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Cadre’s Ryan Williams: ‘We believe tech can accelerate liquidity in real estate’

Fast Company recently published its list of the world’s most innovative companies. There were 10 financial companies that made the list, which included Cadre, a digital platform that streamlines real estate investments as well as deal sourcing, due diligence, and reporting. The firm was cofounded by Ryan Williams, a Goldman Sachs alum and entrepreneur.

Cofounder and CEO Ryan Williams is our guest today on the Tearsheet Podcast.

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Below are highlights from the episode, edited for clarity.

How did you get into corporate real estate?
My background is really at the convergence of technology and real estate. I started a technology company about 15 years ago and started a real estate company shortly after I sold my first company. I was always struck about how imperfect, yet large the real estate industry was — how opaque, inaccessible, and lucrative it was. I thought if I could combine my experience building tech companies to increase distribution and overlay that with a product offering that would provide more vibrant financial futures for more people, then I could disrupt an industry for the better.

Do you need to be an insider to disrupt the real estate industry?
We’re in New York for a reason. It’s because this is the hub of financial and human capital. My network and experience in real estate was a competitive advantage. It enabled us to bring together talent that otherwise has sort have been at the fringes of the technology and financial services industries. We’ve brought together people from across various professions, like real estate and private equity from places like Blackstone, investment banking from Goldman Sachs and from technology firms like Google and Apple.

The network and human capital was a near-term moat for the company and long terms, we expect it to be about the data and information we’re able to generate. I also think it generated a level of trust early on. If you think of great brands like Apple, Airbnb, and Amazon, they delivered quality products at quality price points and generated trust among their users. That trust is ultimately what gave them the ability to scale distribution and penetrate more of the ecosystem.

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Building a more diversified online real estate investment platform

The real estate crowdfunding marketplaces have done a good job of starting to connect the fragmented real estate market to investors. But the system isn’t perfect yet. Most platforms deal with a single asset class, so investors trying to build a diverse real estate portfolio may find themselves investing on multiple crowdfunding sites. The pain of keeping track of investments across multiple platforms can be a confusing, time-wasting process.

But some platforms are taking on the task of offering a suite of real estate asset classes investors.

“It came down to offering investors diversification potential,” said Nav Athwal, CEO of RealtyShares. “Many investors, especially individuals, can’t invest in real estate outside of a REIT or don’t have access to diversify real estate investments. Our ultimate goal is to be able to provide a diverse set of opportunities in terms of products, asset types, and capital stacked positions.”

Diversification on the RealtyShares marketplace comes both in property type and ownership status. Most of the platform’s debt investments are centered on fix and flip, single family, short-term loans. A vast majority of equity investments are occupied commercial properties with a 3 to 5 year hold period, but the site occasionally has a development project available for investment. Some projects have a preferred return with little upside, while others have common equity with lower annual returns but higher upside potential.

The San Francisco-based marketplace has surpassed $200 million in financing through the platform and recent completed a $33 million debt financing and venture round. CEO Nav Athwal, who also happens to be a finalist for the Tradestreaming best first name in fintech award, said “more than a few scotch and tequila bottles had to be cleaned from the office after the round was finished.”

Athwal attributes some of the success of his platform to the the familiarity of real estate to the retail investor. As opposed to investing money into  businesses through VC or online lending platforms, most people have a basic understanding of real estate

“A retail investor with little sophistication still understands real estate investment because it’s such a part of our daily lives. Big funds and pensions have made money through real estate, and outperformed the S&P. We’re bringing real estate, which is a great way to build wealth, to the retail market,” he said.

Currently, RealtyShares only works accredited investors. With new regulations that have opened up crowdfunding to non-accredited investors, Athwal hopes the platform will one day be made available to the general public, but doesn’t see it happening in the near future. Instead, his firm is going after the white wale of crowdfunding platforms: family offices and institutional investors.

“The level of crowdfunding adoption from the mainstream real estate industry has skyrocketed,” he remarked. “In 2013, online fundraising for real estate was very foreign, but in the last 2 years, the level of interest from institutions has been surprisingly good. Crowdfunding for real estate isn’t mainstream yet, but it’s going to continue to make inroads in the real estate industry,” he concluded.

