I was recently invited on behalf of RealtyShares to attend UC Berkeley’s 36th Annual Real Estate & Economics Symposium in San Francisco.  With over 500 attendees from around the country, the symposium is one of the most prestigious one-day real estate conferences in the entire country.  It brings together a distinguished group of experts and entrepreneurs in real estate, finance, government and academia to discuss and evaluate real estate and the financial markets.  This year was no different.  From the keynote address by Ken Rosen to the luncheon speech by Lieutenant Governor Gavin Newsom, the day featured the who’s who of the real estate and finance industry.  Btw, in case you missed it, you can catch Ken on CNBC’s Street Signs discussing momentum in the housing market HERE


The panels were just as diverse as the speakers featuring some of the best business and real estate minds from around the country.  There was a general consensus among the panelists that finding good real estate deals was now tougher than raising capital.  The panelists also agreed that we still had some time to go before reaching a full recovery and that real estate values would continue to increase, albeit a bit more modestly than in 2009-2012, over the next 3-5 years.  

I wanted to share with our readers some of the highlights I gathered from the day and in interest of keeping this post relatively short, I’ve decided to break it into two separate parts.  In this part 1, I’ll be highlighting the Capital Markets panel that brought together Kevin Shields, the Chairman and CEO of Griffin Capital Corporation, John Schissel, Executive Vice President and CFO of BRE Properties, and Dennis Williams - Senior Vice President of Northmarq Capital and an advisor to RealtyShares.  


Dennis kicked off the discussion for the panel by highlighting how the volume of originations for Commercial Mortgage Backed Securities has recovered since the economic recession.  In 2007, there were $228 Billion in CMBS originations and in 2008, the peak of the recession, that number had dropped to $12B.  As of 2013, that number is back up to 2003/2004 levels with a forecasted $80B in originations.  In his concluding thoughts, Dennis stated that CMBS is back, that underwriting has generally been sound and that we are in a healthier market for CMBS than we were in pre-recession times. 


Next up was Kevin of Griffin Capital.  Griffin operates the second largest non-traded REIT in the country and has closed more than 650 transactions representing over $16 billion in value.  According to Kevin, the capital markets are very robust and debt and equity capital for real estate is plentiful.  For example, non-traded REIT’s issued over $20B of equity in 2013 which is almost double last years $10.2B issuance.  Accordingly, the difficulty isn’t in raising capital but rather in finding the right deals in which to deploy that capital.  I found this statement to be interesting since we are seeing the same trend at RealtyShares and the very reason we are being extra conservative with the investments we list on our platform. image

Last up was John Chisel of BRE, a multifamily equity REIT with a west-coast focus.  John made some interesting points regarding foreign influx of capital into the US real estate market.  In 2011, 70% of capital for Equity REIT’s came from Japan.  Although this number has decreased to 30% in the last few years, Japan still accounts for 8.5% of total public REIT values.  With a total market cap as of 2012 for public Equity REIT’s of almost $550 Million (and larger still for all REIT’s), that number is staggering.  Kevin also alluded to the current low single digit yields for the REIT market which is a concern among investors (this is something we discussed in a previous blog post that compared REIT’s to private real estate like that offered on RealtyShares - RealtyShares v. REIT’s). 

Subsequent to Dennis, Kevin and John offering their thoughts on the outlook of the commercial real estate market for the next few years, the panel moderator - Kristin Gannon, a real estate law partner at Dean, Bradley and Osborne proceeded to a Q&A.  Here are the highlights:

  • Cap Rates for NNN properties saw a fair amount of compression over the last 18 months and depending on the lease duration and credit of the tenant, we are seeing NNN cap rates anywhere from the low 6’s to the mid 8’s.  

  • Cap Rates for core multifamily assets in high job growth, west coast markets (specifically LA, Seattle, Orange County, San Diego and San Francisco) range from the high 3’s to the low 4’s.  Even as interest rates have risen over the last year, cap rates have for the most part remained stable.  

  • It is important to remember that the correlation between interest rates and cap rates isn’t 1. In fact, Multifamily cap rate spreads to the 10 year treasury have gone from about 200 bps in 2007 to 400 bps today so there is still a wide spread which offers a fair amount of protection in a rising interest rate environment. I think this is an important point because as fear of rising interest rates enter the minds of investors, cap rate compression becomes a concern but one that should not be overestimated.  

