To explore what this transition could mean for our members, Crowd Street's editorial team spoke with Sheldon Chang, head of the firm's investment management and advisory services.
[[[Crowd Street has operated in commercial real estate since its founding. What inspired this plan to expand into new alternative investments?]]]
'Crowd Street has always been about opening doors for more investors to access private markets. When we started, commercial real estate investing was mostly offline.^1^ Our goal was simple: bring those opportunities online and make them more accessible. Now that we've done that, we'd like to support our members with more private market opportunities.
There are fewer than 4,000^2^ publicly listed companies today, compared to over 200,000^3^ private companies just in the middle-market and above. Many of these private firms borrow money and seek equity investment like public ones.^4^ Why shouldn't individual investors have access to that economic activity?'
[[[Let's start with private credit. What are some general characteristics of the asset class? ]]]
'Private credit allows many private companies to borrow money to support their operations and growth.^5^ These are often middle-market firms, larger than small businesses but not massive corporations.^6^ Instead of turning to traditional banks, they often have to work with non-bank lenders like private equity firms or specialized investment funds.^7^
These loans are privately negotiated between lenders and borrowers, typically making the terms more flexible versus a traditional loan. Because these companies aren't covered by large commercial banks and typically don't have credit ratings—the kind that big public companies get from agencies like Moody's—they have fewer options to borrow via traditional loans or bonds and generally pay higher interest rates.^8^,^9^
[[[Why do you think this category has seen so much growth in recent years?]]]
'Professional institutional investors have been increasingly adding private credit to their portfolios for various reasons such as accessing a broader exposure to fixed income and credit.^10^ As a result, private credit has been growing rapidly into a more mainstream asset class[^1]^that potentially fits into an alternative investments allocation or even replaces a portion of a traditional fixed income allocation.^12^ Generally speaking, these investments tend to be income-oriented, with a smaller emphasis on capital appreciation.^13^
Individuals appear to be benefiting from this trend as private credit funds are becoming increasingly available from established investment managers via SEC-registered products.^14^ This presumably creates transparency and increases ease of access, while providing additional regulatory oversight.'
We've observed a few factors that seem to be driving this growth. Banks have scaled back their lending^15^ largely due to stricter regulations, capital requirements, and reduced staffing. In many cases, non-bank lenders have stepped in to fill the gap.
At the same time, companies are staying private longer^16^ because going public can be costly and burdensome. Private markets appear to be more efficient at funding these businesses—just look at companies like SpaceX and OpenAI^17^—which could mean fewer public companies and potentially more private credit may be needed.'
[[[Beyond private credit, what's next for Crowd Street in private markets?]]]
'Private credit is our immediate focus because we believe it aligns with what many of our members are looking for—income-oriented investments. While CRE can offer some of that, I believe private corporate credit has the potential to be an effective vehicle for potentially generating passive income.
We're also exploring private equity. We believe it's a way to give our members access to high-growth companies that may stay private. Again, an example is a company like OpenAI—it's valuation is growing higher and higher in private markets.^18^ Stay tuned for more announcements on this front.'
Like all asset classes, private credit carries unique risks, including the fact that borrowers can be smaller and riskier than those in regulated banks or public markets. As the asset class grows, the International Monetary Fund advises investors to remain cautious about vulnerabilities within the private credit industry, outlined in full here.
Crowd Street's 2025 strategy reflects an ongoing commitment to its core goal: expanding private market access for more investors through deal sourcing, due diligence, and its innovative digital marketplace. To learn more about Crowd Street plans to move into new alternative asset classes, check out CEO John Imbriglia's recent interview, where he outlines the company's plans for 2025.
For more insights from Sheldon Chang, read his latest outlook on how the 2024 election cycle could impact commercial real estate markets.
