Category: Investment

Proptech Oppsites
CommercialInterviewsInvestmentUnited States

Oppsites: Proptech Matchmaking service for Real Estate Developers and Cities

Cities need developers, developers need cities. Connecting the dots between government planning objectives and investment has previously been conducted via a mixed bag of personal relationships, brokers, official tours and plain old business development – until now. Oakland based Oppsites saw an opportunity to create a single platform allowing cities to promote all of their development opportunities, centralising and simplifying this process for all parties (video explanation here). COO and Co-Founder Tomas Janusas explains the background and how it works:

So what is the background behind OppSites?

After 15 years as an urban design consultant helping cities achieve their economic development goals, Ian Ross (our CEO) realised that cities needed a better way to communicate those goals with investors, developers, and brokers.

Many communities include a large number of public and privately owned properties that are underutilised, and whose redevelopment would bring new revenues to the community. Yet many cities lack the resources and professional network to market those opportunity sites to a wide audience of prospective investors. OppSites was built to connect cities and the real estate investment community to maximise successful economic development through enhanced communication between the government and real estate sectors.

Tell us about the team?

Ian Ross (CEO and Co-Founder): Since 1999, Ian has provided urban design and economic development services to cities in support of long term economic health. He received a BA in economics from the University of Rochester and an MLA from Cornell University. His experience informs his focus on economic development at the intersection of city planning and real estate investment.

Tomas Janusas (COO and Co-Founder): Tomas has a diverse background in real estate, planning, technology, and project management. OppSites grew out of Tomas’ passion for building technology solutions that catalyse urban development. Tomas is in charge of OppSites’ daily operations and product development. His lifelong appreciation for urban environments led him to the University of California School of Environmental Design (CED), where he graduated summa cum laude with a BA in Urban Studies.

What drives local government to list opportunities? Why can’t they find partners the traditional way?

When cities do planning work and create a vision for their future, they raise the economic potential in a property by increasing the development capacity. But that potential often goes unrealised because investors and developers simply do not know about it. By posting these properties on OppSites, local governments can reach a much wider audience than traditional methods such as word of mouth, city-hosted broker tours or industry conferences.

Does this replace the role of traditional brokers (CBRE, JLL etc)?

OppSites does not replace the role of traditional brokers, but rather exposes more opportunity for the industry to act on. We believe that real estate potential often goes unrealised simply because property is not listed for sale. OppSites uncovers entirely new set of real estate listings – properties that are not on the market but have underutilised potential and local government support for new development.

Does the municipality etc simply list the opportunity? Does oppsites provide any additional analysis or just act as a marketplace?

Currently OppSites provides only basic layers of information (parcel and owner’s information) and no analysis. Local government leaders can highlight opportunity sites or districts on the map and share local knowledge about an investment.

For example, the city of Oakland is using OppSites by posting some of its recently completed specific and area plans. The plans detail how land can be used in certain areas. It allows Oakland ‘to educate, market, and demonstrate the city’s efforts in terms of showing off our opportunity sites and creating interest for those sites,’ says Aliza Gallo, the city’s economic development manager.

How do the partnerships work: ICSC, ULI etc?

Public and private sector members can use OppSites technology to share or find the information about investment opportunities among their members.

  • Cities, Counties, and Economic Development Organisations can showcase publicly and privately owned properties that they want to see redeveloped, even if those sites are not listed for sale. Those sites are showcased on a web-based platform, and can be shared with local and national real estate professionals.
  • Real estate Developers, Brokers, and Investors can find underexposed development opportunities that support local economic development goals, then connect with city leaders to save time, streamline due diligence, and reduce risk.

‘We see this as a tool that will be helpful to our members both in the public sector and the private sector in promoting and finding sites,’ says Cynthia Stewart, the Washington D.C. based staff vice president of community development for ICSC, a global trade association for the retail industry. Its members include shopping center owners and developers, land use attorneys, architects, mayors, and chambers of commerce. ‘It’s a real way for small-town cities and urban cities with underserved urban markets to get those sites in front of developers. They aren’t always the obvious sites,” Stewart says.

