Disrupting the Way We Raise Capital
We've covered several angles of the crowdfunding process, including appeal, what makes a platform reliable, what to look for in a property and how a strong platform can navigate the many restrictions and compliance regulations that comes with being such a young, yet already massive, platform. But what are nuances of how crowdfunding raises capital? How exactly has real estate crowdfunding made raising capital in certain markets and property types easier? To get some insight, we spoke to RealtyMogul.com's senior managing director Philip Block.
Before coming to RealtyMogul.com, Phil was not only a leader at Dominion Capital Advisors and Cantor Fitzgerald's real estate investment banking group, but was also Centerline Capital Group's Corporate Finance and Capital Markets VP; he directed new business development and capital-raising activities. When thinking back at his experiences at Centerline, Phil says it was instrumental.
"I learned a lot at Centerline about commercial real estate finance and capital markets," he tells Bisnow. "Centerline’s affordable housing platform was a syndication business, which is, in many respects, what we do at RealtyMogul.com. There is obviously a different bend here, however, since we utilize technology in a unique and exciting way."
That focus on technology, he says, is what set RealtyMogul.com apart. When speaking about the industry at large, Phil says that "very little" has changed in real estate financing in terms of underwriting and raising capital from institutions. Over the decades, the industry has become "incredibly opaque" and dominated by few, larger firms, but RealtyMogul.com "was at the cutting edge of real estate finance" and its interest in using technology and a strong team to impact the industry gave RealtyMogul.com the potential to be a game changer.
Since joining RealtyMogul.com in January 2015, Philip says RealtyMogul.com's sources of capital and product offering have expanded significantly allowing the firm to participate in transactions that they would not previously have access to. For example, closing small real estate transactions historically required sponsors to spend much of their time raising equity from friends, family and dozens of lenders, but RealtyMogul.com offers these sponsors a "one-stop-shop" to raise the capital they need to close. The firm has also completed several transactions where the platform provided debt financing in addition to equity or preferred equity.
But how do Phil and the RealtyMogul.com team find the right projects and developments to direct capital? What are the projects that Phil can confidentially tell his capital market partners—many of whom are industry professionals who he connected with during his time at Centerline—are reliable investments? What level of freedom does RealtyMogul.com provide its capital partners? Phil explains that it, of course, varies on a deal-to-deal basis, but typically investors come to RealtyMogul.com with a firm idea in mind of what kinds of transactions they want to invest in and where they want to play in the capital stack. RealtyMogul.com then sources transactions that fit their criteria.
"The goal is to be the outsourced origination and underwriting platform for our partners so that they can access investments and generate their required returns using less resources."
But Phil believes that RealtyMogul.com is still changing the conversation between real estate and capital market investors. "On the equity side of the house, we're providing access to transactions that investors otherwise would never have access to, which should hopefully shed some light on a historically clubby asset class. On the debt side, we’re helping investors scale their capital in a way they didn’t think was possible. Investors tell us all the time how challenging it is to put capital to work. Our ability to use our various sales channels and our technology to source investments is allowing investors to scale in a way that they previously found difficult."
By using the technology to target narrowly defined products and providing data and investment summaries in an efficient way, Phil says that RealtyMogul.com has been successful in tackling the challenging and time-consuming process of raising capital.
"Rather than force investors to spend hours searching for what information they want," he tells Bisnow, "we determine very clear parameters at the outset of a relationship and then provide exactly what investors are looking for."
Phil says RealtyMogul.com also helps simplify the process for raising capital for retail investors—traditionally a headache-inducing process—by structuring our investments as a single LLC, offering the luxury of a single point of contact, as well as handling the asset management, accounting and reporting so that the client "can focus on what they do best: operating their assets and creating value."
At the end of the day, Phil believes resolving headaches when it comes to raising capital is RealtyMogul.com's biggest contribution. By providing retail investors with access to transactions previously restricted to them, the firm provides investors with an "incredibly powerful tool." And, as regulatory changes in the lending and real estate crowdfunding spaces evolve, Phil believes the firm will continue to be in a "unique position to provide transactions for our investors as well as capital up and down the stack for our sponsors."
Interested in being an investor? Start here.
Real Estate Investing. Simplified.