October 2019 – Page 3

Commercial Real Estate is the New Liquid Asset

by Aaron Lohmann
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The blockchain and “tokenization” of CRE are taking off, bringing new liquidity to a traditionally illiquid asset class. By Aaron Lohmann As every seasoned CRE investor or lender knows, getting into a CRE investment requires significant due diligence and paperwork. Exiting an investment can be difficult if a recession strikes or if a property is outdated, poorly located, oddly configured or has other issues that limit cashflow and marketability. In fact, the illiquidity of investment real estate is why some investors stick to stocks and bonds. With the potential to digitize and accelerate the CRE investment process, blockchain technology is poised to transform CRE finance. The blockchain not only stores transaction data in an immutable secure digital environment, but it can also support securities regulatory compliance. Blockchain Comes of Age Blockchain technology has been available for nearly a decade, but it is only now beginning to emerge as a major CRE industry disruptor. It originated as a means of backing cryptocurrencies by providing an indisputable record of ownership, which happens to be a very valuable capability for CRE financing too. As the name suggests, a “blockchain” is a database of digital blocks of transaction data, each block timestamped and connected to the previous block via secure programming. Each data block is highly secure and impossible to alter or erase, making blockchain an efficient way to store transaction documents such as property deeds, mortgages and shareholder agreements. Think of blockchain as a digital ledger. But instead of the digital ledger belonging to a single server and a single owner, it is replicated and stored on multiple servers all networked together. When a new data block is added to the chain, all the server nodes automatically update themselves to maintain identical copies of the ledger. For example, if you used the blockchain and cryptocurrency to sell a CRE investment to a different owner, all the transaction data would be recorded in the blockchain ledger. So, there’s no human argument about who owns what share of a property or who has the final version of paperwork. All the transaction information is securely recorded and can’t be altered. How is This Possible? From its earliest days, blockchain technology has been advanced by software developers around the world. One important advance was the development of the digital security token, in which the token is programmed to represent a share of a debt or equity instrument. In recent years, software developers using the Ethereum blockchain platform created standards for a new kind of token that can be used to execute investment transactions in compliance with securities regulations—a major advantage for the CRE industry. While many advocates of the blockchain have recognized its potential for different kinds of financing and investment, securities requirements have been an obstacle in the past. Today, technological advances make it possible to use a blockchain-powered platform to buy shares in CRE debt and equity instruments and trade them just as you trade stocks and bonds—and completely in compliance with securities regulations. Specifically, Ethereum or possibly other blockchain platforms can be used to create security tokens that represent ownership in some kind of asset or interest. In the case of CRE investment, a security token could represent a 100% or fractional ownership interest in a CRE debt or equity investment instrument and would replace paper documentation of the ownership interest. And a token can have a built-in smart contract that will accurately execute the terms of the ownership stake. Tokenization in Action Imagine a partnership wants to raise $7 million in equity to build a senior housing community. It lists the project—and its associated market volume, current price, project location, market cap and more—on a digital platform backed by a blockchain. As an investor, you use U.S. dollars to buy digital tokens representing shares of equity in the senior housing project. The token assigns ownership to you, just as a paper certificate represents the shares of stock that belong to the owner of the certificate. That is, your legal rights and responsibilities are embedded in the token in the form of data. Then, all information about the transaction is recorded on the blockchain. Since the blockchain is an immutable public ledger, no one can ever argue with you about your equity stake in the senior housing project. And your digital tokens are programmed to include “smart” contract functionality that automatically distributes funds from the partnership building the senior housing community to you, a token holder, as the project advances. Over time, you may decide you’d like to exit the senior housing investment. The beauty of security tokens is that, being digital, they can be easily bought, sold and exchanged—just like stocks. No more waiting around for the lawyers, appraisers, notaries, lenders and everyone else to do their part. Tokens with built-in smart contract capabilities will take care of all that and generate real-time auditable records that reinforce trust. In Contrast… Tokenization creates something that has never existed before: a secondary market for CRE investments. Traditionally, an investor receives a partnership or membership interest in the entity that owns or is developing a commercial property. Assuming the property produces rental income, you receive monthly or quarterly distributions. If you have an equity interest, you receive—ideally—a return on your investment when the asset is sold or refinanced with a permanent mortgage. Either way, in traditional CRE investing, the investment is extremely illiquid. If you want to exit the deal, you need another investor or the project sponsor to buy out your shares by negotiating terms and entering into a contract. You may need permission from the managing partner of the ownership entity, and you need to submit paperwork to a transfer agent. It’s a lengthy process that can take weeks or months, involving endless emails, conference calls, documentation and constant confirmations. Streamlining Across the Middle While CRE will always have actual humans performing some transactional roles, investors trading tokens on a blockchain-based trading platform will have fewer reasons to call a lawyer or a