What is your coverage like in the US? What has the expansion process been like?

OppSites has grown incredibly fast since it’s launch in September 2014. Currently, we have over 400 cities and over 3,000 real estate professionals using OppSites on any given month.

What have you learned or surprised you since launching this business?

The most surprising factor has been, and still is, the inefficiencies that exist in real estate industry and the potential it creates for commercial real estate innovators.

Could this platform expand internationally?

It could, but we have not explored the opportunity thoroughly. Currently we are working with a few Canadian cities. However, I believe OppSites has an incredible potential in the area of Foreign Direct Investment.

You had a seed round in 2014 – are you now revenue generating with no need or plans to raise further capital?

We are currently raising more capital to accelerate the growth.  

Have you seen Landinsight in the UK? How similar is it to your platform?

OppSites is a matchmaking service for cities and real estate developers rather than the property analytics tool as Landinsight seems to be.

Crowd Funding
InterviewsInvestment

Real Estate Crowdfunding: Interview with Ian Ippolito

Ian Ippolito is the founder of Real Estate Crowdfunding Review and a rare source of independent knowledge when it comes to the highly cluttered US market. Against a backdrop of recent troubles at LendingClub and ever-growing number of platforms, we asked Ian for his views on the state of the market:

Crowdfunding has different models. How should someone think about which option is best for them (eg. Debt, equity, P2P)?

There are several ways to invest in real estate, and the main choices are between debt and equity. If you invest in debt, you are loaning money. If you invest in equity, you are becoming a business partner and get a share of the profits. Debt tends to be safer because debtholders get paid before equity holders. However, with less risk there is less reward: there is no potential for over performance, because the debt holder simply gets the promised yield. On the other hand, equity is more risky because expected profits may never come. But at the same time, if the deal goes well equity holders can make significantly more than what was promised initially. So there is more risk but potentially more reward.

P2P lending is simply lending money directly to someone else, instead of letting a bank do it. By cutting out the middleman, investors make more and the borrower pays a lower rate.

What is the origin of crowdfunding real estate in the US?

The Securities Act of 1933 originally made it illegal for real estate companies to solicit money from the general public. So unless you played golf with a real estate developer, you didn’t even know opportunities existed. That changed with the passage of the JOBS act in 2012. Different provisions now allow companies to solicit different categories of investors for the first time. So many of these companies naturally have moved to the Internet, which has given investors a wealth of options to choose from.

What is the current state of the industry – ie. there has been an explosion of players at both the national and local level?

Yes, it seems like every week there’s a new real estate crowdfunding site that pops up. However, there’s also a lot of pressure in 2016 that wasn’t there in 2015. Many of the VC funded companies are having trouble getting new rounds of financing due to the recent problems with other fintech companies such as Lendingclub (financial improprieties, mass layoffs), Prosper (mass layoffs) etc. So yes, I believe there’s going to be quite a bit of consolidation, as well as some weaker players dropping out.

There are both national and local players because of the way the law works. Some local states allow crowdfunding, while others don’t. So most of the VC funded companies are going the national route. But other companies are trying the local state route. The problem for them is that it seems it will be a long time before a majority of the states allow it, so that is an impediment to scaling to a large size (if that’s their goal). Some of the local players are content to sit in a small niche, and if that works for them financially then I think they will end up fine.

How much of this industry comes down to the deal acquisition strength of each platform (ie. ability to pick a good property)?

I think deal acquisition strength is crucial, and unfortunately it is an industry-wide problem. Currently, volume is far too low: there is no single site that an investor can go to in order to create a fully diversified portfolio in real estate. And while virtually every site claims that they are the best at picking properties, too many of them fall short. I believe that the platforms that best address these issues will become the dominant players.

How important is the actual technology platform and who is doing that well?

