Review of: Origin Investments
Reviewed by: Ruth Lyons
Last modified: June 20, 2018
Origin Investments started out as a real estate investing firm that then adopted technology, rather than the other way around. The company prides itself on its personal service, as well as the consistent quality of the opportunities it offers. However, you must be an accredited investor to take part in the investments, and Origin requires a minimum of $100,000.
- Accredited investors
- SDIRA investors
- Hands-on investors
Thanks to the JOBS Act, which paved the way for online crowdfunded investments, there are now a number of platforms that allow accredited investors to take advantage of real estate opportunities once available only to institutions. However, many of these platforms are first and foremost technology companies, and some real estate investors have found their due diligence and offerings lacking. Not so with Origin Investments, which actually started out as a real estate investment company that just so “happened” to “go techie.”
What Is Origin Investments?
Origin Investments is a commercial real estate private equity fund manager that acquires, improves and operates office and multi-family properties. Origin is focused on commercial deals in several of the largest U.S. metropolitan areas, specifically, Chicago, Denver, Charlotte, Raleigh, Austin, Houston, Atlanta and Dallas.
Origin Investments was founded in 2007 and is based in Chicago. It has more than $700 million in assets under management. Origin was in business well before the JOBS Act of 2011 came into effect. Until then, its commercial real estate funds were limited to private placements with no more than 100 investors.
But the JOBS Act opened another door for Origin. Through the use of technology and crowdfunding strategies, the platform has been successful at attracting more investors. Origin expanded its investor base from personal ultra–high-net-worth relationships to accredited investors across the country, enabling the company to raise $151 million for its recent fund.
Origin is not really a real estate crowdfunding company. Rather, it is a private real estate investing company that now uses crowdfunding and platform technology to allow more investors to participate.
Origin’s strategy is to engage in turnaround management situations. The team looks for well-located underperforming assets with solvable problems. They focus mostly on commercial properties in the $10–40 million value range. This is a segment of the asset class that’s under-trafficked by large institutions and pension funds.
Origin provides the opportunity to invest in several funds that are diversified across multiple properties. Origin shows the individual properties that comprise the funds, but you’re not buying a specific property. You’re buying a fund that owns a mix of the properties.
Origin’s two co-founders, David Scherer and Michael Episcope, use Origin as their primary investment vehicle. This is unique to Origin’s crowdfunding business model. To date, they are the largest investors at Origin, with over $44 million committed alongside investors at the same terms.
And the team’s compensation is based largely on fund performance, not acquisition volume. According to Ben Harris, head of investor relations, “We don’t believe in paying people to sell our products, so our funds are not offered by commission-based advisors.”
Origin Investments Fees & Features
|Investment Length||72 - 96/months|
|Offering Types||Equity, Direct Ownership|
|Property Types||Commercial, Residential|
|Regions Served||Chicago, Denver, Charlotte, Raleigh, Austin, Houston, Atlanta, Dallas|
- Distributions — Most other real estate investing platforms pay regular distributions to their investors. Origin is a bit different. The company states that its goal is to double investor capital. Therefore, Origin reinvests cash flow back into its properties to make them more valuable and create greater returns for investors. We asked Origin about when distributions are made. Here’s what the company said: “Distributions from operations are usually made after a few years, and the largest distributions are when we sell the properties after we have improved them.”
- Due Diligence — Thorough due diligence is critical to real estate investing success. It’s a largely illiquid asset with high transaction costs to both buy and sell. Origin’s team members have extensive real estate investment experience that the company harnesses to find, vet and act as the asset manager for all its commercial real estate deals. And their selection criteria are strict. According to Ben Harris, they look at around 1,100 deals a year and have historically purchased only six to eight of them.
- Customer Service — Although online technology is invaluable in delivering deal transparency and efficiency, each registered investor is also contacted by a real staff person within 24 hours of signing up if they opt in for a phone call. Once your accreditation is verified and you choose to invest, your personal investment contact helps you navigate the entire process of completing the paperwork and wiring your investment funds to an external administrator.
Investors can access details of their investments and track performance through their personal portfolio page in a secure portal. You can review detailed property descriptions, videos of the property, rehabilitation plans and photos. You also can read financial projections, details on the strategy for improving the property and all documents related to the property.
