buildings using investor capital and moderate leverage to generate high-dividend yields for its investors.

Streitwise shares its management staff and employees with its sponsor, Tryperion Partners, a small private real estate investment firm that has acquired or managed over $750 million in commercial real estate properties over the past decade.

This is a small REIT with only a handful of concentrated assets, and that increases your risk, but it has experienced management and high-quality tenants that could make it an appealing part of a diversified real estate portfolio.

Streitwise pros and cons

Pros

  • High-quality commercial properties: The properties it owned at the time of this review were institutional-quality office buildings with corporate tenants, including the corporate headquarters of Panera Bread and Allied Solutions.
  • Low leverage: Targets 50% to 60% debt to fund acquisitions; currently at 51% loan-to-value (LTV). This is on the lower end of what many commercial property developers often use. The REIT redirected some of its free cash flow to pay off debt in 2020 by reducing its dividend yield from 10% to 8.4%.
  • Fee structure aligned with investors: 3% up front fee, plus 2% annualized asset management fee. It also doesn't collect any disposition fees if a property is sold, removing the incentive to sell a property that it may be in REIT investors' best interest to retain.
  • Experienced management team with skin in the game: Streitwise founders and management have a strong track record investing in real estate. Have personally invested more than $5 million in shares of 1st Streit Office.
  • Open to nonaccredited investors and low minimum: You don't have to have a big net worth or six-figure income to invest in this REIT; you only needed $1,021 at the time of this review (the minimum purchase is 100 shares at the current NAV of $10.21 per share) that you're willing to invest for five years or more.
  • Solid performance during COVID-19: It was one of the few crowdfunded REITs that was able to continue honor redemptions and didn’t need to pause its offering. It also met its 2020 dividend target and maintained a strong rent roll.
  • Highly transparent management team: Streitwise files regular reports with the SEC and publishes detailed quarterly snapshot presentations on its website.

Cons

  • Very small asset base: 1st Streit Office, the REIT available to investors on Streitwise, only owns two properties as of this review. That concentration makes it a little more risky than REITs owning a broader collection of assets.
  • High exposure to only a few tenants: Two tenants -- Panera Bread and Allied Solutions -- generate more than half of the rents earned by the Streitwise REIT.
  • Focus on office buildings: Office buildings can be more exposed to changes in economic conditions than other types of commercial property. There’s also concerns about the future of the office in a post-pandemic world given the accelerated adoption of remote work. When combined with the fact that the 1st Streit Office REIT only owns two properties, it’s even higher up the risk scale.

It shares all its employees with its sponsor: Tryperion Partners employees and executives pull double duty managing Streitwise, along with more than $160 million in private real estate investments across three real estate funds. We like the expertise, but with a tiny scale compared to Tryperion's other investments, there's risk that Streitwise won't get the attention it needs to maximize its returns.

Is Streitwise legit? How strong is it?

Tryperion Partners, the sponsor and manager of Streitwise and the 1st Streit Office REIT, has raised more than $160 million across three private funds that it has managed since 2013. Its three founders worked together as executives at Canyon Capital Realty Advisors, which has managed tens of billions of dollars in real estate deals over the past 30 years. That's pretty legit.

Streitwise management

As mentioned, Streitwise shares its management with its sponsor, Tryperion Partners. This includes co-founder and CEO Eliot Bencuya, co-founder and CIO Jeffrey Karsh, and co-founder and COO Joseph Kessel.

The former two are primarily responsible for identifying and executing new investments while the latter is responsible for due diligence and implementing and executing the business plan for assets once acquired. While there's some risk that Streitwise won't get enough attention from management since they also manage Tryperion Partners, which is the bigger enterprise, their expertise and focus on long-term ownership of high-value properties seems worth the risk. It also helps that they have some skin in the game, as Jeffrey Karsh owns more than 500,000 shares of Streitwise’s REIT.

streitwise

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How Streitwise works: How are investments sourced?

Streitwise isn't an online real estate crowdfunding platform with a marketplace containing standalone commercial real estate deals to choose from. Instead, investors buy shares of 1st Streit Office Inc, a REIT managed by Streitwise's sponsor, Tryperion Partners, which chooses the commercial real estate projects it will invest in.

In other words, you provide some of the capital, and then the real estate professionals choose the investments, develop a business plan to maximize the returns from that asset, and charge a management fee for their services. In exchange for risking the capital, investors earn dividends, typically paid quarterly, and ideally capital gains when they sell off their shares of the REIT in the future.

The REIT owned two properties at the time of this review and was actively reviewing additional potential investments. While it typically analyzes five to ten deals at any one time, it’s very selective in the properties it adds to its portfolio.

Who can invest with Streitwise?

Both accredited investors -- meaning investors who have more than $1 million in net worth (not including their homes) or $200,000 in annual income -- and nonaccredited investors can invest with Streitwise. With a 100-share minimum purchase (currently a $1,021 investment), 1st Streit Office is one of the most accessible crowdfunded real estate investments available to retail investors.

What is the minimum Streitwise investment?

Streitwise's 1st Streit Office Inc REIT has a 100-share minimum investment (currently $1,021 total). That's one of the lower minimums out there for nonaccredited-eligible private real estate deals.

What are Streitwise's fees?