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Crowdfunding ‘bridges’ the gap between real estate lenders and borrowers

Property development is the epitome of a high risk, high reward real estate deals that many investors clamor after. But many interested investors don’t have the infrastructure or funds to get into buying and flipping properties. One strategy to get around the barrier to entry is to invest on the debt side of development projects, because it’s much cheaper to become a lender than a builder.

Bridge loans, also known as construction loans, are the most common version of debt in development. Developers in need of cash to rehab their projects call upon lenders for short-term loans, with annual yields ranging from 7 -12 percent.

Through crowdfunding marketplaces, the fragmented market of construction loans is getting consolidated, providing a one-stop-shop for both borrowers and lenders.

Patch of Land, an LA-based crowdfunding platform, is one of the few platforms focused on bridge loans. Founded in 2013, POL has loaned out over $180 million to developers. Real estate crowdfunding platforms are a dime a dozen, but POL has found a twist to differentiate themselves from the rest of the market through their pre-funding process.

POL underwrites loans, then syndicates them to the general public, taking full ownership of the loan before the property hits the platform.

“If a loan doesn’t get fully funded, it still remains on the site,” said AdaPia d’Errico, chief marketing officer of Patch of Land. “We’re not like traditional crowdfunders where borrowers need to wait for full funding to get their money. We take care of that with the pre-fund because borrowers need cash to get their project off the ground. Investors also benefit because they get to earn interest quickly and see that POL has skin in the game.”

POL also benefits from pre-funding. According to d’Errico, POL always intended to monetize the loan holding period. The firm also makes money off the interest rate, charging from one to three points on the loan, plus a servicing fee with a two percent maximum spread.

Choosing to focus on the debt side of investments is also a unique way to approach real estate crowdfunding. Underwriting a bridge loan isn’t as sexy as providing equity to build a project that includes higher upside. But loan terms are easier to understand, something d’Errico feels is important for investors.

“We made the decision to focus on the debt side because it’s an easier investment to understand. With equity investments, you’re looking at high-level calculations based on IRR over a longer period, involving many projections and assumptions that require more time to learn than most investors have time for,” she said.

Investing in debt may be easier to understand, but it’s still not without its risks. We only need to go back to 2008 to see what can happen to sure thing loans when the whole system goes down the drain. Banks turned into real estate companies when they foreclosed on first position liens. Banks and investors don’t want to sell properties — they just want to get in and out. So while the proposition of having the security of a property as collateral is a nice theory, it’s a mess in practice.

Another issue is the nature of development. Rehabbing is an art, not a science, and all sorts of issues can slow up projects. And if the project slows, the principal stays in longer, which can put the property underwater faster than you can say refinance. So getting your principle out after 12 – 18 months of a development deal isn’t anywhere near to a sure thing.

No one is saying there’s an investment out there that doesn’t have risks, but investors need to be informed of the risks that come with investing in development debt. d’Errico understands the importance of informing customers of what they’re getting into,and the nuances that go into the real estate business.

“Initiating a foreclosure to get a loan current and ensure principal is recovered is something that can cause confusion because the word foreclosure sounds scary. We need crystal clear communication to inform investors about loan management and asset management terminology in real estate lending,” she concluded.

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Top 5 real estate crowdfunding platforms

Crowdfunding and real estate go together like peanut butter and chocolate. Capital remains one of the biggest barriers of entry into real estate investments, as the liquidity to make a seven figure investment in a single property may not be feasible even for accredited investors. Real estate crowdfunding saw $2 billion in transaction volume in 2015. Experts expect real estate crowdfunding to grow by 40 percent in 2016.

Investing through crowdfunding platforms helps investors diversify assets and can give non-accredited investors the opportunity to invest into real estate deals, which was unavailable before.

Here are five crowdfunding platforms that are opening opportunities up for real estate investments.

Fundrise

One of the first real estate crowdfunding platforms is Fundrise, a DC-based startup that’s been around since 2012. Over 80,000 users have invested on the site, totaling nearly $3 billion in real estate investments. Investors don’t have the ability to select specific deals, rather pick from either a debt or equity focused commercial eREIT on the platform. Fundrise has raised nearly $40 million in investment capital for its own operations since opening its doors.