I feel that the majority of sites do the core/essential technology well. There are a few sites that do a nice job with some of the extras (such as the yearly return calculator on Acquire Real Estate and the auto investing feature on Peerstreet), but no one company has an overwhelming advantage on technology. In fact, I wouldn’t be surprised to see the technology becoming a commodity in the next few years, as everyone copies the best features from other people. I believe that it’s the non-technology portions (due diligence and the ability to source an adequate volume of deals), which are the key differentiators.

You mentioned cooling VC interest – what’s happening?

VC interest is not just cool, it is freezing cold. The larger players are hoping to ride out the winter by conserving cash. No one wants to try to raise money and then have to suffer a down round, which will kill their valuation. Newer players are having to self-fund, or find ways to grow that do not depend on outside funding.

What are you expecting the industry to look like in 3-5 years?

In addition to less sites, I think it will be much more transparent than it is today, which will make it better for investors and easier to separate the best sites from the “also-rans”. In the past, real estate developers rarely showed all their past performance to potential new investors and deliberately tried to keep people in the dark about any failures. And most of the new real estate crowdfunding sites did the same at first. A few sites even tried their best to squelch investors who had “the nerve” to let others know about investments that went sour and didn’t perform as promised. In my opinion, the industry will never be accepted by the mainstream, if it continues to do this.

Recently Peerstreet became the first site to allow potential investors to see all their past performance. Practically every site claims that they have awesome due diligence, but being able to see their past performance proved that they really did have exceptional due diligence (and was the main reason that I rank them number 1 in my 2016 review of the industry). I believe that now one site has done this, other sites are also going to have to open up or will be looked at suspiciously by investors. My hope is that this is the start of a watershed moment that makes investing easier for investors, and allows the industry to mature.

What related industries do you think are being spawned by this (research, advisory etc)?

I wish I could say that there is a healthy research and advisory industry, but unfortunately there isn’t. As I mentioned earlier, more than one site has actively attempted to squelch research and advisory sites using lawsuits, etc. I do think this is a legacy of the “old-school” real estate investment mindset, and eventually will fall by the wayside. But in the meantime, the industry will not be able to move into the mainstream until it grows up a little bit. For example, investing in stocks and bonds wouldn’t be mainstream if it weren’t for research advisory services such as Moody’s, S&P, etc. Objective advice is needed to provide legitimacy to an industry.

Would you invest in a crowdfunding platform personally?

Maybe, although if I did it would have to be an awesome opportunity, because I would have to resign as the editor of TheRealEstateCrowdfundingReview.com (I wouldn’t be able to maintain objectivity if I had a financial stake in one of the companies). Right now I’m not seeing that awesome opportunity where I feel confident that one particular platform will be the one that grows exponentially. First, there are a lot of competitors so it’s difficult to know who’s going to end up on top. Second, from what I’ve seen so far, the profit margins are very thin and require the sites to generate a lot of volume to become worth investing in. And as I said earlier, the volume on 95% of the sites is pretty poor. Many of the sites have been around for several years, so if they haven’t been able to figure out how to solve that crucial problem it makes me wonder if and when they ever will. Without an exponential growth component, it’s virtually impossible to IPO. So I personally would not want to be in the position of having invested a lot of money in one of the “also-rans”.

Do you think crowdfunding will disrupt the traditional model of house ownership one day?

Yes, I can see that happening. I would not be surprised if in the future, people looking for a house loan would look first at the Internet before even considering a bank.

What is the future for your website?

I will continue do the same thing that I’m doing today – simply posting content that I find useful while making my own investment decisions. That includes more in-depth reviews of sites, industry wide rankings, news, tutorials, etc. And hopefully people will continue to find that useful.

Property Startup
Investment

How to Invest in Proptech Startups

As its own vertical, real estate tech startups are still flying below the radar. There are a handful of incubators, 2-3 conferences and some media coverage but it hasn’t got anywhere near the same mainstream profile of fintech (financial technology). Even the property industry is not completely aware of the breadth and depth of the startups bubbling to life in this space.

