Startups Are Looking To Fractionalize Real Estate Assets, But Should They? – Forbes
Startups are looking to fractionalize real estate assets to lower the barrier to entry in the … [+]
Investing in commercial real estate or vacation rental properties can be a consistent source of passive income and returns, not to mention growth and the potential liquidity you don’t get with owning your home. Yet the price of entry is often prohibitive to all but those who already have wealth. This was the puzzle Drew Sterrett wanted to solve in 2017, when he worked as an analyst at asset manager Tungsten Partners, focused on real estate. He spent all day looking at the potential investment returns as he poured over the numbers and helped the firm structure deals. He wanted in.
Sterrett believed he had the background needed to be successful. What he didn’t have was the capital required for a retail investor like him to get involved in the way he wanted. “Real estate is one of the largest wealth creators in the world, but it’s really been held off for the less than 1%, the 0.1% [of people], to invest side by side with institutional investors,” Sterrett tells Forbes One
If an asset was broken up, Sterrett realized, each tranche could be priced low enough to eliminate the financial hurdle, just like stock ownership. He cofounded LEX to do that. The New York-based startup acts as a securities broker to help existing owners of commercial buildings hold a public offering of shares for accredited and nonaccredited investors to buy and trade on LEX’s marketplace. “We are removing the cost of entry and many, or all, of the limitations,” he says. “We are now bringing [real estate investing] to the many and allowing them to gain access to a market they never thought they would be able to.”
LEX isn’t alone. The company joins a growing number of startups capitalizing on the concept of fractionalizing real estate assets. Each has its own strategy. Miami-based Here offers a marketplace of stakes into existing vacation rental properties. And Toronto-based Vesta Equity allows homeowners to tokenize and sell portions of their ownership as NFTs. Yet all claim the same mission of opening up the asset class to allow more access to its potential riches, and have the fees to create a great balance sheet. Market insiders and investors however, aren’t sure this strategy is the best idea for the market or the underlying users.
Clelia Warburg Peters, a longtime proptech investor and managing partner of Era Ventures questions whether the average investor is really prepared to tackle the nuances of the real estate asset class. She also wonders what problem these companies are really solving, as retail investors already have the ability to invest in real estate through real estate investment trusts (REITs) and many don’t. “The level of education in the public even around holding REITs is pretty low,” she tells Forbes. “This is literally exposure to a direct asset or a pooled vehicle of private assets, there is both education needed and risk.”
Market analysts, meanwhile, find this a dubious strategy in current market conditions. The pandemic-driven frenzy which drove up demand and lowered mortgage prices has started to cool, points out Gay Cororaton, a senior economist at the National Association of Realtors, who expects this to continue. If home ownership becomes more affordable, some potential customers may choose to purchase a full property, rather than invest in real estate assets. What’s more, fear around investors not knowing what to do may be overblown though, she adds. Mom and pop landlords maintain a lionshare of residential assets and many didn’t come to the industry with a real estate background.
On the commercial side, L.D. Salmanson, the CEO of real estate data and analytics startup Cherre, says it all depends on the asset. Warehouses and other industrial buildings including data centers have seen continued strong performance, he tells Forbes. But assets like retail and office buildings are just too up in the air right now to be a solid investment strategy. “Office is not doing well right now, it’s an open question whether that’s temporary or long term,” Salmanson says. “I can make the argument both ways.”
Yet the founders of both LEX and Here suggest their offerings aren’t any riskier than, say, downloading Robinhood and pouring money into stocks with no guidance, or backing early-stage startups on crowdfunding sites. Plus, the users of these startups aren’t stuck with the physical asset at the end of the day.
Here looks to avoid some of the risk by performing robust due diligence on the investment options on its platform, founder Corey Ashton Walters tells Forbes. While future performance isn’t guaranteed, the startup lists only existing vacation rentals that already produce 10% to 20% yearly booking yields. “We want to keep the wheels on the bus,” he says. “If an asset is doing well, they will continue to do well. Instead of one owner, there are hundreds of owners.” All assets on LEX were already producing a stable cash flow, according to Sterrett.
There’s also definitely a demand. When LEX officially launched in November, it had 10,000 potential members on its waiting list. And commercial property landlords are showing strong interest in working with the platform, too. Here launches this week with more than 20,000 members waiting to invest. Vesta Equity, currently only available only to accredited investors, plans to open its platform to nonaccredited investors within the next 12 months. Even before its February launch, Vesta Equity says it had hundreds on its waiting list and has since been approached by real estate developers interested in expanding Vesta’s offering as well.
All three real estate investing startups offer a new slate of options to the market. For LEX and Here, it’s opening a new avenue for retail investors looking to differentiate their assets. For Vesta Equity, cofounder Michael Carpentier says that the tokenized platform doesn’t just provide a new opportunity for investors, it gives homeowners a new strategy to gain liquidity without having to move.
