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Million Acres of Motley Fool Reviews CityVest

Motley Fool Article
What is CityVest?

CityVest is a real estate crowfunding platform that allows accredited investors to put their money to work in private equity real estate investments. However, unlike most other equity crowdfunding platforms, CityVest doesn't offer individual deals. Rather, CityVest raises capital for its "Access Funds," which are run by experienced investment managers and pool investor capital together to invest in a portfolio of real estate. Just to name a couple of examples, CityVest recently closed a $50 million investment fund that targets multifamily residential properties and a $150 million fund that invests in secured mortgage loans.

The company's philosophy is that by partnering with the most experienced and successful managers in private equity real estate investing, and by offering an element of diversification that is lacking with single-asset deals on other platforms, investors will be in the best position to achieve strong risk-adjusted returns on their capital.

Summary: Is CityVest a good investment?

If you're interested in real estate crowdfunding but don't want an entire investment of $25,000 or more tied to a single commercial property, CityVest could be the solution for you. The platform only offers diversified real estate investment funds, which it refers to as "access funds," that are managed by some of the most successful private equity real estate managers in the business.

CityVest pros and cons

Pros of CityVest's platform

Transparency - CityVest allows investors to browse access funds and review investment information without requiring any up-front registration whatsoever. This is somewhat unique in the crowdfunding space, especially when it comes to investments for accredited investors.

Investment dashboard - CityVest has a user-friendly investment dashboard that allows the investor to review information about distributions, quarterly reports, and tax documents in a well-organized format.

SDIRA Investing - CityVest allows investors to use self-directed IRAs to invest on its platform. Not all crowdfunding platforms allow this.

Potential drawbacks

No individual deals - Some investors simply prefer to invest in individual real estate deals, which CityVest does not offer. While its fund-focused approach is certainly a differentiator, if you want single-asset deals, CityVest isn't the place for you.

High minimums- A $25,000 minimum investment (and far more for many of CityVest's funds) might be out of reach for many investors.

Accredited only - CityVest only offers funds to accredited investors, which typically means people with at least $1 million in net worth or annual income of over $200,000 per year ($300,000 with a spouse).

High & complex fee structure: Kudos for being transparent about its fees, and there are no out of pocket fees for investors. However, the unique fee structure CityVest has can be incredibly high depending on how much is raised and how many people participate in a given deal.

Incredibly long holding periods with no secondary market: Anyone looking to make an investment in real estate should be prepared to keep their money locked into a deal for a long time. That said, the holding periods for some of CityVests deals are much longer than most other platforms -- up to 10 years -- and there is currently no secondary market should you need to cash out unexpectedly.

Is CityVest legit? How strong is it?

CityVest is a legitimate real estate crowdfunding platform and is a financially sound company.

CityVest has $2 million of capital, and investors include the former president of a Goldman Sachs trading division and the former Chairman of JPMorgan Private Bank. The company is currently raising additional capital to offer investors a liquidity option, as well as to allow CityVest to participate in offerings alongside investors.

CityVest performance

CityVest has completed capital raises for 10 access funds so far. To date, none of CityVest's funds have reached their maturity date, as they have terms ranging from three to eight years. All of CityVest's 10 completed access funds are currently making distributions to investors and none have lost money. The funds are targeting annual IRRs in the 12%-20% range, and CityVest specifically targets managers with impressive track records of success.

CityVest management

Founder and CEO Alan Donenfeld has a long history as a financial services entrepreneur. He founded Paragon Capital, a private investment firm, and is the president and founder of Bristol Investment Group. Other members of the team have extensive investment industry experience. CityVest's management team has quite a bit of skin in the game, as key executives own 65% of the company.

How CityVest works: How are investments sourced?

CityVest screens more than 700 real estate private equity funds each year to find those that meet its standards for size, quality, performance, governance, and other criteria. The company then hires a third-party due diligence firm to write a report on these funds, which it publishes on the CityVest website.

Specifically, CityVest looks for these characteristics from its access funds:

  • Managers with at least 15 years of experience and that have completed at least $50 million in principal acquisitions.
  • Managers with a prior audited track record of producing IRR of at least 20%.
  • Skin in the game, defined as an investment of at least 2.5% of the targeted raise or $500,000 in their own fund.
  • Managers who pass background checks from the SEC, FINRA, and other sources.
  • Managers with key man life insurance policies on its principals.
  • Funds that have an auditor and administrator.

Who can invest in CityVest?

