Crowdsourcing to drive new RE fund

Private equity real estate firm Hamilton Real Estate Capital is working with crowdfunding platform CAPFUNDR to raise a $50m multifamily vehicle.

A crowdfunding business is partnering with a private equity real estate firm to raise a multifamily vehicle.

New York-based CAPFUNDR, a retail platform for commercial real estate, has teamed up with Hamilton Real Estate Capital to launch CAPFUNDR Hamilton Multifamily Fund. The firms are seeking institutional capital and retail investors for the Midwestern US-focused vehicle, but did not specify how much they were targeting from both channels.

CAPFUNDR is leading the capital raise for the fund, which has a $50 million target. Hamilton, which has acquired over $500 million of real estate in partnership with institutions and family offices, will oversee the investments.
Capital from the fund will be deployed in Midwest markets like Indianapolis and Columbus, Ohio, where the firm said that limited construction and stable demand have kept cap rates between 7 percent and 9 percent, compared with cap rates that range from 4 percent to 5 percent in gateway cities.

The firms launched the fund at the beginning of August and are targeting a 15 percent to 17 percent net internal rate of return, according to CAPFUNDR’s website. The minimum investment is $10,000, with a fee structure lower than many private equity funds: The fund has a 1 percent to 1.5 percent annual management fee, depending on the size of the investment, and after investors receive a 7 percent preferred return, the firms would receive 20 percent of the profits.

“Historically, the real estate products that have been offered to retail investors have been poor investments because the fees are so high,” Mitch Wasterlain, one of CAPFUNDR’s founders, told PERE.

“Non-traded real estate investment trusts have been the primary vehicle sold to investors. When you invest $100, $15 flies out the window for fees. It’s almost impossible to generate [strong] returns with that type of fee structure. We thought that it was unfortunate and unfair that individuals don’t have access to the same type of funds that institutions do. Now, it’s possible to make institution-type funds available to individuals in a much more efficient way.”

Individuals must be accredited investors, and the fund includes an option for investment advisors to bundle multiple accounts. Wasterlain said the typical individual investment size ranges from $25,000 to $50,000, which he expects will increase as investors become more familiar with the crowdfunding model. He is also seeking capital from small institutional and family offices – investors that can benefit from smaller management fees than those of funds with exclusively institutional capital, he said.

CAPFUNDR’s co-founders have held positions at a range of commercial real estate and private equity firms, including NorthStar Realty Finance, AEW Capital, CBRE Investors, Starwood Capital Group, and PGIM, formerly known as Prudential Real Estate Investors.

“If you ask us to go raise $100 million for a deal, we know who to go to do that,” Wasterlain said. “But if you want us to raise $10,000 for a deal, that’s a different world. Everybody who’s doing this is learning how the retail investor world works.”

Crowdfunding is still in its infancy, as few fund managers currently raise capital through such a platform. One firm that does is Chicago-based Origin Investments. The firm is raising its third value-added fund, Origin Capital Fund III, with a $150 million target, PERE previously reported. Origin’s investor base includes high-net-worth individuals, family offices, institutional investors, and the firm crowdsources some of its investments through an online platform. The firm launched the fund in December and held a first close in March on $55.5 million.