The end of August saw a spat of small news across the alternative asset space.
More clarity on what will happen to the soon-to-be discontinued Roofstock One offering, a confusing blog post by Landa, a variety of industry news and resources, and more are covered down below.
Basically, they did an analysis of the price action for properties on their platform. From that, they found that, on average, investors in property IPOs had made an 88% return from share price growth. From our count, that’s based on the performance of just over 50 properties.
While that’s exciting on the surface, we think it’s somewhat misleading for what future investors can expect. In the earlier days of Landa there weren’t that many properties and fractionalized real estate was still growing. So there was basically too much demand for the supply that was available, thus the increase in prices.
However, if you go onto Landa now there are dozens of properties that still have their IPO shares available. Some of the properties we’ve invested in still have IPO shares available almost one year later.
Given how freely available these shares are/were, we expect that once they begin trading on the secondary market, early investors may seek liquidity over returns. That will have a lot of downward pressure on the price of these properties.
Additionally, the secondary market now has trading fees. With so many IPO shares available, why won’t investors simply buy those instead? Why pay a premium for something on the secondary market with fees? This is another factor we expect will result in future IPO investment returns being far less than 88%.
It is fair to say that under any market analysis the real estate market didn’t grow at 88%. It was actually not a great year for the real estate market. Prices were between stable and in minor decline.
The fact that 95% of America doesn’t have access to the real estate market, allows us to unlock huge value opportunities in the properties offered.
So what exactly is the add-value that is being generated to the properties by adding them to Landa where everyone can buy and sell their shares?
We believe that’s a combination of access, liquidity, reduced costs and tech.
Lastly, this part of the post seems especially dubious to us. We can imagine investors might be willing to pay a slight premium for better liquidity and a good user experience. However, it seems naïve to expect that they’d be willing to pay almost double for it over the longer term.
In summary, it seems very unrealistic to expect the types of return cited in the article to be replicated across future investments into IPO properties. At least not in such a rapid timeframe. Please be mindful of that while evaluating their investment offerings.
If you do want to make investments on the platform, check your inbox. They sent out offers for a 10% “cash reward” on investments of $1000 or more on IPO properties for a “limited time.” Terms and conditions can be found here.
As we first covered in July, Roofstock will be discontinuing their fractionalized offering – Roofstock One. Investors in those funds now have more clarity on what that looks like.
A new Roofstock company has offered to purchase shares for $12.30/share, minus a 3% fee to cover costs with selling the underlying real estate later on.
For some, this is a disappointing offer. After the 3% fee, the total amount received by investors will be $11.93. In our case, our Roofstock One shares are reported to be worth just over $13/share. That $1.07 difference is ~36% of our share appreciation.
Roofstock One investors should check their email for the related forms and a chance to sign the agreements to sell shares to CloudHouse NewCo LLC. If this company is not able to acquire enough shares, then Roofstock One investors will need to wait until 2024 or 2025 to see what returns can be gathered from the sale of the underlying properties.
We have a few other updates related to different industries and asset classes.
In one of Chartr’s newsletters they had a chart showing the rise of 4 bedroom houses. While 2 bedroom houses have fairly consistently been 9-10% of new homes, we’re seeing changes in 3 and 4 BR houses. Over several decades, three bedroom homes have declined from ~65% of new houses to 43%. That decline seems to be fueled by the growth of 4 BR homes, rising from a low of ~18% to 48% today.
Acres, an AcreTrader company, had an interesting post on X about US land usage. Only 3% of land is for urban use and 17% is cropland. There are other data points as well.
Based on analysis circulating on X, regulation crowdfunding investments have now crossed $2B in total. It reportedly only took 2 years to grow from $1B to $2B, a rapid increase from the 5 years it took to hit the first $1B.
Seedrs, a Republic company, published a report from a survey of retail investors. One of the key insights is “that supporting industries you believe in” is now the leading motivator among surveyed investors.
After seeing declines earlier in the year, there are some indications that equity crowdfunding has returned to growth mode. A leader from Wefunder reported seeing year-over-year growth in June, July, and August.
Arrived recently launched their first self-managed vacation rental offering. Based on the offering circular, the property management fee will be 20%. That is roughly the same rate as the agreements with the other property managers they had partnered with previously.
It will be interesting to see if Arrived continues to self-manage future offerings. If they do, their business strategy was likely to use partnerships to more easily and quickly launch their vacation rental offering. After seeing traction they began migrating to a self-managed model.
Percent also shared news that they had been approved for a broker-dealer license with FINRA. This will widen the types of investment opportunities they can provide.
The company also updated their fee structure starting from September 1st. Fees will now be 10% of the advertised interest rate on an offering. For example, an asset yielding 20% APY will pay 2% to Percent.
FundThatFlip / Upright
We previously covered some upcoming changes around AltoIRA‘s pricing. Well, it seems that Alto has reconsidered. They sent out further communication indicating that they were pausing all planned changes to pricing.
They are instead reevaluating and are expected to announce new pricing information by September 30th, with at least 90 days notice of any changes.
FranShares recently announced on X the grand opening of their first location. The Teriyaki Madness was the first chain opened from the investor funds in their TNT Franchise Fund. The fund is now available for investment from non-accredited investors.
Masterworks is looking for investor approval for changes to the structure of earlier offerings that they state will be beneficial for tax purposes. We have not had an opportunity to evaluate these, but here is a link to the FAQ about the changes.
You can see a video recap of their demo day here.