$200 million dollars! That is how much real estate value has been invested on the RealtyShares platform since launch just a short two years ago. You have likely heard a lot about marketplace platforms over the past few years. RealtyShares is one of those that stands out above the rest as truly being a platform of excellence.
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RealtyShares is not only improving the process for entities to access capital for real estate projects, but the team is also improving access to real estate assets for everyday investors.
Check out my discussion with the fascinating Nav Athwal, Founder and CEO of RealtyShares below, and see how he and his team are changing the game of real estate investing!
CL: Nav, it is such a privilege to have an opportunity to speak with you. Before we jump in I would love to hear a bit more about your background. I grew up in a family of engineers so I am always interested to hear how an electrical engineer for Aecom ended up getting into real estate investing technology?
NA: I started my career as an electrical engineer but I have always had a real passion for real estate, stemming from my father’s work in the industry while I was growing up. So I decided to pursue a law degree and worked in real estate law for three years. I had the opportunity to work with some of the largest institutions in the world on some of the biggest real estate projects in California, but the engineer side of me missed the element of building something.
RealtyShares is a nice intersection of my background and skills. Between being a passionate real estate enthusiast, a tech investor, and a real estate lawyer with an engineering background I am blending all these skills to create an efficient way to do business and transact in a massive asset class.
CL: For those that don’t know can you please describe RealtyShares in your own words?
NA: RealtyShares is an online marketplace for real estate investing. We look for investors looking to invest in the trillion dollar market of real estate. On the other side of things we are working to serve those owning and operating assets and wanting to raise money more efficiently.
The idea for RealtyShares came to me back in 2010, when the capital markets were dried up. I realized that the banks were pulling back and private equity wasn’t a good size or fit for the type of real estate investment I was working on. The idea is simple. We want to create a more capital efficient system for operators and make real estate investment more accessible for investors.
CL: How would you say RealtyShares differentiates itself from competitors like Fundrise, and CrowdStreet?
NA: RealtyShares, is definitely one of many in the real estate investing space but our differentiation comes down to a few things. The low investment threshold ($5,000) in conjunction with an abundant amount of deal flow sets us apart from the competition. It also helps that we have a variety of equity and debt positions across commercial and residential assets for investor to be able to better diversify their investments.
Ultimately we are all trying to create a new industry so I don’t look at Fundrise and CrowdStreet as competitors, but rather we are all on the sidelines together. We are all trying to create an industry that focuses on creating efficiencies in a market that has been left unchanged for years and is in need of more transparency and financial education support.
CL: Since this is a new way of investing in real estate, can you describe what the vetting process looks like for determining what investments to make available?
NA: The RealtyShares process is a lengthy and thorough one that see’s thousands of company’s looking for real estate investment each month that don’t meet our standards.
We start with who is looking for an investment and what is the sponsor’s or borrower’s experience? A track record of completing many projects with strong success is key. We also conduct a credit and background check on the principals of the company to make sure there are no financial issues or criminal records and ask for references from past investors.
Once we have established these pieces of data and are comfortable with the sponsor looking for investment then we turn to the deal at hand. We look at the value itself and the strategy we will look to employ to generate yields for investors, and determine if the returns are attractive enough.
CL: This sounds like a very comprehensive though lengthy process. How are you making the process efficient and thinking about being able to scale this process?
NA: That is one of biggest challenges. We receive thousands of leads that ultimately drive to three or four leads that are good. Since we are a tech company by identity, we want to take the manual, paper filled process of underwriting and achieve scale and efficiency by focusing on automation, predictive analytics and technology enabled workflow tools to automate the underwriting process.
It’s all about creating efficiency while preserving the quality of the underwriting and deal flow process. The long term ambition here is to get down to a one day real estate transaction.
CL: What does the mix of commercial versus residential investments on the platform look like?
NA: As I mentioned we have a broad base of deal flow on the platform, but right now the majority of investments come from the residential space. This includes single and multifamily projects but there are a growing number of commercial assets.
In the last six months we have seen nice growth in available commercial investment. We have brought on a strong team of managers in the commercial space that are working to make this segment a much bigger focus with more deals while still focusing on the residential markets.
CL: Why has it been more challenging to onboard commercial real estate investments?
NA: First, the residential space is bigger if you think about consumers and investors. Additionally, from an investing perspective residential properties are very intuitive to investors because someone is living in the property and providing rent, which creates rental income.
The second piece is our strategy is all about secondary market value add opportunities. That typically means investing outside of core markets where cap rates are at a level where it’s hard to generate yield for investor in markets like Boston, Oakland, and Sacramento.
Since we are focused on those non-core markets, investing in offices may not be the best investment option where multifamily is still stronger. The final thing is the CAPEX to risk of a tenant leaving in the commercial space. For that reason some investors who are less savvy may shy away from these types of investments.
CL: What has been RealtyShares experience in driving both investors and users to the platform to maintain a balance of the two?
NA: In a marketplace the dilemma is trying to balance supply and demand. That’s also what makes a marketplace sensible. You have to generate loyalty on both the demand and supply side and you can’t have one without the other in the long run.
We saw early players like Airbnb and eBay get it right through growth hacks. Once you hit the inflection point of a platform in terms of size and scale, usually the marketplace takes shape. At RealtyShares we have taken a similar approach to maintain a balance of investors to sponsors.
