Real estate crowdfunding startup RealtyShares hits hard times, halts new investments
Nov 12, 2018 — Ben Lane
Company unable to secure new operating capital to continue growth
Everything was going swimmingly for RealtyShares just over a year ago.
The real estate crowdfunding startup had just purchased one of its biggest rivals, Acquire Real Estate, and had plans to grow its investment in commercial and multifamily real estate, as well as “fix and flip” and construction loans for single-family housing.
Then the company ended up selling its residential lending business to Lima One Capital and shifting its focus entirely onto commercial and multifamily lending.
But now, one year later, the company has fallen on hard times and will be laying off much of its staff and stop accepting new investments on its platform.
According to an email sent to the company’s investors (which was obtained by HousingWire), RealtyShares has been unable to secure new operating capital and will be shifting away from active investing.
Therefore, the company is laying off an unknown number of employees who were focused on originating new business.
But the company is not shutting down entirely. According to RealtyShares, the company will now be focusing on servicing its existing investors and the assets it currently manages.
According to the company, it worked “aggressively” over the last few months to secure new funding for its operations, but was unable to do so.
“As an early stage company, we have relied upon venture capital to fund our operations. Over the past six months, RealtyShares aggressively pursued a number of financing options to continue growing the business,” the company said in its email to investors. “Unfortunately, despite our best efforts, we were unable to secure additional capital. As a result, we will not offer new investments or accept new investors on the RealtyShares platform.”
It’s a swift fall for a company that was founded just five years ago, has invested more than $870 million in more than 1,100 projects so far, and according to The Real Deal, had previously raised more than $60 million to fund its operation.
But now, the company will be focused on its existing investments.
“From this point forward, RealtyShares’ focus will be servicing our existing investors and approximately $400 million of assets under management,” the company said in its email.
“This transition will have no impact on the underlying real estate investments. Investments will continue to be managed and distributions will continue to be made,” the company concluded. We are committed to serving our existing investors and sponsors and have a team dedicated to supporting our ongoing operations.”
There’s been growth in the real estate crowdfunding space in the last few years, and other companies in the industry say that RealtyShares’ issues are not the norm in the space.
“We were saddened to see the news about RealtyShares. It is common in rapidly evolving, disruptive spaces to see things like this happen as different business models are changing quickly,” CrowdStreet CEO Tore Steen said. CrowdStreet offers a commercial real estate crowdfunding platform.
“We are seeing a thriving crowdfunding market around commercial real estate here at CrowdStreet. We are growing fast, hiring across most teams and, in fact, just last week launched a new investment product,” Steen said. “We could not be more optimistic about our approach to democratizing commercial real estate investing, and making it as easy and effortless as possible.”
Executives at Patch of Land, which focuses on crowdfunded residential real restate investing, said that they were surprised by RealtyShares’ troubles.
“It’s surprising to see the news on RealtyShares given how strong the market currently is and has been over the past several years,” Robert Greenberg, chief marketing officer at Patch of Land, said. “We are pleased to have the opportunity to serve an even larger base of accredited investors with high-yield, short-term investment opportunities.”
Jason Fritton, Patch of Land’s co-founder and CEO, said that these types of things are an unfortunate part of a growing industry.
“As the industry matures, there will continue to be players in the space who are not able to make it despite their best efforts,” Fritton said. “We are proud of our growth and we continue to enjoy a healthy business with strong fundamentals.”
And, here’s the full message RealtyShares sent to its investors:
To our platform investors and operating partners:
Five years ago, RealtyShares was founded with a mission to connect capital to opportunity. With over $870 million invested across more than 1,100 projects, we have built one of the top online real estate investment platforms. We’re helping investors meet their financial goals and deploying capital to real estate operating companies to execute value-add and development strategies for properties across the U.S.
As an early stage company, we have relied upon venture capital to fund our operations. Over the past six months, RealtyShares aggressively pursued a number of financing options to continue growing the business. Unfortunately, despite our best efforts, we were unable to secure additional capital. As a result, we will not offer new investments or accept new investors on the RealtyShares platform.
From this point forward, RealtyShares’ focus will be servicing our existing investors and approximately $400 million of assets under management. This transition will have no impact on the underlying real estate investments. Investments will continue to be managed and distributions will continue to be made. Investors will continue to receive asset management updates and year-end tax information.
We are committed to serving our existing investors and sponsors and have a team dedicated to supporting our ongoing operations.
The RealtyShares Team
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