Real Estate Crowdfunding: A Q&A with Allen Shayanfekr, CEO and Co-Founder, Sharestates
Since the enactment of Jumpstart Our Business Startups Act and the follow-up regulations from the SEC, real estate crowdfunding has been a widely used strategy allowing investors access into the marketplace. Investors can either focus on the equity or debt side of the real estate investment. Each real estate crowdfunding platform varies on market focus and how investments are structured. Lisa Knee, partner and leader of the firm’s National Real Estate Private Equity Group, spoke to Allen Shayanfekr of Sharestates to get his perspective on driving growth in the current marketplace.
Sharestates Inc. started in February of 2015, and now you have over $1.21B in funded loans to date. Crowdfunding is becoming increasingly popular and mainstream; how do you maintain a distinct advantage in today’s environment with your competitors?
Sharestates’ distinct competitive advantage has been and continues to be our real estate expertise combined with our underwriting criteria. Unlike other crowdfunding platforms with a core competency in technology, our core competency has always been a deep understanding of real estate. To date, we’ve funded more than $1.21B in loans, but we’ve also maintained a foreclose rate under 2% with zero loss of investor principal since the business opened its doors in 2015. We attribute our longevity in real estate crowdfunding in large part to our ability to maintain such a low level of defaults, because bad deals do not make it past our strict 34-point underwriting process.
What is the most interesting trend or key issue you have seen in 2018?
One of the key issues that we’ve seen play out in 2018, which we will continue to see play out in the coming years, is the affordability of housing. Most recently, we’ve seen multifamily rent growth slow with record levels of new construction coming online, yet there does not seem to be evidence of large swaths of renters turning into homebuyers. With home prices at an all-time high and mortgage rates expected to rise, many first time buyers are waiting on the sidelines to see what happens. As a result, the rent-vs.-buy equation has tilted toward renting, especially in costly markets. By the same token, most of the new multifamily developments in high rent markets have focused on luxury product. In the coming years, it will be interesting to see how developers pivot to meet demand.
Do you remember a specific experience (e.g., could be related to a deal or a property strategy, etc.) where you wish that you had done something differently? If you were to do it over, what would you change?
I don’t spend a lot of time Monday-morning quarterbacking our deals. We’ve been very careful and methodical in our approach to real estate crowdfunding and built a book of business with real estate developers that have a proven track record of success. As I said before, Sharestates’ core competency is real estate. We’ve built a technology platform that’s second to none, but most importantly we’ve built close personal relationships with our borrowers. We understand their perspective, and we work very closely with them to ensure we have mutually beneficial and realistic goals. To date, it’s paid dividends to our investors who have enjoyed returns of over 10% on average every year that we’ve been in business, with zero loss of principal.
I’d like to follow up on that previous question. On the flip-side, and without giving away a competitive advantage, what is a practice that you have implemented that you think everyone in your space should be doing, and why?
It’s not the most exciting area to talk about, but we take compliance and data security extremely seriously. We want everyone in our industry to take compliance as seriously as we do for the sake of our clients and the trust we’ve built within the broader real estate and financial communities. Our industry is still relatively new and unregulated, which is why we’ve ordered third-party audits of our company’s finances and technology in the same manner a traditional financial institution would. We’re adopting best practices and industry standards that go above and beyond what’s required, including Service Organization Controls 2 (SOC 2) Type 1 certification, to show our commitment and lead the way for our industry.