Fundraising
Feb 8, 2024
Why CRE Big Money Avoids the Crowd
Content
Have you ever wondered why institutional investors write $100 million checks to private real estate funds while retail platforms like Fundrise and RealtyMogul struggle to attract them?
The answer reveals an uncomfortable truth about how big money really moves.
After decades in the corporate world watching capital flow patterns, I've seen this story play out across multiple industries. Real estate is no different.
The Promise vs. The Reality
Crowdfunding promised to democratize everything.
Startups got Kickstarter. Real estate got Fundrise. The little guy finally had access.
But here's what happened:
The Big Players Never Showed Up.
Why?
Phase 1: The Control Problem (What Big Money Really Wants)
When you're deploying $50 million+, you're not just buying shares. You're buying influence.
What Institutions Demand:
Major decision rights
Custom fee structures
Direct board seats
Veto powers on key decisions
Tailored reporting schedules
What Platforms Offer:
Take it or leave it terms
Pooled vehicle structures
Standardized reporting
Zero negotiation room
The disconnect is obvious.
Phase 2: The Economics Don't Work at Scale
Let me break down the math that kills these deals:
Platform Route:
Platform management fee: 0.85%
Advisory fee: 0.15%
Sponsor fees: 2-3%
Total: 3-4% annually
Direct Investment Route:
Negotiated fees: 1-2%
Better waterfall structures
Co-investment rights
Promote participation
When you're investing $100 million, that 2% difference is $2 million annually.
Over a 5-year hold?
That's $10 million left on the table.
Phase 3: The Relationship Game (The Part Nobody Talks About)
Here's what 20+ years in business taught me:
Real deals don't happen on platforms.
They happen in:
Private clubs
Industry conferences
Boardrooms
Golf courses
Through warm introductions
Top sponsors with proven track records? They're not listing deals on RealtyMogul.
They're calling their top 5 LPs directly.
The Three Types of CRE Investors
🏦 The Institutional Investor
Ticket size: $20M+
Needs: Control, customization, scale
Route: Direct JVs, separate accounts
👥 The Family Office
Ticket size: $5-20M
Needs: Tax optimization, flexibility
Route: Club deals, co-investments
💻 The Retail Investor
Ticket size: $10-100K
Needs: Access, simplicity, diversification
Route: Crowdfunding platforms
Each has their place. The mistake is forcing square pegs into round holes.
Where Platforms Actually Make Sense
Let's be clear: Platforms aren't bad. They're just solving a different problem.
Perfect for:
First-time RE investors
Diversification with small tickets
Passive, hands-off investing
Non-accredited investor access
Simplified tax reporting
Wrong for:
1031 exchanges
Large institutional allocations
Custom mandate execution
Control-oriented strategies
The Convergence That's Coming
The industry is evolving. Fast.
What's Emerging:
Interval funds with quarterly liquidity
Private wealth share classes
Hybrid platform-direct models
Tokenized real estate
But we're not there yet.
Your Action Framework
If you're raising $1-10M: → Platforms can work → Accept the fee premium → Focus on marketing efficiency
If you're raising $10-50M: → Build direct relationships → Offer co-investment rights → Create programmatic JV structures
If you're raising $50M+: → Forget platforms entirely → Court institutions directly → Negotiate separate accounts
The Bottom Line
Crowdfunding democratized access, not influence.
Big money doesn't just want returns. It wants control. It wants customization. It wants relationships.
And until platforms can deliver that trinity, the big checks will continue flowing through private channels.
The revolution isn't coming from disrupting the old boys' club.
It's coming from building a better one.
What's your take? Have you seen successful large-ticket platform investments? Or is the private route still king in your experience?
Drop your thoughts below 👇
#CommercialRealEstate #RealEstateInvesting #CrowdFunding #InstitutionalInvesting #PropTech #AlternativeInvestments