Analysis

Real estate crowdfunding offers double-digit returns with collateral

Sharestates Logo -
Sharestates Logo -

Sharestates (https://sharestates.com/) facilitates  crowdfunding for real estate with a minimum investment of $1000. Without any outside funding, Sharestates has originated $96.9mil in deals to date with an average investor yield of 10.4%.

When you think of Real Estate investments, you always think of million dollar deals, mortgages and unending documentation. It will be inconceivable for millennials to even consider investing in real estate. Sharestates is a New York-based real estate marketplace looking to alter the paradigm by giving investors a chance to access the inaccessible real estate investments at a starting investment of just $1000. It was co-founded by Allen Shayanfekr, Radni Davoodi and Raymond Davoodi, who are concomitantly Principals at Atlantis Organization (A Title Insurance & real estate solutions provider). Its founders have over 25 years of real collective experience in real estate, title insurance, title management and real estate services. The company was beta-launched in July 2014, and officially in February 2015; in order to maintain corporate governance of the highest order, it works in compliance with regulations by Securities & Exchange Commission and all state blue sky laws and also has Lexis Nexis as banking solution partners. Sharestates  is a direct lender and holds titles to their loans.

Concept

Real estate online lending is also referred to as real estate crowdfunding. A sponsor (the borrower who is a real estate owner, developer or rehabber) applies for a loan or equity raise through the online platform. If approved, the project gets posted to the website for investors to invest small to large amounts of capital into the real estate project. Sponsors can have quick access to capital with the ability to close a loan or equity raise in a few days. Each project is thoroughly assessed with a 34 point underwriting and risk assessment system so as to minimize the risk. Net annualized returns between 10-20% are being targeted.

Operational Analysis

The projects will initially be concentrated in the Northeast, particularly New York City and New Jersey. Loans will be provided for 12 months with an optional six-month extension. Rates vary from 11 to 14%. A large volume of loan purchases will enable Sharestates to provide greater opportunity for both individual and institutional investors. It will also supplement the rigorous underwriting with third party evaluation (which comes with the institutional partnership). To carry out the underwriting process, important details such as project’s capital structure, budget, timeline, zoning issues, architectural design, title report, geographic fundamentals, sponsor track record, etc. are taken into consideration. The company has a complicated vetting process because real estate usually requires a lot of documentation and the additional due diligence protects its investors from any downside. Sharestates plans to automate this process in the future by building proprietary algorithms and score cards to order 3rd party reports like appraisals, credit reports, environmental reports, engineer reports and title reports. The company generates revenue by collecting a 2% servicing fee from investors. The company is focused on real estate deals because of the background of founders and, more importantly, the ability to generate superior yields with the security of a collateral.

Financial Analysis

Sharestates’ capital for real estate investments is sourced 80% from institutions and 20% from the crowd (usually high net worth individuals). The company is fully self-funded and has not taken any outside funding. First-time investors invest with a minimum ($1000) and then come back and invest significantly more after they get comfortable with the process. As per company officials, those future investments are sometimes 7 figure checks.

Sharestates has funded 33 projects and originated $32.3 million between June and August, recording $15.5 million in August alone. According to CEO Allen Shayanfekr, “Our platform was always meant to be a hybrid between individual investors and institutional investors. The source of the capital doesn’t really matter to us. The idea is to make these investment classes available to the everyday person.”

Sharestates Team believes that they can easily access $500 million in annual origination volume without the need for marketing or advertising. Founders’ years of experience in real estate industry as well as their close liaison with title company Atlantis, provides it with well-qualified borrowers. Typical borrowers include fix and flippers, rehabbers and real estate developers. The company has raised $30 million in a loan deal from Ranger Direct Lending Fund in May 2015 and finalized a $60 million loan purchase agreement with an East Coast Private Equity investor in February 2016.

According to Lend Academy, Sharestates has broken into the top 10 U.S. real estate crowd funders. Since its launch, it has closed more than $96 million in origination, returning more than $16 millionto investors, with zero loss of principal and a net annualized yield of around 10.4%.

Conclusion

Online real estate crowdfunding is one of the fast growing segments of the p2p lending industry. It provides its investors a secured return with higher yields and borrowers a lower transaction cost as compared to other segments like unsecured consumer finance where Lending Club and Prosper charge origination fees of around 5%. Investors would flock to take advantage of the double digit returns with collateral and Sharestates looks in prime position to capitalize on the trend.

Author: George Popescu and Heena Dhir

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

Add Comment

Click here to post a comment

Your email address will not be published. Required fields are marked *

Testimonials

default image

"Your daily letter is great!" , Ram , Founder and CEO, PeerIQ

default image

"Hi George - just want to tell you that you are doing a great work with Lending Times;-) Brgds, Kasper" , Kasper, Partner and Co-founder at Dansk Faktura Børs A/S

default image

"I've been following your newsletter for some time now and have been very impressed with the content." Charlie,Co-Founder | Bolstr

default image

"Hey George, I must say I really enjoy your site. It has inspired me to do some changes at our platform and we are the biggest consumer lender in Sweden." , Ludwig, CEO @ Savelend Sweden AB

default image

"Your daily email is very useful. It gives quick update on what's going in the market. Thank you very much for all that info." Yann Murciano, Head of Base Metals Trading at Morgan Stanley

Our daily p2p news digest

Daily News Summary Digest Sent Daily To Your Inbox