Fundrise was founded by Benjamin Miller, Brandon Jenkins, and Kenny Shin, and is open to U.S. residents with a one thousand dollar minimum investment.

Realty Mogul

Founded by Jilliene Helman and Justin Hughes, Realty Mogul provides customers with debt and equity investment opportunities. Users can invest as little as $2,500 into various types of projects, including multifamily, commercial, and industrial properties. One of Realty Mogul’s most interesting features may be the opportunity for non-accredited investors to invest with the site, although investments may be limited.

The Los Angeles-based company has raised $45 million since its inception.

Patch of Land

Patch of Land provides accredited investors the opportunity to finance hard money loans. These short-term loans take the form of refinance, rehab, and bridge loan projects. Users on the platform can pick specific properties to invest in, and receive monthly payouts of annualized returns between 9 and 18 percent depending on the risk, with a five thousand dollar minimum investment.

Founded by Brian and Jason Fritton, Patch of Land has been operating since 2013, and has raised nearly $25 million to date.

Roofstock

Accredited investors can purchase occupied single family homes using Roofstock to buy properties. Users can implement various matrixes like price, location and even crime and flood risk to find appropriate investments. Investors can chose to put equity into a crowdfunding project, or purchase the property single-handedly and secure a loan and property manager through an integrated service.

Gary Beasley and Gregor Watson founded Roofstock in Oakland, CA in 2015, and have raised $13 million for their firm so far.

Realty Shares

Founded by Trey Clark, Nav Athwal, and Ray Sturm in San Francisco, Realty Shares is one of the more diversified crowdfunding platforms, both in terms of property type and investment nature. Investors can choose from various property types, including multi-family, commercial and self storage units. Users have the option to fund either equity or debt, including first or second positions liens. Minimum investments usually range between one and five thousand dollars, and are available for accredited investors.

Realty Shares has raised $32 million since its inception in 2013.

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Top 5 rental payment platforms

mobile payments

Finance has come a long from landlords slipping rent bills under the door at 7 AM. Rent payments have moved from handing checks to your super into the digital age, providing landlords and renters easy and organized payment methods. Although people can pay rent using any payment platform (like Venmo, Chase Quick Pay, or even the blockchain), there are various software platforms specializing in finding and paying for a swanky new pad.

Here, in no particular order, are five platforms that help tenants and managers manage their rent payments.

Cozy

The Portland, Oregon-based payments company has been helping landlords and tenants facilitate rentals since 2012. Property managers can use the online platform to list properties, find and screen new tenants, as well as set up lease terms and allow current tenants to pay over the website. Renters can create a professional profile to quickly find a place to live, plus invite their landlords to use the online app.

Cozy, founded by John Bragg and Gino Zahnd, recently finished an eight and a half million dollar series B round, with participation from American Family Ventures, Social Capital, and General Catalyst.

RentPayment by Yapstone

RentPayment is global payment provider YapStone’s answer to paying your rent online. Founded in 1999, Yapstone offers services in multiple payment departments, including home, vacation and storage rentals.

Catering to property managers of large multifamily properties and individuals looking to rent out their single family units, users add their investment properties to RentPayment for streamlined payment services. Tenants living in properties listed on the platform can pay online or via mobile apps, using credit and debit cards, eChecks, or even MoneyGram cash transfers.

Founded by Tom Villante and Matt Golis, Yapstone is based in Walnut Creek, CA and has raised $55 million in venture funding and $60 million in debt financing.

ClickPay

ClickPay focuses on multifamily and commercial real estate payment solutions for property managers, offering multiple solutions that include online bill pay and lockbox features. ClickPay also offers API services that integrate with property management and accounting services, allowing for easy exchange of information that keeps property managers up to date with their investment’s financials. Once properties are set up, tenants can pay for rent, common charges, and assorted building fees through ClickPay’s online portal.

ClickPay was founded in 2009 and currently has offices in New York and New Jersey.