  • Debt pricing has inched up slightly over the last year and the current rate for a 10 year fixed commercial mortgage from a life insurance company is at 4.25 to 4.5 (4.75-5.25 for riskier asset types).  

  • The Private REIT market continues to be slow to provide liquidity to investors because there is no public market for Private REIT shares.  However, we’ve seen a lot of liquidity events in the last 6 months due to increased mergers and acquisitions among REIT’s.  

Despite the very informative discussion from the panelists, for me the true highlight came towards the very end when an audience member asked Kevin, Dennis and John about their thoughts on crowdfunding as a means to raise capital for real estate now and in the future.  What was most exciting was that all three of the panelists had heard of crowdfunding and a few had even considered using it.  The panelists were generally bullish on crowdfunding but also made clear that the market is still in its infancy much like the REIT market was a few decades ago.  

Thanks for reading.  I’ll be back with more next week!  In the mean time, please email your questions or comments to nav@realtyshares.com or if easier, give me a call at 866-202-2023 ext. 701.  


Last week we covered multifamily real estate and why it has been the most attractive area of commercial real estate investing since the economic downturn of 2008.  Fortunately, crowdufunding platforms like RealtyShares are making it easy to get started and passively invest in this asset class without needing the time, capital and knowledge to purchase and manage an entire asset on your own!

The next step, of course, is understanding what to look for when you’re ready to invest.  Naturally, investors tend to first look at the cash flow generated by a particular property, as well as the potential for the asset to appreciate during the hold period.  While this may “price in” the other factors such as property attractiveness and location, that’s only at a particular point in time and may change.  To make a good multi-year investment, you’ll also want to conduct adequate due diligence:

  • Location, Location, Location:  This familiar real estate cliché applies to multifamily properties, too.  Location is critical to understanding things like: economic health, growth prospects, industries the community relies on for employment, earning potential, etc.  Is the unit in or near a major metropolis, and is it close to transportation options that make it a viable option for those commuting to work? 
  • Purchase Price and Comparables:  One way real estate is distinct from stocks is that there are real opportunities to purchase assets below market value.  A $10,000 purchase of Google stock, for example, almost certainly isn’t worth more than $10,000 at that moment.  It may move up or down over time, but unless you’re buying off the market, it’s almost impossible to find a below-market investment.  In the case of real estate, however, the market isn’t as liquid or efficient, so a limited buyer universe can create great opportunities.  A quick way to compare an investment against market precedent is comparing its cap rate and / or cost per square foot against similar deals that have occurred recently in the market.  According to a recent report released by Reis, the mean cap rate for apartment properties continues to creep ever lower, reflecting growing valuations for apartments, which are soaring to new heights.


  • Competitive Supply:  Like other markets, multifamily housing tends to add supply in waves as demand spikes.  Bringing new assets to market from the planning stage can take years, so you’ll want to know not only the current market inventory but also how that is slated to change in the next year or two.
  • Vacancy Rates:  Vacancy rates mean something different in each market.  In some places, it may be a reflection of local industry leaving the area, and in other hot markets it may be a sign of an inferior property in need of rehabilitation.  Understand how your potential investment stacks up against the market in general, and if it has above-market vacancy, understand why.


  • Opportunities for Value-Add: Continuing with our Google stock example above, such an investment doesn’t allow for you to help boost the company’s value and stock price.  In the case of real estate though, that certainly isn’t the case.  Some properties may have opportunities to increase value, including through cosmetic improvements, increases in rent to market rates, and subdividing larger spaces into smaller ones with higher per square foot rates.  With older properties in particular, you’ll want to understand the value-add opportunities for your potential investment.
  • Management Company:  Does the real estate company sponsoring the project have a strong track record, history of success, and size to make you feel comfortable that the company can effectively manage the property and create value?  Does the sponsor have a track record of finding below-market deals and has it purchased properties in that same market or submarket before?  You’ll want to understand the company that will steward your investment to what is a hopefully profitable outcome. 