One of the exciting opportunities for people in the real estate industry is the ability to become involved in this world. This could be anything from launching a startup, working for one or advising one. There is also the possibility of investing in one.

Your investment options reflect the amount of capital you have to spend. For normal people, this could be anything from $5,000 to a few hundred thousand. In most cases, the key is getting access to startups at a very early stage when they are still open to small investors and are willing to give away equity. This is called an angel or seed round. The founder will have a clear business plan and may have an early version of their product but they aren’t ready to approach professional investors that need more than a good idea. This provides an opportunity for investors to get in early, providing capital to build out the IT and demonstrate a minimum viable product (MVP).

Obviously a high percentage of these startups fail, so it’s important to focus on businesses you understand and can genuinely add value to (via contacts or expertise etc). So where do you go to look?

Angel List

Angel List is the world’s largest database of startups. It allows you to invest directly via their website and lets you sort by industry type. More than 4,000 real estate startups are currently on the platform.

You need to join a syndicate which is just like a mini-VC fund led by an individual (or a few) who you follow into the deal. Most syndicates have some kind of investment mandate (type of companies they look for) so that you can keep an eye on who has backed proptech.

One syndicate called Bricks & Mortar Ventures is specifically targeting proptech businesses and has already made 15 investments. Their portfolio includes some well-known names like PlanGrid, Rhumbix, Asset Avenue and Rad Pad. The minimum investment is USD$50,000 and the benefit is that you are putting your money with people who know this space and have a track record of picking winners.

If you are interested a good starting point is to read this interview with Angel List proptech investor Brendan Wallace: https://blog.angel.co/inside-the-deal-brendan-wallaces-investment-in-clutter/

Angel Investment Network

While Angel List is the most established platform and as the broadest collection of startups, there are a growing number of other options.

Angel Investment NetworkAIN has been around for a number of years and provides country based platforms. That means I login via a Singapore website when then allows me to bring up local or global deals. They have a real estate specific category which returned 124 results globally. The only limitation is that they include actual real estate deals rather than just real estate tech projects, but that’s just a matter of sorting through each listing

The site provides an overview of the business including the team, amount they want to raise and the minimum investment size. If you click on interested, the team will get in touch directly with documents such as a pitch deck and legal agreements. I have both invested and looked at a number of deals via this platform and it works well as a simple introduction service.

Incubators

While real estate incubators don’t let you invest directly as they are pre-funded, you can watch them to see startups that graduate through their programs. By applying successfully, they get both funding and industry support which usually strengthens them but by no means guarantees success. This can leave the door open for investors, again, particularly those who have something more to offer than just money.

The following incubators worth watching:

This is a low percentage option simply because with a bigger profile comes bigger expectations. If nothing else, it tells you what other people believe is worth backing.

Local startup events and conferences

These can be the best hunting ground if you have the time and energy.  Startups that have managed to get on some of the above platforms may be pretty savvy and be more picky about who to take money from. The founders that are beating the pavement at a local startup night or manning a booth at a conference are likely to be open to discussions.

These events often help each other or feature similar people in the scene so go to 2-3 events and you will discover a whole lot more. Many Business Schools have startup pitch nights and there are more and more events being held at co-working spaces and even corporate innovation labs. Googling ‘startup event [insert your city]’ will turn up plenty of options.

Finding the right investment won’t be easy and it’s helpful to decide a few things before you start:

  1. Maximum investment amount and number of investments you would like to make – my approach is to treat this like a night at the casino (eg. ‘how much are you willing to lose’)
  2. Business type (eg. anything property related or specific topics within the vertical: residential sales? crowdfunding? Virtual Reality?)
  3. Team / experience (what are you looking for? Direct property experience or ok with more tech focused experience? Previous startup experience?)
  4. Your role – active or passive (how much can you help and do you want to help)
  5. Investment horizon – it’s no good demanding returns in 2 years when it takes 10 years to build the business

All of these will vary from individual to individual, but it helps to set these out before you start looking so that you can vet the opportunities. The investments you pass on are just as important as the ones you make.