The San Francisco-based company has raised over $130 million for over 1600 properties through 290 since its launch, which the company says makes it one of the largest real estate investment platforms in the U.S.
Available only to accredited and vetted real estate investors, the site offers a mix of fix-and-flip loans, preferred equity and mezzanine products, joint venture equity and commercial loans alongside its capital partners.
Part of the capital it raised from new investor Union Square Ventures and previous investors Menlo Ventures and General Catalyst Partners will be used to market a new diversified equity fund targeting institutional investors as well as sales and marketing for its existing business lines.
According to chief executive Nav Athwal, the current small-deal commercial real estate market of properties valued under $50 million is under-served by current investors.
It’s a problem because these small-ticket deals can provide larger relative returns than the big real estate projects that most investors typically go for. By unlocking the market, and allowing big investors to back small developers through RealtyShares, Athwal expects the money to come pouring in.
The company, which has been growing like gangbusters (because big and small investors freaked out by macroeconomics and wobbly stock markets are parking their cash in real estate) didn’t need to take the additional funding. In fact, they were urged to by their existing investors.
In part it was a response to the changing market conditions, says Athwal. “The change in environment in the eight month period” between the close of the first funding and the launch of the second round of fundraising, “was totally apparent,” Athwal told me.
The funding environment also led the company to rethink how much money it was going to raise. What had been targeted as a $30 million round was reduced to $20 million tin response to the existing market conditions.
The 500 Startups-incubated company makes money by linking investors with real estate development projects, taking a 2.5% to 3% origination fee on the debt it raises for projects and on equity investments the company takes a cost reimbursement and makes a one-to-two percent management fee.
Before anyone gets it into their head to tap the platform and buy that $13 million home for themselves and their friends, it’s important to remember that the company only partners with professional real estate operators, who have a verifiable track record.
In addition to having more cash to spend on new projects the money also enables RealtyShares to think about downside protection.
“For a marketplace lender, it’s important to think about topline, but also defaults and potential issues. We’re protecting the capital in a way that we didn’t a year ago,” says Athwal.
Markeplace lenders also want to think about their returns to investors. As of last year, we wrote that the company was looking at returns in the range of 8% to 20%, far better than folks are getting on standard loans in the current market.
“RealtyShares will likely become a ‘one-stop shop’ for capital for real estate transactions – whether debt, equity, or mezzanine financing,” Athwal said in a statement. “Our preferred equity products have already begun to exploit a real void in the marketplace left by the dislocations of the Great Recession, and we expect that such products will soon lead to an expansion of our commercial lending business as well.”