4 Things to Consider When Investing in Single-Family Homes

by Kendall Crawchuck
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Trends, opportunities and investment strategies for this growing asset class By Kendall Krawchuk Many real estate investors swear by multifamily investments, but investing in single-family homes can also be a great way to increase cash flow and your bottom line. For many, the single- family asset class is also a way to diversify their real estate portfolios. If you’re thinking about investing in single-family homes or single-family rentals, here are several trends, opportunities and strategies to consider. 1. Demand remains strong, but affordability is still a concern The landscape for investing in single-family homes and rentals will likely be cautiously optimistic. Demand remains strong. A recent survey by Trulia reveals an increase in the number of Americans planning to buy a home, with 40% intending to buy in the next two years. However, the issue of affordability continues to trouble potential homebuyers. More than half are concerned about saving enough for a down payment, a rate that is even higher among millennials, now the largest demographic cohort of homebuyers. Investors will also need to navigate rising median and mean prices, despite the slight uptick in inventory at the end of 2018. Because of this, we expect to see increased activity in more affordable markets. 2. There’s a growing demand for single-family rentals With affordability still a concern, more and more consumers are deciding to rent. This is particularly true among millennials, whose confidence in being able to save for a down payment is at its lowest level since 2011. Yet as millennials start to have families of their own, their needs are outgrowing traditional apartments or even 1- and 2-bedroom rentals. Many single-family rentals are being outfitted with updates attractive to younger families, such as energy-efficient amenities, open floor plans and green spaces. This demographic shift may be one factor driving the increased demand for single-family rentals and subsequent spike in rent prices in 2019. We anticipate that the remainder of 2019 will offer even more single-family investor opportunities to buy, rent, refinance or sell to turnkey owners seeking these single-family rental properties. 3. Off-market properties and overlooked markets may provide new opportunities for investors Competition is growing on the buy side of single- family home real estate investing, with institutional investors selling off considerable portions of their portfolios. And platforms like Opendoor, Knock and Offerpad are attracting busy homeowners looking to sell quickly. Investors should seek creative solutions in a crowded buying landscape. One notable shift in 2018 is many buyers who are investing in single-family homes are increasingly willing to acquire fixer-uppers from channels like the MLS. So, for some investors, it may make sense to develop a robust system for sourcing off-market properties. Single-family home investors should also consider overlooked markets The largest and most overcrowded—San Jose, San Francisco and Seattle—saw the greatest decline in prices at 2018 year-end, yet many experts still consider them overpriced. 4. Many people investing in single-family homes use financing to respond more quickly to market changes Many predicted 2018 to be the most competitive homebuying year in history, and yet the year ended with a slight cool down in activity and rise in inventory, particularly in the largest markets. Through the remainder of 2019, investors should prepare for longer timelines to sell and budget for either holding the property longer or anticipate selling at lower prices. Finding the right balance between the two will best prepare them for movements in the market. Similarly, single-family home investors should also consider financing partners who are set up to close on properties quickly and to deftly respond to changes in the industry. The success of many investors will largely depend on their ability to move quickly and find creative solutions to market shifts in 2019 and beyond.