Currently, CityVest is only open to accredited investors. This means that at least one of the following criteria needs to apply:

  1. Your net worth is $1 million or higher, excluding the value of your primary residence.
  2. You earned at least $200,000 ($300,000 if you file joint tax returns) for the past two years, with an expectation of the same this year.
  3. You're investing on behalf of an accredited entity, such as a venture capital fund.

What is the minimum CityVest investment?

The minimum investment is set for each individual access fund, but the smallest minimum on its platform is currently $25,000. However, it's worth noting that the majority of the access funds that CityVest has closed had $50,000 minimums and one multifamily fund had a minimum investment amount of $250,000.

As far as crowdfunded real estate investment platforms go, these minimums are certainly on the higher end. But they are in line with what many other accredited-only crowdfunding platforms offer.

What are CityVest's fees?

CityVest doesn't charge any direct fees to investors. Rather, it makes its money from the access funds listed on its platform. And the company has three different fees it collects:

  • Each access fund pays CityVest a one-time $50,000 fee.
  • Each access fund pays CityVest $500 per investor, per year. This fee is to compensate the company for handling payouts and investment accounting.
  • Each fund pays CityVest 0.75% of the fund's capital each year to have access to the platform's technology. This fee is waived for the first year of each fund.

These fees are disclosed in the Terms section on each investment fund's platform listing.

This fee structure makes sense when the CityVest raises a lot of money for a fund and the amount each investor puts in is high. If someone puts in, say, $250,000, then that $500 per investor per year is about 1% of the initial investment. Not great, but not unreasonable.

If a deal is small and each investor only puts in the minimum for a deal, though, then the fee structure starts to become a bit out of hand. That same $500 annual fee per investor, per year implies if an investor puts $25,000 into an access fund for five years, the fund will have to pay $2,500 -- or 10% of its investment -- to CityVest in addition to the 0.75% of net asset value per year and the $50,000 upfront fee.

Another potential negative is that CityVest doesn't participate as an investor in any of the deals, nor does its compensation depend on the profitability of each fund. So, if a fund loses its investors' money, CityVest still collects the same fee structure as with a successful investment.

I'd prefer to see some sort of financial incentive to deliver superior returns, and to be fair, CityVest is raising additional capital for the specific purpose of being able to participate in investments alongside investors.

CityVest returns: What should you expect?

CityVest's funds each set their own IRR target, which is clearly stated on the site. IRRs for all 10 funds completed by the platform are targeted in the 12%-20% range.

While CityVest specifically targets managers with impressive track records of success, none of CityVest's funds have reached their maturity date, as they have terms ranging from three to eight years. So it's difficult to predict how much investors will actually get. All of CityVest's 10 completed access funds are currently making distributions to investors and none have lost money.

When (and how) can you sell CityVest investments?

At this time, there isn't a secondary market for CityVest investments. Each fund has a targeted term of three to eight years, so investors should prepare to hold for the duration.

However, it's worth noting that CityVest is currently raising additional capital, and one of the stated purposes is to create a liquidity option for investors. So, this could change in the not-too-distant future.

Going mobile: Is there a CityVest app?

At this time, CityVest doesn't have a mobile app. While it would certainly be a nice feature, few crowdfunding platforms offer mobile app functionality. However, it's worth noting that CityVest's website is mobile optimized.

CityVest risks: Is CityVest safe to invest with?

Like any equity-based real estate investment, there's always a possibility that investors will lose money. It's worth noting that all of CityVest's 10 completed access funds are currently making distributions to investors, and none have lost money. However, no deal on CityVest’s platform has reached its stated holding period.

Fortunately, there are also a few safeguards in place that mitigate any risks:

  • First, since each of CityVest's investment options own at least 10 individual investments, the diversified nature of the product helps spread risk out. In short, if one of a fund's properties turned out to be a money loser, it wouldn't necessarily kill the returns of the entire fund.
  • The company uses a third-party due-diligence firm to provide a report on each investment fund, checking into the managers' track records, confirms the manager has skin in the game, and more. In addition, all funds are required to have an auditor and a third-party administrator overseeing the fund.
  • Finally, CityVest hires a third-party administrator to oversee accounting, taxes, and administrative services for each fund, and pays them in full for their services upon each fund's closing. So, if CityVest were to go out of business while a fund is still active, the administrator would take over.

In a nutshell, CityVest's use of third-party firms and administrators is above and beyond what most peers do and ensures that CityVest's success or failure won't play a role in the returns of each investment fund.

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