In my ongoing effort to stay informed about the commercial real estate market, I recently conducted an interview with Marious Sjulsen, the Co-Founder and Head of Real Estate at EquityMultiple.
EquityMultiple is a platform designed for accredited investors interested in real estate investment. They provide a range of carefully screened and professionally managed commercial real estate investment opportunities.
Their investment minimums start as low as $5,000, and they offer various investment options, including debt, preferred equity, equity, and funds. This flexibility allows investors to customize their real estate portfolio based on their risk tolerance and investment objectives.
EquityMultiple prides itself on offering thorough in-house underwriting and asset management services, along with a dedicated Investor Relations Team. Their primary aim is to make real estate investing accessible, transparent, and straightforward for individual investors. It’s worth noting that EquityMultiple is also associated with Financial Samurai.
Insights from the EquityMultiple Interview on Commercial Real Estate
What is your current perspective on the real estate markets, and what should individual investors who manage their investments consider?
Marious Sjulsen, Co-Founder of EquityMultiple
The ongoing impact of COVID-19 on the economy remains substantial, with different regions adopting distinct reopening strategies. This upheaval has led to winners and losers, not only in terms of geographic markets but also in various real estate investment types, including property categories and strategies.
Office operators and developers are now focusing on implementing new safety measures, improving air quality, revising occupancy systems, reconsidering floor layouts, employee density, and adopting flexible leasing options to adapt to changing tenant preferences.
In the multifamily sector, developers are prioritizing home office space and considering alternative layouts for communal areas to accommodate social distancing requirements.
We anticipate a surge in demand for alternative property types like data centers, self-storage facilities, and medical offices. Knowledge workers have been moving away from major cities like New York to suburbs, and employers are following suit.
Despite the rise of remote work, we believe that the appeal of the “18-hour city” remains strong, and traditional office spaces are still relevant, given humans’ need for collaboration and social interaction.
Waiting for Opportunities in Capital Investment
New investment opportunities will continue to emerge, though the timeline and specific locations remain uncertain. Many property owners are holding onto their assets, hoping for a positive turn of events. Moreover, there is a significant amount of equity capital waiting to seize distressed opportunities.
We believe that both individual and institutional investors benefit from a diversified approach to constructing their portfolios. This diversification should encompass geography, property types, and timing of transactions.
Our platform’s low investment thresholds and diverse selection of private real estate investments facilitate ongoing diversification as the crisis evolves and the economy recovers.
Has there been any change in strategy or outlook at EquityMultiple since our last conversation a few months ago?
Building on my previous response, we think that investors should position themselves by pursuing various real estate investment structures, such as debt, preferred equity, common equity, and fund structures.
We continue to offer a range of investment options to provide investors with a comprehensive toolkit for constructing diversified portfolios. Balancing equity exposure and contractual senior exposure in individual investments is a crucial aspect of our strategy.
We have introduced several private fund products on our platform that offer immediate and future diversification on a more systematic basis. All these products are presented alongside experienced and reputable national or multinational investment firms.
These fund products provide “temporal diversification,” allowing investors to spread their capital deployment over time to manage risk. This complements our ‘single-asset direct’ offerings, which allow investors to invest in distinct properties across the country.
Are there any particular offerings in the current deal flow that excite you?
Every offering that makes its way onto our platform is fully endorsed by our Investment Committee, which means we are excited about every opportunity presented on the EquityMultiple platform.
From a broader perspective, I’m enthusiastic about the diversity of the current offerings. There seems to be a convergence of investment opportunities across various types and asset classes, particularly in the multifamily sector.
We are also introducing several Fund products to investors, each involving experienced national or multinational investment firms and reflecting different strategies. These Fund products offer “temporal diversification,” enabling investors to spread their capital deployment over time and mitigate risks.
This approach supplements our ‘single-asset direct’ offerings, which allow investment in distinct properties nationwide.
What kind of return targets is EquityMultiple pursuing with its current deals?
Due to regulatory constraints and the structure of our deals, I am unable to provide publicly accessible information about specific offerings’ return targets. However, those interested can create a free account to access detailed return forecasts, risk factors, and other critical information for each offering.
Several of our current offerings focus on “core-plus” investment strategies. These involve stable, established income-generating properties that can operate at their peak performance with minimal investment in physical improvements.
Our range of risk/return profiles varies widely within the capitalization of these properties. It encompasses senior debt offerings that guarantee investors a fixed annual return of 6-12% and common equity investments targeting potential IRR objectives exceeding 20%.
For each transaction, our investment team strives to strike a balance between risk and return, aligning the investment strategy with the transaction’s capitalization.
EquityMultiple’s Comprehensive Due Diligence
EquityMultiple is committed to rigorous due diligence on deals. Could you elaborate on your diligence measures and underwriting standards?
Certainly. Our approach involves extensive scrutiny of both sponsors and lenders (with whom we collaborate for origination) and thorough underwriting of individual deals.
This means we not only assess a sponsor’s track record and experience in the specific deal type and geographic region under consideration but also stress test their investment underwriting. We integrate our own data and conservatively model various scenarios.
Many transactions
do not make it through our rigorous process and are rejected at different stages of examination and underwriting. This assessment is a collaborative effort involving our investment team and, ultimately, our Investment Committee.
While avoiding excessive technicalities, here’s an overview of key factors we examine during our due diligence process:
Due-Diligence Focus
Our assessment covers the sponsor’s assumptions and business plan vis-à-vis their experience. We then verify property-specific details. We layer industry and proprietary data alongside forecasting to formulate our internal valuation and projected return targets, considering risks.
This concluding internal review involves collaboration among our Investment Team, our Investment Committee, and the offering Sponsorship. Listings on our platform emerge after weeks or even months of back-and-forth discussions, aligning with the finalization of the transaction.
The Latest Insights on Commercial Real Estate
Many thanks to Marious for sharing these valuable insights into the commercial real estate market. To summarize:
Amid the economic repercussions of COVID-19, ample capital is poised to seize distressed assets.
EquityMultiple witnesses increased activity across investment types and asset classes, with a focus on multifamily properties.
EquityMultiple’s new Fund products offer “temporal diversification,” allowing investors to spread capital deployment over time and manage risk.
Return targets encompass a fixed annual rate of return of 6-12% and potential IRR objectives exceeding 20% for equity investments.
The Investment Committee expresses excitement about all listings on their platform.
