Why RealtyShares Can Finance Real Estate Projects Quickly
Real estate companies looking for debt or equity financing may be under the impression that online real estate investment marketplaces – sometimes called “crowdfunding” platforms – might be relatively slow financing vehicles. While we can’t speak for all such financing platforms, for RealtyShares, at least, nothing could be further from the truth.
RealtyShares can take a number of financing paths to help assure that financing solutions to the small-balance (properties valued < $50 million) that it focuses on are funded efficiently and FAST.
A number of loans that are originated by RealtyShares’ lending subsidiary are immediately sold to institutional investors or lenders. These larger investors usually have investment money to bring to the table now – and the appetite among such institutions for well-underwritten commercial loans is significant.
RealtyShares works with a number of such institutional partners – capital sources from all across the country. As a result, RealtyShares has a number of potential third-party financing sources – in addition to the crowd, or RealtyShares-affiliated investment funds – that it can choose from when deciding how to finance a particular loan.
A RealtyShares-affiliated adviser also operates an equity fund (the Diversified Marketplace Equity, or “DME,” Fund) that can act as a ready source of capital for select common equity and preferred equity investments. RealtyShares continues to evaluate whether other funds (perhaps one focusing on mortgages and other current income-producing investments) might also help to satisfy market needs. Thus far, the “crowd” and institutional partners have fully satisfied RealtyShares’ liquidity needs for such income-focused investments, but the company continues to evaluate its financing options. One or more new funds – perhaps with a variety of investment objectives – might indeed be a path for the company to better serve future market needs.
Funds allow RealtyShares to accumulate investment funds that are “at the ready” – able to be deployed promptly when an opportunity arises. This capability acts to augment other financing sources already available to RealtyShares. RealtyShares’ utilization of private investment funds represents potentially additional securities expertise that RealtyShares and its primary broker-dealer – in addition to its own affiliated broker-dealer – can bring to the table.
Crowd Financing and Related Credit Lines
RealtyShares’ beginning days were closely tied to “crowdfunding” – the capacity to enable many smaller (but still “accredited”) investors to better participate in private real estate investments. We feature relatively low minimum investment amounts and an ease-of-use experience (with investors able to act at their leisure, via a tablet or laptop computer) that as of September 2017 had collected over 120,000 registrants to our web site.
It’s true, though, that these smaller individual investments can take time to be submitted, processed, and finally remitted to the sponsoring real estate company. (RealtyShares, through its broker-dealer affiliations, acts carefully with respect to investor suitability approvals and the processing of investor funds). Yet even in cases where RealtyShares plans to fund a financing opportunity entirely through the “crowd,” we can facilitate the closings of underlying real estate projects even more quickly – through the use of judicious leveraging of additional capital sources that enable the company’s affiliates to provide prompt bridge financing.
To do so, RealtyShares utilizes a substantial line of credit provided through a third-party financing institution. This “warehouse” borrowing facility – together with the use of RealtyShares’ own substantial balance sheet add other financing resources at its disposal – allows us to “prefund” all or part of most financing transactions of every type before the crowd’s funds have been cleared for remittance.
For real estate companies looking to finance their projects, this prefunding capability acts to provide quick access to capital, providing a reasonable degree of “certainty of close.” On projects that attract significant bidding competition, the ability to raise capital quickly can potentially make or break a development company’s ability to win the project and to begin executing renovation plans on a timely basis. By utilizing its ability to prefund transactions, RealtyShares can make it possible for developers to move ahead without incurring unnecessary delays.
RealtyShares continues to work on providing faster access to capital through technology, which with the goal of reducing lag time and narrowing the window between a financing application and the closing of the transaction. The use of institutional partners, investment funds, and prefunding options all provide sponsors and borrowers with a reasonable degree of “certainty of close” for their transactions.
These developments are reflective of how RealtyShares has been able to evolve and flourish in the real estate investing space. We’re excited to work with our sponsor community to help make debt and equity financings easier for all.