P2P lending was born out of unsecured lending between individuals. The ticket size was usually a few thousand dollars. In a sign of how much the market has evolved, fintech lenders now cover commercial real estate loans with ticket sizes ranging from $1 million to $20 million. This evolution is being led by a host of players with RealtyMogul, Sharestates, Patch of Land, and Money360 dominating their respective niches.
Money360 is an online marketplace for commercial real estate loans and caters to both institutional as well accredited retail investors. They secure the property with a first priority lien against income-producing commercial real estate, and, for the borrower, they focus on bringing convenience, speed, and reasonable commercial terms to the deal. Along with this, they run an investment management company, M360 Advisors, which manages diversified fund vehicles for institutional and accredited retail investors.
Money 360’s Background
Co-founder Evan Gentry started MoneyLine Lending Service, a mortgage lending company that transitioned into a mortgage tech company. The company was sold to Genpact, a spinoff from GE. He then started G8 Capital in 2007, a private real estate investment firm specializing in the acquisition of commercial real estate and non-performing loans. The company made most of the real estate meltdown in 2007-08 and bought non-performing residential as well as commercial loans. From 2007-2014, the company acquired distressed assets (major commercial real estate loans) worth $800 million. As the market has normalized, the company stopped acquiring further loans.
Gentry and his partner Daniel Vetter founded Money360 in 2010. It was a logical step forward considering Gentry had ample experience in mortgage, real estate, and investments, as did Vetter, a veteran of PIMCO and alumnus of Harvard Business School. After closely studying the business models of LendingClub and Prosper, and beta testing it on the real estate market, they zeroed in on commercial real estate bridge loans.
How Money360 works
In the beginning, they would source commercial projects that needed funding and potential investors who wanted to invest in the project; for instance, 10 investors pitched in for a $5 million loan. This model was not scalable and they shifted their focus into selling loans to whole loan buyers. In order to attract accredited retail investors, Money360 needed a more refined and sophisticated product; they needed to be diversified across multiple loans. Inspired by LC Advisors, they launched M360 CRE (a commercial real estate income fund), which was launched last year and is on track to achieve a fund size of $180 million this month.
The company does not crowdfund its loans. They either buy loans through the fund or partner with whole loan buyers like federal credit unions and banks.
Products and performances
Money360 has two primary products:
- Bridge Loan – Available for commercial real estate for a maximum of two years. Returns range from 8%-10%, loan-to-value (LTV) is usually 65%-70%, but in some cases can go up to 80%. Loan size is between $1 million to $20 million and, to safeguard its interests, Money360 holds the first lien position. The company did $45 million in loans in April and in the process broke its monthly record. The secret behind its success is a well-executed business model. Though they leverage technology for underwriting and processing, origination and due diligence are still performed using traditional models. Money360 have eight development officers who work with local borrowers and brokers around the country. By the end of the year, the company wants to cross the elusive $100 million per month mark.
- Permanent Capital – They also offer competitively-priced 7-10 year loans, which are funded in-house and then syndicated to banks and credit unions.
The Money360 Difference
The team at Money360 is immensely experienced, and that is proving to be a difference maker in the highly competitive commercial loan market. The CTO has over 20 years experience in mortgage technology and, with his expertise, the company has developed technology that allows them to accelerate the underwriting and closing process as well as streamline the entire back-end process. This allows investors and whole loan buyers to track details of every single deal in a detailed manner.
Another difference is the reputation of management. Unlike other players in the industry, the company and its founders have a proven track record of scaling up companies into multi-billion dollar entities. Because of that, it is easier for the company to attract investor interest as compared to competitors.
Compliance & Investors
Accredited retail investors own the real estate loans through a REIT structure, which gives them diversification across all loans in the fund. They use marginal leverage and are able to provide returns of 8%-10%. Money360 have been able to attract influential institutional investors and have one of the largest banks in South Korea as an investor in the fund.
The company expects to become the market leader in the commercial loan segment in terms of origination by the end of the year. After successfully carving its niche in the market, the company is now looking for strategic partnerships to extend its dominance.
Considering commercial real estate is a multi-trillion dollar market, fintech startups represent a very small fraction. Most of its competitors deal in crowdfunding whereas Money360 specializes in being a direct lender. This difference is a major competitive advantage as it shortens the time period for processing and allows for more flexibility to the borrower. Also, competitors mainly focus on fix-and-flip real estate. Having already fixed and flipped 4,000 residential properties in G8, they know it is a cyclical market, which is why they are concentrating on stable and more permanent commercial loans.
Even Realty Mogul, one of the most famous online real estate crowdfunding marketplace, prefers equity over debt funding, or, in some cases, both types of funding are done. This is fine as long as project/asset is performing, but in the case of a non-performing asset/project, a conflict of interest arises between equity and debt holders.
Money360 is headquartered in Ladera Ranch, California and has a team of 30 people. The company has the benefit of a hugely experienced founding team coupled with a razor sharp focus on what it does best. The company’s focus limits its reach, but the niche it has chosen is a trillion dollar market, which it is clearly dominating.
Written by Heena Dhir.