RSE Capital Partners’ Max Kirschenbaum on eREITs

Max Kirschenbaum

Wahington, D.C.—RSE Capital Partners, Fundrise’s real estate investment branch, has already closed on several major deals since being officially launched this past fall. The team behind the company is also responsible for the world’s first eREIT, a public, non-traded REIT that usually invests in small-cap commercial real estate and operates much like an online brokerage for properties.

Max Kirschenbaum, head of business development for RSE, revealed the driving factors behind the the spin-off and long-term plans.

MHN: How did the decision to launch RSE Capital Partners come about?

Max Kirschenbaum: We found that institutional sponsors and brokers had typically heard of our capital-raising success but did not have a concrete understanding of our value proposition as real estate investors: the ability to provide fast, flexible, reliable balance-sheet capital at a lower cost than others in the market. Launching RSE Capital Partners (RSE) has helped to underscore the benefits of our model—we operate like an equity fund, underwriting in house and closing upfront without syndication risk.

MHN: RSE Capital Partners focuses on multifamily acquisitions, multifamily development and infill bridge lending. Is it difficult to provide capital for development projects at a time when traditional lenders are more cautious when it comes to multifamily construction loans?

Kirschenbaum: We see the current landscape of multifamily construction lending as an opportunity, and have responded by launching a flexible preferred equity program that funds up to 75 percent loan-to-cost (LTC) at a roughly 10 percent capped internal rate of return (IRR). We’ve found that this program fits well with a lower-leverage, non-recourse construction loan from a traditional lender, allowing sponsors to capitalize up to 75 percent LTC of their project at a very competitive blended cost of capital.

MHN: How do you see the company developing in the long-term? Tell us about RSE’s long-term goals.

Kirschenbaum: We’re expecting to deploy more than $400 million over the next 12 months in joint venture equity, preferred equity and senior loans focused on our three pipelines: multifamily development, multifamily acquisitions and infill bridge lending. Additionally, we’re planning to expand our investment parameters to include other asset types. We believe that we can compete with the best institutional capital providers and offer more flexible capital at a lower cost.

MHN: RSE Capital Partners was born out of a pioneering project, Fundrise, a new player in the REIT business, which investors could perceive as a risk. Do you agree? How does the company mitigate this risk?

Kirschenbaum: We think that our innovative, technology-driven model actually serves to reduce risk by lowering costs and creating better alignment with investors’ interests. This allows us to focus on long-term, stable investments and continuing to grow the business by partnering with the best operators in the country. Our lower overall cost of capital gives us greater choice in which opportunities we pursue.

MHN: Do you think eREITs will become more common in the near future? Is real estate investment moving online?

Kirschenbaum: Already, we are seeing a lot of groups trying to figure out how to mimic the model that we created with the eREIT. We believe over the next 12 months some of the larger, more traditional real estate capital providers will attempt to enter the space. Ultimately, just like in e-commerce, the industry will adopt it because it is faster and more efficient. The real question isn’t if it’s the future but who is going to take advantage of the opportunity and who is going to be left behind because they were afraid of change.

MHN: How do you see the U.S. real estate investment market going forward in light of the presidential election results and the new administration?

Kirschenbaum: While this election cycle has been unique in many aspects, the arrival of a new presidential administration always introduces some uncertainty into the market, particularly when there is a change in political party. While there still are many unknowns regarding how the new administration will govern, it is clear that the markets are underwriting a new period of deregulation.

We will continue to monitor interest rates, as well as macroeconomic and local market conditions, in order to make the best decisions on behalf of our investors. As a discretionary investor, we have no mandate to sacrifice quality in reaction to changing market dynamics, whether related to interest rates, politics or any other external factors. We work to maintain the same strict underwriting criteria in times of relative certainty and uncertainty.

Image courtesy of RSE Capital Partners