Realty Mogul is one of the heavy hitters in the real estate crowdfunding game, and it is considered one of the best-run sites in an industry that is proliferating wildly. The company was founded in 2013, and it is very well capitalized. It has raised $45.1 million in five rounds of funding. The site has a growing following from institutional investors, especially those funding large loans, co-founder and CEO Jilliene Helman, arguably the best known single individual in the industry, has said.
Realty Mogul’s most famous deal was in 2014, raising $1.5 million for the 163-room Hard Rock Hotel in Palm Springs, California. This was the first crowdfunded hotel in the country. The equity transaction involved 85 investors who also received perks such as room rate discounts and use of a special poolside cabana at the hotel.
Headquartered in Los Angeles, Realty Mogul has historically been strong on the West Coast, but the platform in mid-2015 opened its first East Coast office, in Atlanta. Helman said it is looking “to do more on the East Coast, and the Southeast in particular,” The company is exploring other offices on the East Coast.
Helman said in December 2014 that investors in a retail project in San Antonio, Texas funded by the site had recently been repaid all of their initial investment and accrued preferred returns after only nine months. “We believe that this is the first ‘full circle’ deal that’s occurred in the real estate crowdfunding industry,” she said.
Assets Under Management$200 Million
Number of Users
1-2% management fees for investors depending on deal
- Well capitalized, high volume of deals, strong institutional participation
- Historically focused on West Coast though it is diversifying, high fees, steep minimum investment
Realty Mogul started with a focus on equity deals for accredited investors. About two-thirds of its projects are for equity and the remainder debt or loan-based transactions.
It offers a diverse array of properties including commercial, multifamily, retail, industrial, office, mixed use and residential. Unique among the crowdfunded real estate platforms, Realty Mogul in 2015 expanded into commercial lending for amounts up to $25 million or more.
Realty Mogul considers its differentiators in part to be the fact that it outsources real estate expertise to vetted professionals and that it keeps its focus on cashflow, either via rent or interest payments.
Realty Mogul is only open to accredited investors, meaning with net worth of $1 million or income of $200,000 a year or more. The minimum investment on the platform is $10,000, and the average customer invests $60,000 across the platform. According to Helman, over 50 percent of the company’s investors make more than one transaction.
The site says its users include “high net worth individual investors and institutional investors including family offices, registered investment advisors, private equity firms, hedge funds, banks and asset managers.” In other words, Realty Mogul participants have deep pockets.
When you make an investment on Realty Mogul, investors are typically purchasing shares in a Realty Mogul Limited Liability Company (“LLC”) that in turn invests into an LLC or Limited Partnership (“LP”) that holds title to the real property. The company says this structure minimizes overhead for sponsors and streamlines administration.
On debt deals, Realty Mogul often sets up what it calls “borrower dependent notes” in which Realty Mogul holds the loan and security for transaction, and it pays investors in the notes returns from the debt service. In FAQs on deals, Realty Mogul says, “Although innovative in the context of real estate transactions, similar structures have previously been used by several consumer lending companies. Other web-based online finance companies have also used such techniques.”
Realty Mogul says one of its strengths is deal flow. “We’re sourcing real estate transactions that others just aren’t seeing,” Helman said.
Its specialty is short-term loans on first trust deeds or the most senior (first lien) debt in direct real estate deals at rates generally ranging from 8% to 10%, as well as equity on less liquid deals of three to five years in the form of preferred percentages.
At the time of review, Realty Mogul had more than 70 active deals on the site. There were single family homes, apartment complexes, mobile home parks, retail properties, hotels, office buildings and storage facilities. One review did not give Realty Mogul high marks for deal quality, saying it focused on single family and multifamily properties in class C markets.
Realty Mogul itself says its “investments are highly speculative and investors should be able to bear the loss of their entire investment.” Adds Helman: “It’s real money, and there’s potential for real losses.”
Realty Mogul performs an underwriting process that includes an assessment of the property, the location, the borrower or sponsor, background and criminal checks and more prior to placing investment opportunities on the Realty Mogul platform. It estimates that it approves less than 5% of deals it reviews.
“We are not investing in rookies,” Helman said, pointing out that the firm focuses on “boring cash flow” rather than illiquid development deals or trophy deals that are sexy but don’t always perform. “We are in the business of curating best-in-class operators.”
The site’s head of credit has three decades in real estate finance, including eight years at JPMorgan.
In reviewing sponsors, Hellman said her team looks for three qualities: conservatism, active in different market cycles and integrity.
For equity investments, Realty Mogul and its broker-dealer partner review every transaction in-house. “We go to great lengths to fully understand the variables of each transaction including the structure, the market statistics, the property, the quality of the property and the track record, reputation and quality of the real estate investment company we are working with. This process includes background, criminal and credit checks to mitigate the risk of fraud,” it says.