- Investing Fees — Origin’s fees are slightly less than the private equity industry standard, which is a 2% annual management fee.
The annual fee at Origin is 1.5%. So if you committed $100,000, you would be charged $1,500 per year until the fund’s assets were liquidated.
When first invested, amounts less than $500,000 have a one-time 3% fee. In other words, you’ll pay $3,000 for an investment of $100,000. But this amount won’t be charged immediately. Instead, it will be netted against a future distribution. If you commit more than $500,000, the fee is 1.5%. These fees are used to cover everything, including accounting, legal, marketing, travel, personnel and technology. There are none of the other fees that are common to private placement deals, such as acquisition fees, disposition fees, refinancing fees, etc.
How Does Origin Investments Work?
Technology can be a wonderful thing. The process of investing in real estate deals like this used to be paperwork- and time-intensive. On Origin’s crowdfunding platform, there are three investing steps:
Register — You need to be an accredited investor to invest, but anyone can register and review the funds.
Research — Everything you need to know about the strategy and specifics of each fund is available for you to view and download. And it’s easy to compare investment choices against each other, thanks to smart technology.
Invest — Origin has purposely put an emphasis on personal assistance, because the company wants to get to know you and help you understand exactly what you’re investing in. You are assigned a personal contact to walk you through the investment process. You’re working not with a “customer service rep” but with a knowledgeable member of the team who is familiar with all aspects of the properties and the processes.
How Do Origin’s Funds Differ From REITs?
You are probably familiar with real estate investment trusts (REITs). You can buy shares of REITs from any financial advisor or broker. Although some real estate crowdfunding sites offer REITs, Origin’s funds are not REITs and differ from private REITs in the following ways:
Origin operates through an LLC structure. This means that all tax benefits (such as depreciation and interest expense) pass through to investors. In a REIT structure, the tax benefits are captured at the REIT level, and distributed income is taxed to investors at the ordinary income rate.
Private REITs typically pay substantial fees to advisors to “sell” their product. Through Origin’s platform, you can invest directly. There’s no middleman to “sell” the investment. This means lower fees for the investor and more dollars invested into properties.
REITs take investor money upfront, even though they may not have properties in which to invest the capital. Origin operates under a “called capital” structure. This means that it asks for capital only after it has found a property.
You can’t examine the individual properties that comprise a private REIT. But Origin is all about transparency. You can see all the details on each fund property online 24/7. And Origin sends out quarterly updates to keep investors apprised of progress.
Origin’s principals invest significantly in each deal. Very few other private REIT managers invest their own capital in their vehicles.
Pros and Cons
- Origin Has Substantial “Skin in the Game” — The two cofounders of Origin Investments are the largest investors in each of the three funds at the same terms as all other investors.
- Team Expertise — The cofounders bring decades of commercial real estate experience as well as asset management experience. They can know where and how to get below-market deals and do the due diligence to reduce investor risk.
- Institutional Quality Properties Available to “the Crowd” — Origin was in business long before the JOBS Act made crowdfunding available. They’ve recreated the same high-quality processes valued and depended upon by high-net-worth and institutional investors in a platform with crowdfunding technology.
- Transparency and Online Efficiency — Once funded, investors can access details of their investment and track performance through their personal portfolio page in a secure portal.
- Diversification — Within each fund, there are 12 to 20 properties. Some are from several of the geographic locations in which Origins invests. And within those properties, there’s a mix of types of commercial real estate assets.
- No Risk of Additional Capital Needs — You will never be asked to contribute additional capital to keep the projects afloat. When you commit, the amount invested is drawn down and called as needed.
- High Minimum Investment — The minimum investment of $100,000 is out of range for many investors.
- Number of Deals — Fund III closed June 30, 2017. Origin projects to launch Fund IV in 2018. You can ask to be put on the waiting list and invest as soon as it opens.
Good commercial investment properties take expertise to profitably acquire and manage. And it takes a sizeable investment of money to acquire. By adopting crowdfunding to its already successful model, Origin allows individual investors to get into the same sort of high-end deals that used to be available only to the super-wealthy, pension funds and large institutions. Most crowdfunding sites require investors to be accredited, and the same is true for Origin Investments.
Origin seems to cater to the wealthiest of the accredited investors with a minimum investment of $100,000. Its expertise and due diligence shows in its average net IRR of 24% across its first two funds.