We have a strong track record of funding deals. 99% of our deals fund fully because we have a robust base of investors. In cases where we do still have demand imbalance we try to mitigate it through marketing strategies, PR, credit facilities, etc.
CL: Can you talk about the benefits of investing in commercial real estate?
NA: Commercial real estate specifically helps to diversify an individual’s investments since few people often hold commercial asset and the commercial space tends to have higher yields with built in tax and depreciation benefits.
In addition we have seen that historically commercial real estate has proved itself to perform better through the ebbs and flows of the economy, and acts as a better hedge to economic downturns.
Endowments like Harvard and Yale have investments in commercial real estate, because it’s a yield inflation hedge. Most people, historically haven’t had access to this type of hedge investment, but those who have had access to it love it.
CL: What does a typical RealtyShares investor look like?
NA: Though our investors must be accredited there is no one type of investor. From doctors to lawyers and finance individuals as well, it’s a broad base of profiles. In terms of age our investor’s vary in age from late 20’s to early 70’s. I think that that speaks to real estate as an investment class.
90% of our investors are individuals who typically invest eight times a year with an average investment size of $13,000, though that can be as low as $5,000. The other 10% of our investor base is larger institutions, which we expect to continue to grow.
CL: Is there a scenario in which you would like to serve non-accredited investors with the RealtyShares product?
NA: We definitely want to open the platform to anyone who wants to access it. We are fascinated by that idea. That was my initial goal and though we haven’t fully realized it yet we do see the path forward to get there and we are strategizing on the best way to get there.
The team expects to really start working towards this goal as early as quarter four of this year. We have so many non-accredited investors that have signed up and are just waiting for the doors to be opened to them to invest. The fortunate thing is the JOBS Act which passed in 2012 has provisions in it for regulation A+ under title IV that we will look to use to open up investment to non-accredited investors.
CL: I am always a fan of General Catalyst and their investments. What did you see in General Catalyst that made you feel confident that they should be an early partner?
NA: General Catalyst is a fantastic marketplace investor that has invested early on in companies like Airbnb and Kayak that have been incredibly successful in connecting latent supply with latent demand. That is something that really fascinated us about them.
Also, Niko Bonatsos at General Catalyst is a board observer at RealtyShares. At the time he was still an associate but he is going to be a force to be reckoned with in the investing space and is definitely someone to watch. Our interactions with him early on made it clear he would be a great value add investor.
General Catalyst as a whole has the ability to invest millions in companies they believe in, and they showed that they believed in our vision of the company and they have an amazing track record.
CL: Let’s talk about the fact that the team just surpassed $200M in deals financed across thousands of properties on the platform. Congrats by the way, but what does that mean to you, and where do you go from here?
It means we are throwing a party! Just kidding. We have hit an important milestone. Less than a year ago we crossed the $100M threshold but we are really growing our footprint in the real estate industry. This is a time to look back and take a deep breath and look at all that we have accomplished.
It’s really just the start. We are still just a fraction of the market annually. This is a half a trillion dollar market in terms of transaction volume. This is really a way for us to show the world of investing that RealtyShares is capable of having a major impact on the industry.
At the end of the day we are here for our customers and we really owe a lot of our success to our customers so this is really a shout out to our customers, and investors for their incredible support. We couldn’t do it without you.
The Minute Rundown with Nav Athwal
CL: What is one lesson you would tell someone considering starting up?
There are so many but I will keep it to two. One is hire stronger talent sooner. In order to obtain customers you need strong execution. A lot of times when you are starting out you may not want to hire a stronger talent pool because they cost more money and it can be intimidating. However, talent is the key to success.
Second you need to make decisions faster and with imperfect information. One thing I have learned as a founder is making decisions as a startup means you won’t have all the data and information to make a decision, but not making a decision is a bigger detriment to your business.
CL: Since you do run an investment platform, outside of RealtyShares what is the best investment you have ever made?
One of my best investments was in Tesla when it was trading at $25 a share, not because I was the smartest investor, but when I do invest a lot of it has to do with the fact that I believe in the product and person running the company. Elon musk is a pretty amazing person. Between Spacex, Solar City, and Tesla, he’s a force to be reckoned with.
On the real estate side of things, in 2010 there was some awesome investment properties but the problem was there was limited access to capital and investors. However, I did purchase some multifamily assets and just recently sold them six months ago at two times the value. It was something I purchased in 2012 and would have purchased more had there been a RealtyShares platform at the time.
CL: If you could pick one founder to model yourself after who would it be and why?
One I try and follow is Brian Chesky of Airbnb. His dedication to his design and brand and what Airbnb stands for on both sides of the marketplace and his focus on culture really stand out to me.
If you look at early blog articles from him after his Series B and C rounds, one thing he always harps on is not to sacrifice on culture. Ultimately the success of the company comes down to people but also that these people feel they are building something interesting and that they believe in. Brian and the Airbnb team are definitely one group I hope to continue to learn from.
You can likely tell as I did that Nav is a very thoughtful individual with a keen understanding of how to approach and solve problems of interest to him. The way in which he answers questions and considers his responses speaks to his analytical and engineer-like approach to solving problems.
I feel strongly that his mindset and approach to problem solving is a major reason why RealtyShares has had such incredible success so early on. So here is to a $200 million accomplishment and to billions more in accomplishments.
Way to go Nav and the whole RealtyShares team in reaching an amazing milestone and setting the path for future success. Be sure to sign up here for RealtyShares.