On the platform, a rich variety of deals is evident. Realty Mogul says its financings in the first quarter of 2015 included an apartment building in Brooklyn, NY, an apartment building in Bel Air, CA and an office building in Washington, D.C, among many others. In addition, the platform said in June 2015 it was making its first investment in the medical sector with a multi-tenant medical office building in Texas.
Hold times vary widely depending on the type of investment, Realty Mogul says. Investing in loans could be 6-12 months while equity investments could range from 3-10 years
Realty Mogul expanded in April 2015 into commercial lending to steer the platform toward sources of larger loans on commercial real estate properties. “Our commercial lending division will focus on $1 million-$10 million loans, including private money, bridge and permanent financing,” CEO Helman said.
The offerings include a three- to five-year, floating bridge product in the 4% to 6% range, and a fixed-rate program that is priced in the 4 percent range and primarily adheres to the standards set by the commercial mortgage-backed security securitization market. This was the first time a competitively priced CMBS loan was made available through an online marketplace, the company said.
Realty Mogul charges deal sponsors a commission on funds raised with a tiered fee schedule based on the amount. Investors are charged a 1-2% annual investor reporting and technology fee, which is based on invested capital.
The Realty Mogul site is not very expansive about the fees that investors face. One analysis says it charges acquisition, refinancing and construction management fees, the latter estimated at 10%. If you decide to participate in a Realty Mogul deal, you will need to press hard to get full information on fees.
In the event of a corporate bankruptcy, there would be uncertainty and ultimately it would be up to the bankruptcy courts to decide how Realty Mogul investors fare. However, Realty Mogul says it would work to put replacement servicers in place for all Realty Mogul transactions.
It also says that since its first day of operation it has worked to make sure it has a contingency plan in place. It says its fees would cover the costs of a replacement debt servicer and it has identified a third-party servicing firm as a preferred vendor for loan servicing.
On equity investments, Realty Mogul says it would turn to a national bank or third-party servicer with a real estate trust specialty to take over management of its LLCs. “We’ve had active discussions with both banks and alternative managers around sub-servicing in the event of a bankruptcy and have identified specific individuals that would be contacted,” Realty Mogul says.
Realty Mogul offers equity securities through WealthForge, LLC, a registered broker/dealer and member FINRA/SIPC. Those are investor protection bodies, but their protections do not apply to any loss in value or deals that do not pan out as expected. It’s really up to the individual investor to do due diligence. If you aren’t experienced enough to do this, you probably are not qualified to participate in real estate crowdfunding without the assistance of a trained adviser.
Realty Mogul was born in 2012 when Helman was a 25-year-old vice president at Union Bank in Los Angeles. The company was founded in 2013 with $110,000 in capital. Helman brought in Justin Hughes, a consultant for businesses building communities, who is chief technology officer.
Realty Mogul raised $35 million in Series B funding in July 2015, following $9 million in Series A funding in 2014. The latest funding was led by Sorenson Capital and Sorenson’s Rob Rueckert joined Realty Mogul’s board. The company intends to use this new financing to hire more technologists and data scientists and strengthen its technology platform.
Helman said the idea for Realty Mogul came from the passion she shares for finance and also for real estate, since she grew up in a real estate family. Helman travels year-round and does anywhere from 50 to 60 interviews a year to teach others about the crowdfunding business.
“Jilliene is like a hard-working politician who kisses babies at every campaign stop, and her ambassadorship has made her probably the most recognizable front person of any real estate crowdfunding platform,” according to one article.
The company’s board is studded with well known figures from the worlds of venture capital, technology and real estate.
Realty Mogul offers a unique opportunity to invest in real estate that’s less involved than buying property outright on an individual basis but is much deeper in scope than investing in real estate through a real estate investment trust (REIT). It’s an opportunity to invest in real estate through a variety of close-to-home investment opportunities.
Soon all investors everywhere will be able to participate in great outfits like Realty Mogul and their deal offerings to obtain higher returns on proven types of investments such as commercial real estate and house rehabilitation and flipping. This company has an impressive track record with over 300 properties funded in the last few years, removing the main objection raised about a lack of transparency and track record skeptics have levelled in the direction of the real estate peer to peer lenders and crowdfunders.
Interesting idea. I’d take a ‘wait and see’ attitude on this one. It might be a good deal for investors and the real estate pros both. Kinda like Lending club for house flippers. But it seems like there might be high risk here and so I’d wait to see how well they perform before I’d put any money into it.
Realty Mogul is one of the largest real estate crowdfunding platforms today with over $250 million raised on its platform since its founding in October, 2012. Over 100,000 registered investors have invested in over 350 properties so far, valued at close to $1 billion. They’ve returned over $55 million to investors with $0 principal lost so far. - See more at: http://www.financialsamurai.com/realty-mogul-review-real-estate-crowdfunding-investing/#sthash.ABQWGmR3.dpuf