“Imagine if you had $100,000 of cash in your wallet, nice you’ve got that, but you can’t use it, you have to borrow against it,” he says about the current system.
While all these startups have users and venture backers, it’s too early to see if their mission statements outweigh the risks.
Colorado Gov. Polis signs new batch of gun laws
Colorado Gov. Jared Polis (D) signed a new batch of gun legislation into law on Friday, several months after a deadly mass shooting at an LGBTQ nightclub in Colorado Springs.
The laws establish a three-day waiting period to obtain a firearm, raise the minimum age to purchase firearms to 21, make it easier to sue gun manufacturers and expand the state’s red flag law.
“Coloradans deserve to be safe in our communities, in our schools, our grocery stores, nightclubs and everywhere in between,” Polis said at the bill signing, according to The Colorado Sun.
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Five people were killed and 17 were injured in November when a 22-year-old gunman opened fire at Club Q, an LGBTQ nightclub in Colorado Springs.
A proposed assault weapons ban failed to make it to the governor’s desk alongside the other gun control legislation after the House Judiciary Committee voted last week to postpone consideration of the bill indefinitely.
However, legislation to ban the sale and manufacture of so-called “ghost guns,” or unserialized firearms, remains under consideration in the Colorado state Senate.
Kushner firm received hundreds of millions from UAE, Qatar
Jared Kushner’s private equity fund has received hundreds of millions of dollars in investments from the UAE and Qatar, according to a report.
Kushner, son-in-law to former President Trump, was the administration’s adviser tasked with policy in the Middle East, including delivering a peace plan between Israel and Palestine.
According to The New York Times, the investments, which follow a similar cash injection from Saudi Arabia’s wealth fund, raise concerns about how those close to the Trump administration have profited off of their former government roles.
The UAE sovereign wealth fund invested about $200 million with Kushner’s firm, Affinity Equity, and a Qatari fund invested about the same, according to the Times. The recently revealed investments are small compared to that of the Saudi fund, which invested $2 billion with Affinity in 2021, shortly after Kushner left the White House.
The investments are not believed to be illegal, as there are few ethics guidelines or laws regarding foreign investments in private firms after an official leaves government work. The investments are also not unique to Kushner, as investing is a known strategy of Gulf states to exert influence with American officials on both sides of the aisle.
Former Trump administration Treasury Secretary Steve Mnuchin’s investment firm has also received vast sums from Middle Eastern wealth funds, including $1 billion from the Saudi wealth fund.
Similarly, Trump himself has announced business deals with Middle Eastern interests, including a Saudi-backed, Trump-branded hotel complex costing $4 billion. Trump has also been a vocal supporter of the Saudi-owned LIV Golf Tour, the upstart rival to the American PGA, including hosting tournaments at his golf courses.
Last year, the House Oversight Committee, then controlled by Democrats, launched an investigation into the initial Saudi investment into Kushner’s fund. Then-Chair Rep. Carolyn Maloney (D-N.Y.) said the investigation was into whether Kushner traded influence from this government position for the investment.
“Your close relationship with Crown Prince bin Salman, your pro-Saudi positions during the Trump Administration, and PIF’s decision to fund the lion’s share of your new business venture — only six months after the end of your White House tenure — create the appearance of a quid pro quo for your foreign policy work during the Trump Administration,” Maloney said in a letter to Kushner at the time.
2 Cases Filed Against Wrestling Body Chief, 1 Of Them For Harassing Minor
he Delhi Police, which functions under Amit Shah’s Home Ministry, filed the two first information reports (FIRs) hours after the Supreme Court ordered them to do so.
The Delhi Police have filed two cases against Wrestling Federation of India (WFI) chief Brij Bhushan Sharan Singh after the country’s top wrestlers made allegations of sexual harassment against him.
The Delhi Police, which functions under Amit Shah’s Home Ministry, filed the two first information reports (FIRs) hours after the Supreme Court ordered them to do so, amid protests at Delhi’s Jantar Mantar by wrestlers including Bajrang Punia, Sakshi Malik and Vinesh Phogat.
One of the FIRs is over a complaint of sexual harassment by a minor, filed under the stringent Protection of Children from Sexual Offences (POCSO) Act, which gives no scope for bail.
The Delhi Police will pursue the case actively, sources said.
Mr Singh, who is also a BJP MP, welcomed the Supreme Court’s order to file the police case into allegations of sexual harassment against him.
Mr Singh told reporters the wrestlers should have waited for the report of a committee that was tasked to look into the matter before they decided to sit on a protest in Delhi’s Jantar Mantar.
“I am happy with the judiciary’s decision. The Delhi Police will investigate the allegations and I am ready to cooperate with them in every possible way. No one is bigger than the judiciary in this country. The order has come to file an FIR (first information report). The government had also said it had no objection to filing an FIR. I am not larger than the Supreme Court. I welcome the order,” Mr Singh told reporters.
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