The Handshake

by Mike Tedesco
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In a relationship business, you must genuinely build the relationship to get the business. By Mike Tedesco When I was 12, my brother John got me an after-school job selling newspaper subscriptions. Armed with nothing but our wits (and free umbrellas if you signed up), we hustled door to door and quickly became the newspaper’s top salesmen. In those four years, many a door was slammed in my face, but I learned how to approach strangers. I became quite good at it. These skills would later help me tremendously as a young loan officer, and I quickly became a top producer. I continued to develop this craft even as I began my own company. The Value of Personal Connections Over the last 13 years, I built Appraisal Nation from three men with two lenders into 120 employees with more than 1,300 lenders across America trusting us for their valuation needs. My entire growth strategy is focused on one core principal: This is a relationship business and to get the business, you must build the relationship. Getting from first encounter to client is a long process, but the first encounter is always the most important. In the modern age of technology, true personal connection is becoming rare. I built my sales model on a different philosophy than most. I believe that if we are going to have a relationship business, we must actually meet our prospects and build from the very first interaction: the handshake. For the last decade, I have reinvested a large percentage of our profits into face-to-face interactions by sponsoring and exhibiting at more than 50 lending conferences a year. In that time, I have personally attended more than 400 conferences and shook thousands of hands. You may think meeting someone would be easy: Shake a hand, say hello and ask for their business. But, the process is a lot more complicated than it appears. The wrong first impression could mean never having the opportunity to earn someone’s business. There is a lot that goes into meeting a new prospect. Preparation is key. Before you shake a hand, you need to be prepared both physically and mentally. Hawaiian Shirt or Tie? Being prepared physically sounds straightforward enough. You simply look and act professional. You should always know your venue, know the crowd that attends and know the location. If I’m attending a retail banking conference in the Northeast, I wear a three-piece suit, sharp tie, cufflinks, stay collars, the works. If I’m at a broker show in Orlando, maybe my attire will be matching polo and slacks with shined shoes and a coordinating belt. I went to Credit Union conference in Honolulu a couple of years ago. I’d never done this conference before and was a little concerned, so I called the event director who advised that most people would be in Hawaiian shirts and flip flops because they incorporate a vacation into the show. I followed his advice and fit right in. The vendors in suits looked out of place. When you’re unsure, simply ask the event organizers about the general attire. And when you are unsure, always err on the side of caution. You can always take the tie off. Another big part is grooming. Unfortunately, the number of people who come up to me smelling like last night’s outing is astonishing. A fresh haircut, good grooming (brushed teeth, clean nails, etc.) and properly pressed clothes will make you look and feel like you belong. Always carry mints or gum. You will be doing a lot of talking, and your breath will get stale. Remember, never turn down a mint. There is usually a reason it is being offered. When possible, get a good night’s sleep. An average conference day for me can be 16 hours or more. Know Your Company and Products Being physically ready is only one part of being prepared. You have to be mentally ready as well. You would be surprised by the number of people I’ve met who have no place being where they are, whether in their position or at the conference. They are not equipped to answer questions, and they make their company look like a late-night basement startup that hired them from an online questionnaire. Know your company and products intimately and have value to offer. If you do not have all three of these, do not attempt to sell your product. Once you have mastered your company and believe in it, you should be confident enough to go to a conference. Confidence is key. If you don’t believe in your product, or do not want to be at the conference, or don’t like talking to strangers, it will show. Remember, you are the face of your company when you are traveling. What you do is a direct reflection of your company. This includes your appearance and behavior at airports, dinners and even clubs. Make a fool of yourself drinking too much and people will think your company is not responsible. If you look disheveled, unprofessional or ill-informed, a prospect will think your company is as well. Care about yourself and your company so you and the company are seen as a positive example. Finding Your Target The next lesson is to always have a target. Before I ever go to a conference, I look over the attendee list and send our present clients short emails asking to meet up for a 15-minute check in. I then send emails to the top 10 lenders I want to do business with. These may not be the largest, but they are the 10 that I know that we will align well with. I usually get three or four responses. Two will immediately say they’re “not interested.” That’s not a problem. I will follow up with them at the show because what they just did was start a dialogue, and I like dialogue! Another might say, “Please speak to so and so,” and I will. Then another will say, “I

by admin
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Doorstead, an operations technology company, has raised $3.3 million in funding, according to an October 8 press release. The company has pioneered a new class of property management called “iRenting,” a model that provides landlords with a guaranteed rental income, regardless of occupancy, with rental offers within hours. Doorstead was co-founded by Ryan Waliany and Jennifer Bronzo. Waliany was previously a technology-operations expert at Uber. Bronzo is a tech entrepreneur who grew up managing properties for her family’s construction company. The founding team are all alumni of UC Berkeley and have built technology-operations products at Uber, engineered scalable systems at Doordash and Dropbox, and built forecasting models at Goldman Sachs. The company uses modern data science to model risk alongside operations technology that enables consistent high-quality service at scale. “Today, we are seeing the emergence of operations-technology companies like Uber, DoorDash and Opendoor with both operations and technology crafted into their DNA. At Doorstead, we believe that software cannot exist without the human component, and the operations cannot exist without software orchestrating the process,” said Doorstead CEO Waliany. Doorstead has met 100% of its guarantees, reduced vacancies by as much as 76% and helped owners earn up to 9% more in annual rental income, according to the release. Doorstead currently serves the San Francisco Bay Area. The company plans to expand into Sacramento and Los Angeles. The seed round was co-led by global investment firms M13 and Silicon Valley Data Capital with participation from the Venture Reality Fund and SOMA Capital.

by admin
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According to recent research by Zillow, adding a solar energy system to a home can increase the property value by as much as nearly 10% in addition to lowering electricity bills. Zillow’s research found that more than 80% of home buyers cite energy-efficient features as being important. The sale premium varies by market. For example, in the greater New York City metro area, solar-powered homes have a premium (5.4%) that is double that of Riverside, California (2.7%). Zillow notes that the Top 10 states where solar energy most increases property values are: New Jersey (9.9%) Pennsylvania (4.9%) North Carolina (4.8%) Louisiana (4.9%) Washington (4.1%) Florida (4.0%) Hawaii (4.0%) Maryland (3.8%) New York (3.6%) South Carolina (3.5%) Zillow cites future energy cost savings as a major reason why homes with solar energy systems can command higher prices. The research also points out that homes with these systems may be more likely to have other features—such as heated floors—that are desirable. California has passed legislation that requires solar panels on all new homes beginning in 2020. It is the first state in the country to do so. Zillow calculated the solar premium by comparing homes with and without solar-energy systems that were listed for sale and sold from March 1, 2018 to February 28, 2019. The study controlled for observable attributes of the homes, including bedrooms, bathrooms, square footage, age of the home and location.