Are there other items you like to take into consideration when evaluating multifamily investment opportunities?  Please share them with me at Ray@realtyshares.com

Since the economic downturn in 2008, multifamily housing has represented the most attractive area of commercial real estate investing.  The first signs of recovery coming out of the recession were in multifamily housing, initially in underlying fundamentals and then in investor dollars.  While office space and other commercial property experienced increased vacancy rates during the downturn, multifamily housing remained relatively stable.  It’s no surprise of course that this sector would lead the recovery, given that regardless of the health of the economy, people need somewhere to call home.  Particular attributes investors also like include:

  • Diversified Cash Flow: these properties produce monthly rents while also spreading the risk of default amongst multiple tenants

  • Economies of Scale: management and maintenance costs are more efficiently spread between multiple units in one location

  • Less Competition: multifamily properties can be less popular among investors than single-family homes, for myriad reasons including higher purchase price, making it easier to find high-quality assets

Given that the population growth has not slowed, vacancy rates have hit record lows and the strongest markets have experienced healthy increases in rental rates over that same period.  This might lead you to think that new development is booming, right?  While investor interest ramped in the sector, according to Freddie Mac, new construction remained a scarcity until 2012 in most areas of the country.  Even with the resurgence in multifamily development, new starts are still significantly below the average of 260,000 units / year over the last two decades. 


The combination of these attractive characteristics has led to tremendous investor interest in the multifamily housing sector, with CoStar estimating total U.S. multifamily deal volume hit $88 billion in 2012, a level not seen since 2007. 


As you might imagine, this increased demand for good product has led to a corresponding compression in cap rates, moving down from 7% to 5.3% YTD in 2013.


Investing today naturally means thinking about tomorrow though.  With the natural lag between start and completion of new multifamily development projects, many of which are enormous and require years to take from entitlement to finished product, inventory will remain relatively stable in the next few years.  As a result, multifamily investments should continue to experience favorable vacancy rates.  Rental rates may have hit peak levels in top metro markets such as New York City, San Francisco and Boston, but according to REIS opportunities still exist in major cities around the country such as Dallas, Phoenix and Charlotte.

The challenge, as we at RealtyShares see it, is avoiding compressed cap rates and investing in areas with further potential for rental rate growth.  So how do you find a great multifamily investment opportunity?  What should you look for in a good multifamily housing investment?  We’ll be writing about that next week! 

U.S. University Endowment Funds, such as Harvard and Yale, have been leaders in diversified multi-asset class investing for decades.  Through large exposure to alternative asset classes outside of the traditional stock and bond markets, they have consistently achieved attractive annual returns with moderate risk and volatility.  For example, even in the face of the 2008 financial meltdown, for the 10 year period ending June 2013 the annualized returns for Harvard and Yale were 9.4% and 11% respectively, 60-75% greater than the returns of a traditional US equity/bond portfolio (i.e. consisting of 60% stocks and 40% bonds) and 32-55% greater than the S&P.  

The investment philosophy of these successful investors is simple-diversification.   The top 20 Endowment Funds, which include Harvard and Yale, hold only 40% of their portfolio in traditional assets (equities, bonds and cash), with the remainder in alternative assets such as real estate, timber and private equity.  Diversification, the principal tenant of Modern Portfolio theory employed vigorously by Harvard and Yale and their high priced Investment Advisors, demonstrates that the risk adjusted returns of an investment portfolio are improved through diversification across assets with varying correlations.  


Based on this theory, an investor constructing her own portfolio with a similar asset allocation to Harvard and Yale should achieve similar risk/return characteristics.  However, the fact still remains that most investors do not have access to the same resources and investment vehicles as Harvard and Yale.  In fact, David Swenson, the long time head of Yale’s Endowment, has argued that you have no chance of matching Yale’s market-beating returns.  Well that is changing.

New vehicles, such as ETFs and crowdfunding for real estate through platforms like RealtyShares, are emerging to bridge that gap and provide investors with greater access to nontraditional assets such as timber and private equity stocks as well as real estate.  By utilizing these resources and applying a similar level of diversification to that of Harvard and Yale, investors can achieve risk adjusted returns that are far superior to those of a traditional stock and bond portfolio.

In fact, by reallocating a traditional 60% stock and 40% bond portfolio to include real estate, investors can reduce volatility and increase returns.   That is because private real estate has low or negative correlations with stocks, bonds and even public REITs.  Furthermore, real estate also offers the potential to diversify a portfolio geographically and strategically.  Each investment in private real estate is unique in terms of location, size, purpose (residential vs. retail vs. industrial, etc.), value and myriad other factors.

