To our shareholders, clients and partners,
In 2018 we achieved many meaningful milestones, and we’re excited to share these wins with you. Our capital was used to improve nearly $200M worth of real estate. We more than doubled our annual revenues. We grew the team to 40+, up from 20 people at end of 2017. And the thing I’m most proud of: we did it all while operating the business to near break-even.
When we started the business, we knew it wouldn’t be easy, so we set out a few guiding principles which we believed would increase our likelihood of success. Nearly four years later, we find that these principles have brought us to where we are today, and they continue to be the foundation for our business strategy.
1. Building to last is better than building too fast
When the JOBS Act was first passed, hundreds of real estate platforms were started. Some of them went on to raise tens-of-millions of dollars in venture capital. At the time, there was a lot of pressure to raise, raise, raise at the peril of being left behind.
While capital for a growing company is very important, we believed that raising too much capital for this type of business could also create some unintended consequences. Along with venture capital come high expectations for growth. Unrealistic growth expectations in a lending business can create pressure to originate loans which may not be in the long-term interest of the company and its investors and clients.
As such, we chose to raise enough capital that would enable us to reach significant scale while prioritizing the ability to achieve this at break-even/profitability. This strategy, we believed, would enable us to invest in growth, but also do so with a long-term view of operating responsibly.
Our philosophy was that we didn’t need to be the biggest or fastest growing online real estate lender - we needed to be the one that was around the longest. Underpinning this thinking was the view that this highly-fragmented market would take many years to mature and would likely need to go through a credit cycle to reach full maturity.
In order for us to truly benefit from the long-term trend of online lending, we need to remain a going concern and meet our financial obligations as they come. Building a large, unprofitable business would be a futile effort if it isn’t built to be self-sustaining. In other words, we were happy to build a smaller, profitable company, rather than a large, unprofitable one.
Compared to many online real estate platforms, we’ve intentionally raised a very modest amount of equity capital (~$2m). That said, we will finish 2018 breaking even (and perhaps slightly profitable), while more than doubling our origination volume, revenues and team each year since we were founded. We have a great group of investors that supports our long-term thinking, and the founding team/employees still retain nearly 70% ownership in the firm. We know we still face many challenges ahead, but we built the business to position ourselves very well to grow and thrive as the market continues to evolve.
2. Specialists beat generalists
When real estate investing first started moving online in 2013, the industry was often compared to the wild-wild west. There was a lot to figure out as many in the industry looked to find the right product-market fit. One decision we made early on was to be 100% committed to the short-term residential bridge market. Our thinking was simple: creating a business in this unknown environment is going to be difficult. If we’re going to have any chance at building a successful business, we need to be highly focused on creating value and becoming a market leader.
What unfolded over the following years was very interesting to watch. In the beginning, every single online platform originated short-term residential loans. However, one by one, most dropped this offering from their platform. As it turns out, originating and servicing these types of loans is hard to do profitably at scale, as it requires strong underwriting matched with competitive, attractive rates for redevelopers. With our backgrounds in residential real estate, we weren’t surprised by this.
Having this perspective from the outset has allowed us to position ourselves as one of the top-rated platforms for short-term residential loans. The reason is simple. When you know who your customer is, you can market to them more efficiently. You can design software for their specific and unique needs. You can build processes and train teams to deliver exceptional service. You can lead a market rather than just be a participant in it.
Our product offering may seem narrow, but we designed it this way because our goal is to be the absolute best at delivering value to clients that need what we provide. We’d rather be exceptional at one thing than average at a bunch.
3. Our team is our best competitive differentiator
Anyone can build a website and say they offer fast, reliable closings for borrowers, or claim they provide high levels of transparency and service to lenders. That’s really easy to do. What’s incredibly difficult is to actually deliver on it. And it’s primarily people who deliver on those promises made by a website.
While we do invest heavily in technology to create a better experience for our clients, we will always be a personal business. If you’re borrowing money from us, you should be able to speak with someone directly to have your questions answered quickly. If you’re going to invest your hard-earned capital on our platform, you deserve the opportunity to talk with someone to learn about anything and everything around your investment.
The way we empower our team to deliver on our promise of exceptional service is by anchoring everyone who joins our team with the same Mission and Values:
We enable our clients to create wealth and improve communities by investing in real estate.
We do this for borrowers by being a responsible source of capital, so they can profitably scale their business.
We do this for lenders by giving them access to high-quality loans and offering them complete transparency.
There are a few operative words and phrases that are vital to our mission. The first is “create wealth”. This is the root of our existence. If we’re not creating wealth for our customers in some form or fashion, we shouldn’t be doing it.
The key words specifically for our borrowers are us being a “responsible” lender so they can “profitably scale”. It would be easy for us to originate more loans if we didn’t care about our borrowers’ businesses and bottom line. There are many loans we decline simply because doing the loan could put the borrower in a losing situation. It may still be a “good” loan, but it likely won’t help the borrower scale profitably in the long term. All the underwriting standards in the world can’t compete with a team that is committed to helping ensure our borrowers are profitable.
From a lender perspective, the operative words are “high-quality” and “transparency”. We still only fund about 5% of the loans submitted to us. We’re incredibly selective. Moreover, we strive to provide complete transparency on everything we do. We post our portfolio performance every month, the good and the bad. We also post timely updates on all projects as material information is learned. New team members often ask, “What should I tell our lenders about this project?” when they’re afraid of delivering “bad news”. My response is always “Tell them the truth! What’s the status of the loan? What are we doing about it? What has the borrower told us?” There is no point in trying to spin bad news because it’s exhausting, unproductive and ultimately harmful for all parties. As a lender, you understand that investments come with risk. Most of the time you just want to know what’s going on, and that’s what you’ll always get from us. If you’re not, email or call us (646-895-6090), and we’ll get you answers.
As our team really began to grow in 2018, it became more important for us to align around the same set of core values. As I sat down to write what I believed the team already embodied, and what we wanted to build around, the word “Hustle” kept coming to mind. Growing up playing sports, I wasn’t always the best athlete, and I often had to compete against those who had much more raw talent. I couldn’t control the level of talent I was given, but I did know that I could level the playing field by out hustling others. This year our business started to feel the same way. We found ourselves up against some steep competition - firms with executives with Ivy League MBAs and a lot of venture capital funding. How were we ever going to compete? For me it was simple - we’ll simply “out hustle” them. We break this down into six core values which each team member knows and lives by:
Hard work: We believe that extraordinary results come from extraordinary effort. Get it done. No excuses.
Unity: We’re all in this together! Be helpful. Communicate. Lift one another up.
Success: Deliver results. Exceed goals. Find a way to win.
Transparency: Celebrate the wins. Own the losses. Accountability is the best fertilizer for growth.
Learn everyday: Be creative. Be curious. Take initiative. Challenge the status quo.
Empathy: Start everything by understanding the needs of others. And then exceed their expectations.
Our shared mission and values are what empowers our people to deliver value to our clients. We hire for HUSTLE and train the rest. It’s a formula that works for us and is no small part of our success. As we continue to grow, our investment in hiring and training our team will continue to differentiate us.
While we achieved many great things in 2018, we truly feel like we are just getting started. This market still remains incredibly fragmented and underserved. Nearly 70% of the US housing stock is more than 30 years old. This means that these houses need new roofs, mechanicals and significant aesthetic improvements to meet the needs of modern home buyers. The capital provided to our borrowers from our lenders via our platform will play an instrumental roll in improving communities all while creating wealth for those who participate.
We wouldn’t be here without you. We appreciate your support throughout our journey and look forward to continuing to build the predominant platform for real estate investors.