A 120-unit apartment block in Kansas City is the source for a $2-million loan covered entirely by a P2P platform.
Money360 pooled the resources of five accredited investors to complete the loan, on which they hold first trust deed. The three-year loan comes with an interest rate of 11.5%. Participants include investment groups, banks, pension funds, and high-net-worth individuals. It makes the third loan closed by Money360 in September and puts the company on track to facilitate $25 million in loans for the year.
“We have focused exclusively on commercial real estate loans, because we have a significant background in this area,” Money360 Founder and CEO Evan Gentry explained. “We typically deal with properties just out of foreclosure, turnaround situations which banks don’t finance.”
Money360 investors can either purchase entire loans or pieces, which gives them flexibility while reducing risk through being able to diversify their investment across multiple properties.
Given the number of competitors appearing on the real estate crowdfunding scene, a company intent on surviving will do so by the quality of its vetting process and the attractiveness of the screened opportunities they present to investors. Money360 says the Kansas City apartment block behind the $2-million loan has a 96% occupancy rate, higher than the city-wide average of 94.7% seen in this year’s second quarter.
According to a third-party appraisal the loan-to-value ratio is 64.5 percent. The average LTV for a multifamily dwelling across the country was 68.8 percent in the first quarter.
Money360 was an early entrant into real estate crowdfunding in 2010, but put their operation on hold until late 2013, when Title II of the JOBS Act, “a game changer” in Mr. Gentry’s words, made it possible to advertise and promote Money360 to a much larger audience.
Money360 used that hiatus before Title II’s advent to refine their product and develop their team. That preparation time was crucial, Mr. Gentry admitted, because it allowed him to develop a more diverse team.
“You need real estate underwriting, investor relations capability and your technology has to work. We have 20 to 25 years plus of experience in every area.”
The swing in property values over the last decade has made it an interesting time to be in real estate. Mr. Gentry knows the opportunities are different at various points in the industry’s cycle.
“You take advantage of the right side of the cycle,” Mr. Gentry explained. “For seven or eight years people acquired distressed debt and commercial debt such as loans. Now there are fewer distressed opportunities and we are in the originations cycle, which is a time of great opportunity with three to five years of a positive, good run.”
At some point the markets will have to contend with interest rate hikes. How will that affect real estate crowdfunding and companies like Money360?
“While marginal changes will not have much of an impact, peer-to-peer lending and crowdfunding can only benefit from rate hikes,” Mr. Gentry said. “For borrowers it is a no-brainer, peer-to-peer lending will be much better.”
Mr. Gentry said the interesting play is for investors right now. “Money360 combines 10-12% yield with a low duration. It is almost impossible to find secured, high yield investments with a low duration. Either the rate isn’t there or it’s a longer term.”