The REO-to-rental emerging asset class is often charged with the disproportionate presence of investment speculators.
In the halls of the Boca Raton Resort & Club, home to the IMN REO-to-rental forum underway now, there is plenty of money talking about large amounts of property volume.
However, dumb money it is not. And there are some pretty innovative financing ideas being thrown about.
And it seems fitting — sitting down to a lunch of Greek salads, outside by the pool and overlooking million-dollar yachts bobbing in the marina — that we talk about how to make money work for this nascent asset class. (By the way, I assumed the typical yacht costs a million dollars, and so did everyone eating lunch with me.)
For the most part, the space remains dominated by big players. Everyone is talking to everyone so I won't name names right now. Some firms prefer to hold properties on portfolio and are looking to Boca to help source asset managers and service-related vendors.
Others finance via securitization, with all eyes on the third deal pricing tight earlier this week. Another five securitization deals are expected this year alone.
For some, neither of these two successful options work. Maybe there isn't enough finesse in the portfolio option. Where's the wiggle? The big complaint against securitization is cost of marketing, lawyers, etc. It's still pretty new and is priced (to the issuer) as such.
"We're looking at crowdfunding our REO-to-rental holdings," said Richard Neil McCay, president of Tieback Holdings.
For those who don’t know, and listening to McCay speak, many in this industry aren't aware, crowdfunding is simply raising investment capital by asking for it via the Internet. And once McCay dropped the 'crowdfiunding' buzzword, I became obsessed and instantly sought to dominate an otherwise polite lunch conversation with the topic.
"Explain more," I said.
McCay said others are trying, and have tried, crowdfunding, with some degree of success, but Tieback is hoping to be the largest effort yet in this regard.
Tieback itself completed a few rounds of testing and successfully deployed $65 million to borrowers in one fiscal year to "prove business concept," according to its crowdfunding site. Tieback is currently raising Tieback Realty Services Fund II to deploy even more capital.
McCay added that he is using a group of interns in Southern California to market the efforts via social media. Look closely at those two factors.
Interns = cheap.
Social media = cheaper.
This way, McCay doesn't need to put together a pre-sale report, or roadshow to investors.
Ron D'Vari, CEO of New Oak Capital, seemed intrigued. For those who are looking for property investments, but don't want to deal with the collateral side, crowdfunding could be an option, D'Vari indicated.
"It democratizes the funding process," McCay explained. "You start with your circle of friends and eventually the opportunity expands to everyone."
McCay did not explicitly state that the Tieback crowdfunding opportunity would specifically be for rentals. His firm is more traditionally known for bridge and jumbo loans.
But listening to McCay speak, one could think anything is possible with crowdfunding.
And in the emerging asset class that is REO-to-rental, parties looking for some innovative financing may begin to believe him.