RadPad

RadPad is a Los Angeles-based rental marketplace that also has rental payment capabilities. Founded in 2013 by Jonathan Eppers, Tyler Galpin, and Tim Watson, the real estate platform has raised $12.8 million since inception.

What makes Radpad unique is that landlords don’t need to use the platform for tenants to use the RadPad payment service. Renters can set up automatic monthly payments and RadPad sends the landlords a check that’s guaranteed to get there on time. Renters can pay using ACH for no fee or debit and credit cards for a fee.

Prospective tenants can also search for pads across the U.S., including Austin, New York, Chicago, and Los Angeles.

PayLease

PayLease enables landlords to manage properties from single and multifamily investments through a suite of financial services for property managers. The SaaS product also has the option to integrate utility payments and resident billing into the platform, allowing for an easier net operating income snapshot. Users can also use the site to pay homeowners association bills.

PayLease was founded in 2003 in San Diego, CA by Ty Kalklosch and Yann Phung.

Photo credit: Mechanoid Dolly via Visualhunt / CC BY-SA

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[podcast] Ely Razin wants to inject big data into real estate investing

corporate real estate financing big data
Credifi's Ely Razin
Credifi’s Ely Razin

We’ve spoken a lot on the podcast about tools for institutional investors. Technology and data have changed the way they go about their business. But that’s not really true for real estate investors. It’s funny — in an industry where hundred million dollar transactions are the norm, there’s surprisingly little data-enabled decision making. Corporate real estate finance is still predicated on relationships — between buyers, sellers, financiers, and brokers.

Ely Razin wants to change that —his firm, Credifi, is developing big data solutions to provide transparency for the corporate real estate ecosystem. He’s built and sold a previous startup to Thomson Reuters and joins us on the podcast this week to talk about how big data will change the way real estate investing is done, the opportunities and challenges of building a fintech startup in the CRE space, and how building a startup finance company has changed since his last go-around.

Below are lightly edited and condensed highlights from the conversation.

What role does data currently play in commercial real estate finance?

It’s really interesting — real estate has been perceived as a laggard industry that didn’t readily adopt data at the core of its decision making processes. And that’s despite the fact that any real estate transaction is fairly large in size. These aren’t hundred dollar stock purchases. Building purchases can be worth hundreds of millions of dollars. That’s beginning to change and we’re part of that change.

How real estate investing changes once data and analytics become commonplace

We have coverage of 2m properties and 2.5 loans that finance them. We have coverage of the real estate markets in the top 100 cities in the US — from New York City to Spokane, WA. With a full view, an investor can decide where he’d like to invest, when he’d like to do it, and when you think a borrower is ready to move. By contrast, in today’s real estate market, a buyer is completely dependent on brokers. One thing having information enables you to do is simply spot the right opportunities and go after them.

It sounds like you’re trying to create the Bloomberg of commercial real estate finance

We often draw the parallel to Bloomberg. Aspirationally, Bloomberg is a fabulous model. We do take a few pages out of their playbook. First, we start by putting all the data available in one place. That’s critical — this is a market that was highly fragmented. We weave all the data together, so that our users can click through from a property to its owner to its lender. The second thing we take from Bloomberg is an understanding that it’s not just about the data — it’s about moving the transaction forward. Bloomberg’s messaging platform is a backbone for trading. We have the mindset that we want to help get deals done.

 

 

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Fundrise’s Brandon Jenkins on the need to keep raising the quality of real estate deals online

Fundrise is a leader in online real estate investing and it’s soon to get even more interesting as recent regulatory changes are making it easier for crowdfunding platforms to incorporate even more investors. It’s an interesting time for the firm: it recently announced it had raised $50M for an e-REIT in light of the new Regulation A+ changes.

Fundrise COO, Brandon Jenkins joins us to talk about the state of his business, how competition in online real estate investing is changing the market, and how he thinks 2016 is going to turn out to be a huge year in his industry.

What was the inspiration for creating Fundrise? What was the genesis story?

brandon jenkins, COO of fundrise

The idea behind Fundrise came out of the personal experience of our founding team as real estate developers in Washington, DC. After an unsuccessful experience seeking funding for a new type of real estate project with local tenants, we saw an opportunity to open up the world of real estate investing to a broader audience.

