This week I had the opportunity to catch up with Jilliene Helman, the visionary behind the real estate crowdfunding site, Realty Mogul. While the sharing economy has exploded for tangible goods, the sharing of capital is a relatively new concept. We’ve seen peer-to-peer lending sites such as Lending Club grow rapidly, however crowdfunding for real estate is just emerging.
Although we’re still very early in the game, I believe the time is right to disrupt the real estate investment landscape. Investors are comfortable with the internet, they’re willing to try new things, and companies like Realty Mogul are building great platforms.
Explain Realty Mogul in 140 characters or less.
Realty Mogul is a marketplace for accredited investors to pool money online and buy shares of pre-vetted real estate investments.
Above all else, investors are investing in you and your team. How do you build trust with your investors?
It starts with company culture. The most important thing at our company is investor protection and when that permeates through every employee; our investors can see it and feel it. A big part of that is communication. We strive to over communicate with our investors, make ourselves available and also be present, meeting our investors in person, working with them to answer specific questions and always looking to go above and beyond for a client. From a customer services perspective, we want to be the Zappos of the real estate investing industry.
You participated in Microsoft’s Techstars incubator program. What did you take away from that experience? What can real estate professionals learn from non-real estate tech start-ups?
The biggest thing we took away was a network of incredible people in technology, real estate, sales, marketing, and every other skill imaginable. When we are looking for an expert in something, we have a resource to turn to and a mentor to help us avoid common mistakes new companies make.
Real estate professionals can learn a ton from non-real estate tech start ups. First and foremost, energy is contagious and being in a room full of startups has an aura to it. Beyond that, there is immense creativity happening with startups and being in that environment makes you strive to think differently and look at problems in new ways.
What’s the long-term vision for Realty Mogul? Do you envision a secondary market or exchange for real estate ownership interests?
We want to grow quickly but conservatively and our long term vision is to have incredible customer service and only grow to the extent we can find transactions that should be invested in. We want to build a brand that investors are excited to be a part of and build a technology infrastructure that makes real estate investing and managing real estate investments truly simple.
I think a secondary market is a natural extension of our business model, especially for our equity investments. The challenge is that you have to have critical mass for a secondary marketplace to make sense, so our primary goal is to build that critical mass with our existing investors and existing real estate investments.
Crowdfunding has a lot of momentum, however inevitably a deal will go sour or there will be some sort of fraud. How do you think this will impact the perception of crowdfunding?
I think this is where crowdfunding companies and brands will really get differentiated. I agree 100% a transaction will go bad eventually, but I think it matters how that company deals with it. If you over-communicate and are completely transparent and upfront with the investors, I think it can be managed. I don’t think a couple of bad transactions will deter all investors, I think it will make them trust certain companies even more.
What do you look for in the sponsor? Can you explain the 2-3 qualities that you consider most important?
We look for best in class sponsors who have diversified management teams and a history and track record of success within a specific geography and a specific product type.
#1) Conservatism – we are always looking for sponsors who are conservative both with their timelines and with their financials. We’re looking to see if income ramps with expenses, how vacancies are projected, the length of the loan terms and other factors that are key indicators of conservatism.
#2) Active – real estate is cyclical and we want sponsors who have dealt with real estate in the good times and bad. Active does not necessarily mean always buying properties, because we only think people should invest in real estate when there is opportunity, but being active to us means having a pulse on the particular market and product type through cycles.
#3) Integrity – we run background and criminal checks on all of our sponsors and also conduct reference checks. Integrity, ethics and morals trump all else.
Do you have any current offerings? What’s unique about these deals and why should we invest?
We do have current offerings but unfortunately I am not at liberty to discuss them because of the general solicitation rules with the SEC, but I can talk about transactions we have closed. We’ve funded a variety of residential rehab transactions, paying investors anywhere from 8-10% as the lenders, secured in first position by residential mortgages. On these transactions, we partnered with professional rehab companies, like AH Capital, Real Property Funding Group and Dimension Investment Group. We’ve focused in Los Angeles, CA and in and around Seattle, WA for these transactions.
We also recently closed on a 70+ unit in Kansas. We worked with the largest commercial real estate company in Kansas on this transaction and funded over $600,000 for this property in less than 4 hours. We look for unique opportunities and this fit the bill perfectly as it was acquired from a lender for a nice discount and has great cash flows from day-1. It also has a value-add opportunity to clean up the surrounding area and increase marketing spend to drive higher occupancy.
Most sponsors that have access to good deals have no problem raising the equity. Why should these groups list their deals on Realty Mogul?
Just like we strive to make real estate investing simple for our investors, we strive to make raising equity simple for our sponsors. Once they are an approved sponsor in our system, raising equity becomes programmatic. We save them time and energy.
And our value is much more than equity. We are a JV partner and do all of the administrative work for the sponsor including investor distributions, investor K-1s and relaying all investor communications. In the end, even though we’re a tech company, we’re also a relationship company and we’re flexible in how we structure transactions to make it a win-win-win: for Realty Mogul, for the sponsor and for our investors.
If you won the $500M Powerball jackpot tomorrow, what would you do with your career?
Educate investors full-time on the benefits of real estate investing and continuing seeking out passive real estate investments to put that $500M to work!
What I find most interesting is that crowdfunding is not just an alternative to raising capital the traditional way, it’s a fundamentally better product. You may think that this is a platform built for sponsors who cannot raise the capital themselves, but I believe the opposite to be true. Sponsors will use sites such as Realty Mogul because they can raise capital more quickly, get a better customer experience, and get better economics.
Ultimately, crowdfunding is about transparency. It takes something such as private real estate deals which are completely hidden and makes them open.
If you’re in real estate, crowdfunding better be on your radar and you’re not going to want to miss Realty Mogul. It will change the way sponsors fund deals and investors invest in deals.
As always, I’d love to hear your feedback.