The two primary fees investors pay are:

  • A 3% up-front fee when you make an investment.
  • A recurring 2% annualized management fee.

That's about it. For comparison, many other REITs or stand-alone real estate deals include a litany of other fees for property and construction management, disposition fees if a property is sold, and often a "promote" or "carried interest," which is a portion of profits based on certain thresholds for returns when a property is sold.

Streitwise says its goal is to find great assets in secondary markets, buy them, and own them for the long term to generate high-income yields from that long-term ownership. This is a different model than most private REITs on other platforms, which buy and improve properties with the intent to sell at a profit within three to five years.

Streitwise returns: What should you expect?

Since it was launched, 1st Streit Office has paid investors a quarterly dividend that yields more than 8%, a sizable return on its own. Moreover, management has chosen to use a moderate amount of debt to fund acquisitions, with a debt-to-cost ratio of 51% at the time of this review, right in the middle of the REIT's 40% to 60% targeted range for the long term.

However, we think investors should be cautious with this investment and not make it too big a part of their total portfolio, as there are some risks that must be considered. At this stage, the REIT is very small, owning just two properties, both of which are commercial office buildings. Moreover, its two biggest tenants are responsible for over half of all rents, and the top four tenants generate nearly 70% of the annual base rent (ABR) this REIT earns.

To put it bluntly, that's a tremendous amount of concentration, and if one of its large tenants were to not renew a lease, the REIT would have to undertake significant expense to reconfigure the property to attract replacement tenants. With a weighted average lease term (WALT) of less than three-and-a-half years remaining for one of its properties (compared to more than nine for the other), this is a near-term concern. We like the assets, the reasonable amount of debt, and the experienced management, but we would caution investors not to overexpose themselves due to the risks.

However, it’s worth pointing out that the REIT performed very well during the COVID-19 outbreak. It made only minor lease accommodations early on in the pandemic, and its tenants paid as budgeted with nearly a 100% collection rate. Overall, it performed within 1% of its budgeted NOI. That allowed it to deliver on its dividend target for a yield between 8%-9% while also continuing to invest in its properties and paying down debt financing.

When (and how) can you sell Streitwise investments?

In general, investors should also consider this to be a long-term investment. Streitwise does have a liquidity provision, under the following redemption plan:

How long have you owned? What you get if you sell
Less than 1 year Cannot sell during year 1 of ownership
Between 1 year and 2 years 90% of per-share net asset value (NAV)
Between 2 years and 3 years 92.5% of NAV per share
Between 3 years and 4 years 95% of NAV
Between 4 years and 5 years 97.5% of NAV
5 years or more 100% of NAV

The redemption plan also states that it will only repurchase shares as liquidity provides, not more than 5% of weighted shares outstanding in any one calendar year. In other words, there could be events beyond your control that limit, or even prevent, your ability to sell at any time.

To be clear, this isn't unique to Streitwise or its REIT. These are nontraded entities; they don't have a secondary market like public stocks. The downside is they can't be liquidated quickly, but the upside is the access they provide to high-quality investments and top sponsors and developers that were previously only accessible to institutions and the ultrawealthy.

Going mobile: Is there a Streitwise app?

At the time of this review, Streitwise was in the final stages of launching an iOS app that will allow investors to manage their investment via the app. In the meantime, its website is optimized for mobile; you can do anything on your smartphone or tablet that you'd be able to do on the desktop website.

Streitwise risks: Is Streitwise safe to invest with?

We've already covered a lot of the risks investors should consider, but let's take a closer look at them. First off, what you are buying shares of -- 1st Streit Office Inc -- is a separate legal entity from Streitwise or its manager, Tryperion Partners. In other words, if Tryperion Partners were to become insolvent or to otherwise struggle, its creditors would have no legal rights to either your investment in the REIT or the assets the REIT owns.

With that said, Tryperion Partners' management and employees play an indispensable role in running 1st Streit Office, and it would certainly have some impact on the REIT's operation, including potentially interrupting dividend payments; tax document reporting; required SEC filings, including annual reports; or paying vendors and lenders in a timely fashion.

The former of these things, reporting and making payments to investors, would be inconvenient and likely temporary but unlikely to cause permanent harm to the REIT (and therefore to your invested capital) itself. However, an interruption in the REIT's operations that caused it to miss debt service payments could put it in default on that debt, and that could have substantial consequences, including capital losses for investors.

To be clear, this isn't unique to Streitwise/Tryperion Partners and the REIT it manages; this is the same kind of risk you'll take with any other REIT you invest in. The sponsor must execute its job managing the REIT, and if it fails to do so, it could put your investment at risk.

Additionally, let's highlight the risks inherent with this particular REIT one more time: It's small and highly concentrated in both the asset type -- corporate office buildings -- and in tenants, with only a small number accounting for the majority of its rents. The loss of a single tenant could cause significant interruptions in the REIT's ability to maintain its dividend and, at worst, to service its debt. Because of that, investors need to keep a close eye on lease expirations and the company’s ability to diversify its portfolio via additional office-building acquisitions.

That said, the assets it owns are very high quality, its management is experienced, and it pays a high yield, so there's potential for big rewards if you're willing to take on the specific risks built into this REIT.

Disclosure: Matthew DiLallo owns shares of 1st Streit Office REIT.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.