- Impressive overall transparency, especially with regard to rating criteria and model
- Geographically diverse offerings (to date, 28 states)
- New non-performing loan auction option for qualifying investors
- Offers are "pre-funded," which means less time to wait for interest payments to start
- Minimums rose from $1,000 to $5,000
- Access to accredited investors only
- Limited active selection (debt-only, all East Coast)
- Annoying navigation of FAQ
Established in 2015, Sharestates is one of the first crowdfunding sites for real estate investment. Unlike a variety of other sites, Sharestates acts mainly as a direct lender for real estate loans for residential and commercial ventures. Borrowers shall apply directly to Sharestates and, if accepted, the loan shall be "pre-funded" by Sharestates. This means that the borrower will start the project immediately without waiting to be completely financed by the investors.
Types of Investment Sharestates Delivers
Sharestates investments across a variety of groups of real estate assets, including residential, mixed-use, commercial and land assets. Investments span all phases of development, from land and building to restoration. They offer almost exclusively senior loans, but they do provide some subordinated loans as well as occasional equity investments (no such loans have been listed). Loan sizes range from 100K to 10M, and interest rates start at 6%. They lend up to 85 percent of LTV and up to 100 percent of the building budget. Loans are usually short-term (around 12 months), but part of their site with details for lenders lists loan programs of up to 30 years. The extension of the loan can be extended up to two times on a case-by-case basis. A feature for auto-investment is also available.
Sharestates also provides a novel Non-Performing Loan investment plan to select investors (it is not clear which conditions apply, but Sharestates says that they take a great deal of care in screening NPL buyers). These NPL notes are loans from their own portfolio that have suffered losses and are in a restructuring phase that could include the selling of such loans through an auction process in order to recover the principal for their creditors. What that means for creditors is potentially a greater chance of at least recovering principal in the event of default (Sharestates registered a $0 principal loss to date).
What are you going to get when you invest with Sharestates?
One of the appeals of real estate investment (especially debt investment) is that the investment is backed by a tangible asset that can be sold off to recover investor money if anything goes wrong. But, as with other crowdfunded real estate investment sites, many of the investment offers are not, strictly speaking, necessarily backed by the underlying property. Alternatively, when you invest with Sharestates, you typically get a Borrower Payment Dependent Note (BPDN) that entitles you to a particular share of the principal and interest payments earned by Sharestates for the land. For some of the investments, you will obtain membership units of an LLC that owns the real estate, which allow you to share the gains and losses of that business.
How do you make money from Sharestates?
There is a 1-5 percent origination fee paid to the borrower for each loan released. Investors are not directly charged any fees as of this writing, but if you need to withdraw funds early, subject to certain terms and conditions, there is a discount added to the purchase price of the investment.
Possible Returns and Cash Flow
According to their website, since its launch, they have funded $1.78B in private loans, with an average annualized return of 10.34%. They have not lost any principal investor and have received $670M in returns. The Sharestates Statistics page is an excellent example of investor-friendly product transparency and should be followed.
Investments are usually short-term, so there is a contingency plan in place for individual investors (not institutional investors) should they decide to withdraw their assets early, subject to certain terms and conditions, which have a discount on the purchase price of the investment.
Returns are monitored and alerts are received via the investor's account. In the case of debt investments, creditors normally receive a monthly interest payment as well as a balloon principal payment at maturity (usually twelve months). In the case of equity transactions, the net proceeds are usually allocated when the asset is sold.
Breadth of Sharestates Offerings
As of this writing, Sharestates' website reports that it has made 1,941 loans in 27 U.S. states. Nonetheless, at any given time, the number of investments available for funding seems to be very small. There are currently only four initiatives available for funding, all of which are based in the U.S. East Coast. There are all senior loans, with an average investment size ranging from $680K to $2.6M. Three of them have a 12-month maturity period, while one has an 18-month maturity period.
Regulatory Framework and Standards for Due Diligence
Sharestates currently offers investments only to approved investors under SEC Reg D (although they previously offered at least one investment under Reg A+). They are not licensed brokers or investment advisors. The loans derive from a wholly-owned subsidiary (Sharestates Investments, LLC).
Although other platforms are also great in their curation and selection process, Sharestates is completely open about their model, providing comprehensive details on the ranking of each product. Their investor information page contains two matrices that clearly illustrate how investors are valued and how they measure their returns. I wish every platform would have published the same detail! The 34-point model involves automated pre-qualification, followed by property underwriting, risk profiling, and borrower analysis. Specific factors considered include: LTV ratio, connection position, venue, occupancy, development process, sponsor track record, sponsor's experience, sponsor's credit score, and whether the sponsor has provided a personal guarantee.
Sharestates main features and highlights
- Real Estate Investment Crowdfunding