Simply put, if you want to invest like Harvard and Yale, diversify beyond stocks and bonds and invest in non-traditional assets like real estate.



Real Estate is a true way to diversify and provides investors a more tangible alternative to the volatile stock market and the low-yield bond market.  However, the fact remains that investors can’t access nontraditional assets like real estate through a traditional 401(k) or IRA.  Rather, these investors, in order to take advantage of tax deferred returns, must invest exclusively in publicly traded securities like stocks and bonds. 

Interestingly enough, real estate has been available to invest in using IRA’s, specifically Self-Directed IRA’s, under a little known IRS Code 4975. A Self-Directed IRA is an IRA like any other under IRS Publication 590 in terms of annual contributions, required minimum distributions, and types such as Traditional, ROTH, SEP, Simple 401K, Health Savings Account and Coverdell Education Accounts.  However, it differs from a traditional IRA or 401(k) under IRS Code 4975, in that it allows one to invest in almost anything with the exclusion of life insurance, collectibles and S-corps.

The types of real estate assets that an investor can invest in using their Self-Directed IRA is quite broad and includes:

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This article originally appeared on June 26, 2013 in Crowd Chronicles and The Soho Loft under the title “Crowdfunding: Individual Investor’s Answer to Wall Street.”

In 2012, billionaire investor Warren Buffet was quoted on CNBC as saying: “If I had a way of buying a couple-hundred-thousand single-family homes, I would load up on them. It’s a very attractive asset class now. I could buy them at distressed prices and find renters.”

Whether spurred by Warren Buffet’s wise words or merely because they saw the potential first-hand, investors piled in by the thousands in 2012 to purchase distressed bank-owned homes, rent them out, and earn high cash yields while simultaneously taking advantage of built-in appreciation and tax benefits.  And the biggest player in this feeding frenzy?  Not surprisingly, it was mostly Wall Street and other institutional investors that took advantage of this opportunity, crowding out the individual investors that could not compete with these deep-pocketed, all-cash buyers.

Accordingly, what was once a mom-and-pop business quickly became a Wall Street Wonderland.  In markets such as Florida and Las Vegas, institutional investors—who are bidding on hundreds of homes a day—account for as much as 70% of home sales. 

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Trust Deed Investing or investing in debt secured by real estate has become very popular among investors that want to diversify into real estate and earn a stable return on invested funds (typically as high as 8-12% annually).

However, before diving into any investment, including a Trust Deed Investment, a prospective investor should understand the basics and what to look out for.

The Basics:

Unlike a direct real estate investment, with a trust deed investment the  investor is acting like a bank by extending money to a borrower.  Accordingly, the investor is able to earn fixed-income while securing those funds with the underlying real estate asset.  

Because the investor is acting like a bank by extending a loan to the borrower, the borrower signs a promissory note, which is essentially a promise to repay the the loan plus interest, usually paid monthly, to the Investor.  As with a real estate loan from a bank, the Note is secured by the underlying real estate property through a trust deed.  In order to secure the investor’s interest in the property and the note and to provide public notice to any other lenders/lien holders that there is debt on the property, the trust deed is publicly recorded.  As a lender, you are most secure if you hold a first position loan meaning that your loan is senior to any other debt on the property and must be paid first.  

As an investor, you may become the owner of a note and the beneficiary under a Trust Deed either by making the loan (called an origination) or by purchasing or assuming an existing note and trust deed.  In either case, you are the lender and are entitled to fixed interest income (usually paid monthly) and are secured by the real estate.  

What to Look For:

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We were recently asked if Oakland was following the trend of other Bay Area cities and becoming more gentrified over the past few years.  We did some research, and here’s what we found: 

By the numbers, yes.

If you look at the demographic and income data from 1980 through 2010, two trends emerge. 

First incomes are up relative to the national average.  The chart below lays out the median household income in Oakland versus the US from 1980 through 2010:  Oakland’s income was 85% of the national median in 1980, by 2010 it was 104% of the US national median.  That’s a significant improvement in incomes.

Second, you see a shift in the demographic composition, which is also typically associated with gentrification.  It’s tough to talk about gentrification given the racially charged nature of the discussion, and I hope I don’t get attacked for a frank presentation here of the data.  Typically the data will show an area dominated by non-white minorities becoming more white over time.  What’s interesting about Oakland’s shift, however, is that gentrification appears to be coming from the Asian, Hispanic as well as Caucasian communities.  What’s not borne by the data here, but what I suspect having lived in Oakland the past 5 years, is that there are greater numbers of higher earning black households today than previous, and that they are also a component of Oakland’s gentrification. 