More players are entering the online real estate investing space — how do you differentiate yourself? How do you think the market is organizing (is it around debt/equity or residential/commercial?)

First and foremost quality. We only work with the best quality real estate companies and search through hundreds of deals a week selecting only the top 1% to actually offer as investments.

Second, we focus on providing unmatched customer experience by creating a one-of-a-kind platform. Our technology is 100% designed and built in house…from scratch, so that the experience of investing on the platform is as straightforward and enjoyable as possible.

How big a role does education play in investor acquisition?

When you democratize an asset class for the first time, you’re naturally going to connect with investors who’ve never picked their own real estate investments before.   

To that end, we take education very seriously.

Our biggest concern right now is around the quality of deals being done by other platforms in the space. We’re seeing other companies do bad deals, with bad prices and bad terms so we feel that we have an obligation to give investors the tools they need to make smart, informed decisions — whether that’s a deep dive into our underwriting process or a rating system for understanding risk-return tradeoffs.

You moved from a brokerage model to more of an origination model — why? how did that position you differently?

Funding all our investments upfront using our own $25M balance sheet has a few key benefits:

1. You see higher quality investments: We can negotiate better deals with top real estate companies because they require certainty of funding. By funding real estate projects upfront, we believe we are able to achieve superior pricing and terms, and source more investment opportunities from the best companies in the country.

2. You start earning immediately: Interest starts accruing as soon as your investment settles—typically within five days—eliminating lengthy escrows. This model more closely resembles stocks, bonds, and other publicly-traded securities.

3. Your interests are the same as ours: Fundrise pre-funds every real estate project, using our own balance sheet. This puts our “skin in the game” and shows our conviction in the deal.

Where is your business/market headed in 2016 and beyond?

Since we founded the industry back in 2012, real estate crowdfunding has seen tremendous growth. But it’s really just beginning. 2016 will be a huge year for the space. I think we’ll start to see consolidation of platforms and some platforms really start to own one and dominate an asset class — like the SFH market. Investors will begin to enter the space in droves.

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006 How Groundbreaker is helping real estate investment firms find new investors

Probably the hottest sector in crowdfunding right now is real estate.

Investors are flocking to real estate crowdfunding platforms to get access and invest in real estate and they’re doing it in different ways: some platforms focus on investments in loans, others in equity, and others in professionally-lead large scale real estate projects.

Groundbreaker.co, a new player in the real estate crowdfunding space, has taken a different approach. The company works closely with some of the largest global real estate firms to use crowdfunding to raise money from its existing investors and to attract a whole new class of investors.

Co-founder and CEO Joey Jelinek joins your hosts, David and Zack, to talk about how the real estate industry is adjusting to this entirely new model for fundraising and what the future looks like for the entire real estate industry now that crowdfunding is proving itself viable. (Joey also shares some good resources with us to learn more about investing in real estate).

In our news segment, we talk about whether or not there exists a new crowdfunding bum class — and whether we need to donate or back every Tom, Dick, and Harry who throws up a crowdfunding campaign.

Watson on Crowdfunding talks about $4 million — the size of the recent investment in Spotify that occured on crowdfunding site, Microventures.

Lastly, Starkup Nation delivers on his favorite crowdfunding campaign of the week and (not) surprisingly, it has to do with water balloons.

Listen to the FULL episode

Resources mentioned in the podcast

Resources mentioned by Groundbreaker.co’s Joey Jelinek

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Investing in real estate via crowdfunding – with Realty Mogul’s Jilliene Helman

Crowdfunding is changing the way many people invest. Real estate crowdfunding, in particular, has seen massive interest as investors now have the opportunity to invest in some of the top properties in the world, alongside top institutional investors — all from their laptops or tablet computers.

Jilliene Helman is the co-founder and CEO of Realty Mogul, one of the leaders in the real estate crowdfunding sector and she joins me on the Tradestreaming Podcast to talk about how investors are using her platform to invest in cash flows and hard assets.

Listen to the FULL episode

About Jilliene

0a232fcJilliene Helman is the co-founder and CEO of Realty Mogul.

More resources

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