Morning,
Anecdotally and in the news, I hear people talking all the time about how tough it is to raise (retail) investor capital – and my podcast guests have echoed this sentiment, not just for retail capital but for institutional capital too.
The dominant narrative has been that ‘capital has dried up,’ but that is just wrong.
What's dried up is not capital, it's tolerance for weak underwriting, amateur sponsorship, and platforms that marketed real estate as a passive, high-yield substitute for bonds without the institutional discipline to back it up.
Investor sentiment today isn’t a macro headwind.
It’s a credibility filter.
To understand why - and to understand how experienced operators continue raising capital even as others struggle - you have to look at what investors have actually lived through from 2022 to today.
What Retail (Accredited Investors) Went Through
When interest rates rose, cap rates expanded, and transaction markets froze, institutional funds absorbed write-downs and moved on.
Retail had a very different experience.
Consider what happened across the crowdfunding and retail-alternatives ecosystem:
1. Yieldstreet investors saw real losses.
A widely circulated report about Yieldstreet's portfolio found that, of 30 real-estate offerings examined, many were placed on a ‘watchlist,’ with millions in defaults, delays, or permanent impairment. A CNBC investigation highlighted cases where accredited investors believed they were accessing institutional-grade opportunities - only to discover the actual sponsor discipline was far from institutional.
One investor put in $400,000 and expects to lose most of it, after being sold on the slogan ‘invest like the 1%.’ Here on Reddit.
2. CrowdStreet dealt with high-profile sponsor failures.
Accredited investors in the Nightingale fiasco on CrowdStreet, allege that the platform missed obvious red flags, and arbitration claims are now underway. You can read the case summary here.
The fallout has been severe with CrowdStreet’s raises dropping from $40-50 million on a single deal at the platform’s peak, to one tenth of that today.
3. RealtyMogul Sells Out.
Not sure if directly related – the news is very recent and little covered yet – but RealtyMogul just exited the business (did you see that?), selling to the Wideman Company. Whether it speaks to underlying issues with the RM business model, investor trepidation, or other factors is unclear, but either way, there is significant disruption in the industry that can but further unnerve investors.
4. Investors have no-where to go.
The investor relations director of a major multifamily shop contacted me recently as he was considering leaving his current position and moving to another (non-multifamily company) and wanted some advice. He told me that his MFR employer had 30 assets worth some $1.6 billion of which 3 had just gone back to banks and, of the remainder, only 4 were actually solvent.
You don’t read about this stuff because one, sponsors don’t talk about it, two, lenders don’t want it publicly known their CRE portfolios are struggling, and three, investors have no outlet and simply don’t know who to talk to.
In short, the distress in the market that investors are experiencing is far deeper than anything you will find reflected in the press.
And I’m not talking about institutional LPs with 20-year horizons – there’s plenty of analysis of this cohort.
I’m talking about are doctors, lawyers, engineers, business owners - exactly the investor base most middle-market sponsors rely on.
The emotional impact has been profound:
- They feel burned.
- They feel misled by branding that implied institutional oversight where none existed.
- And they now associate those cliched phrases so often used by newcomers to the industry - ‘earn passive income, build wealth, and gain financial freedom’ – with cynicism and risk, not stability.
Yet, and this is critical. they have not abandoned real estate.
They have simply abandoned sponsors they no longer trust.
Capital Hasn’t Disappeared. It’s Reallocating.
Despite the stories above, capital flows into private real estate are not collapsing; they’re rebalancing.
Studies show the same trend: investors still want exposure to real estate, but they want it through:
- higher-quality operators
- conservative leverage
- transparent reporting
- and strategies that can weather a slower, more rational market
They are not “risk off.”
They are sponsor skeptical.
This is the difference between 2009 and today:
- In 2009, investors were afraid of real estate.
- Heading into 2026, investors are more concerned about who is running the real estate.
Why So Many Sponsors Can’t Raise Capital
Today’s raising environment has exposed a truth the bull market concealed:
A lot of sponsors were not prepared to be fiduciaries.
Before the rate shock, many relied on:
- inconsistent communication
- floating-rate debt without hedges
- optimistic rent-growth assumptions
- cap-rate compression as an exit strategy
- personal charisma instead of operating discipline
- and the implicit belief that real estate always goes up
Investors now view those same behaviors as disqualifying.
If you ran a sloppy operation from 2020–2022, you are now finding that investors have quietly (or loudly) crossed you off their lists - not because they dislike real estate, but because they no longer view you as someone who can manage a cycle.
Meanwhile, operators with strong multi-cycle discipline are raising capital more easily than ever, because the herd has thinned.
Sentiment has become a sorting mechanism.
How Elite Operators Are Rebuilding Trust
The sponsors who are thriving right now - raising more capital with less friction - share three traits that reflect exactly what investors want to see as we head into 2026:
1. They communicate like stewards, not marketers.
This means:
- consistent updates
- timely tax reporting
- unemotional reporting
- clear explanations of risk
- transparency about mistakes
- no spin, no hype, no ‘we’re excited about…’ filler
Investors today are allergic to hype.
They’ll take reserved enthusiasm, but most of all, they want exemplary professionalism.
2. They underwrite as if rates will stay higher for longer.
These operators assume:
- capex buffers
- slower leasing
- longer hold periods
- conservative exit caps
- flat or modest rent growth
- and that low levels of debt are the best insulation against market turbulence
If exceptional upside arrives, great.
But the underwriting does not require it.
3. They use systems as infrastructure, not as a replacement for judgment.
A major reason retail investors feel burned is because they were pushed into automated funnels that treated them as ‘leads,’ not partners.
Best-of-class operators use systems to ensure consistency of communication - not to distance themselves from the people entrusting them with capital.
Investors don’t want automation.
They want professionalism delivered consistently, supported by automation.
The difference is everything.
Sentiment Is Rational, Not Fearful
When you tally the evidence:
- the Yieldstreet losses
- the CrowdStreet arbitrations
- the distress hidden under the surface
- the opaque updates from many sponsors
- and the rate shock that exposed flawed underwriting
it makes perfect sense that accredited investors are cautious.
But caution is not retreat.
For the right sponsors, this is the most favorable raising environment in a decade.
Not because capital is plentiful.
But because credibility is scarce.
And in a cycle like this, credibility is capital.
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If you want seasoned leadership in investor relations - someone who understands the psychology of burned investors, communicates with discipline, and can steward your platform through this part of the cycle, I work with a small number of sponsors in a senior advisory capacity.
Let me know if you’d like to explore whether there’s a fit.
Adam