The chart below shows the trend:  In 1980, 47% of the population was African American and 40% Caucasian - less than 10% was Asian or Hispanic.  Today Caucasian are the most populous race in Oakland at 35% of the total population.  African Americans account for 28% of the population, Asians for nearly 20%, and Hispanics for about 15%.  

So there you have it: yes.  That said, Ian’s caveats and details about the diversity and array of neighborhoods in Oakland are very much on point.

All the data employed here was provided by the US census.


As a Founder of RealtyShares, prospective investors and investment managers often ask me how we qualify our offerings with the Securities and Exchange Commission (SEC).  The short answer is, because our investments currently are open only to accredited investors, most if not all of our offerings are qualified through the Regulation D, Rule 506 exemption which is perfectly suitable for most if not all Real Estate Investment Offerings.  I recently gave a lecture on real estate investing and securities laws to a group of UC Berkeley business and law students.  Prior to the lecture, I circulated a brief synopsis of the state of the securities laws (mostly as they pertain to real estate) now and in the future.  I wanted to share this synopsis with our readers since I think it gives a good overview of both Regulation D, Rule 506 as well as the highly praised (but yet to be effective) Crowdfunding Exemption set forth in the JOBS Act.  If you have any additional questions after reading the below synopsis, please don’t hesitate to post questions and I’ll respond as soon as I can.


It was settled a long time ago by the United States Supreme Court that an offering of an interest in real estate is an offering of a security.  Thus, real estate offerings fall within the purview of the Securities and Exchange Act of 1933 (“1933 Act”) and are regulated by the Securities and Exchange Commission (“SEC”).    

What is a Security?

A Security is defined rather broadly by the 1933 Act as including not only things like stocks and bonds, but also participation in any profit-sharing agreement and even investment contracts.  Although not obvious at first glance, this very broad definition of a security surely encompasses any offering of a real estate share or interest.

Whether you are investing in real estate as a tenant in common, joint tenant, limited partner of a Limited Partnership (LP) or a member of a Limited Liability Company (LLC), you are participating in a profit-sharing agreement.  Additionally, in most such cases you are also entering into an investment contract since your investment is memorialized by way of an Operating Agreement (in case of a LLC) or a Limited Partnership Agreement (in case of a LP). 

How Securities Offerings Are Regulated by the SEC?

The 1933 Act, which was enacted into law during the great depression, provides that an issuer (the person or entity selling/offering the securities) cannot offer or sell securities to the public unless (a) the offering is registered with the SEC, or (b) there is an available exemption from registration.  Registering an offering with the SEC is a very expensive and often lengthy process that typically takes at least a year to complete and costs hundreds of thousands of dollars.  Additionally, it results in the public disclosure of sensitive financial and business information.  Accordingly, registering with the SEC is not a viable option for most real estate investment offerings. 

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US real estate ranks among the world’s largest asset classes with a total market cap exceeding $27 Trillion (by comparison, the US Stock Market is almost half the size at $14 Trillion).  In 2012, close to $1 Trillion worth of US real estate traded hands and this number is expected to increase in 2013. 

However, despite being a massive market, real estate is stuck in the past and those in real estate don’t know or don’t care (business as usual is in their best interest) how disconnected real estate and technology truly are.  This has created lack of access, market inefficiencies and also tremendous market opportunity.  It isn’t surprising that those making the most progress towards eradicating these inefficiencies are innovators rather than core real estate people.  And their entrance into this market has in some cases been accidental and in others simply because they haven’t been tainted with how real estate works today and thus see an opportunity to disrupt this multi-trillion dollar market through technology. 

As a founder of RealtyShares (www.realtyshares.com), a real estate crowdfunding platform focused on eradicating the inefficiencies of investing in and raising capital for commercial real estate investments, I have had the pleasure of engaging with many of these innovators personally.  Although they come from a variety of backgrounds, they have one thing in common: they are all leveraging technology to disrupt real estate and make it more efficient.  And after careful consideration, below are my picks for the five that I believe are (or will soon be) the most disruptive.


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