Commercial real estate

Crowdfunding comfort comes from credible dealmakers

Commercial real estateAll real estate crowdfunding platforms are not created equal, says a seasoned entrepreneur who has created a platform that offers something many others do not.

Joel Block is the CEO of Bullseye Capital Real Property Opportunity Fund, a platform that offers better real estate deals because of the quality of the people bringing the deals to the fund.

Joel Block
Joel Block

Mr. Block is a featured speaker at the 2015 Fintech Global Expo taking plave in San Diego on May 28 and 29. He sees crowdfunding as an incredible tool to help real estate companies raise capital, increase access to deal-flow and increase overall brand recognition within the market. Mr. Block will talk about what syndicators and operators need to know about crowdfunding.

Many people have recognized crowdfunding’s potential for real estate, but many only bring some of the needed parts to the party, and that affects the overall investment experience, Mr. Block said.

“What the market requires is a platform where investors can go and pick from deals promoted by professional dealmakers,” Mr. Block explained. “As opposed to websites where they curate deals, our concept is to not curate deals, our concept is to curate dealmakers.”

Mr. Block said investors want professional dealmakers because they recognize real estate investment is a complex process, and if they trust in the ability of the dealmaker, that means the deals they bring to the table are more likely to be solid bets.

You can’t just waltz into Bullseye’s office and sweet talk your way onto the site. They tap into the decades of experience of each member and if there is not much knowledge about you, your chances are not that good. Background checks are performed and you have to be made a partner before you can posst opportunities, Mr. Block said.

Once a member of the group, the collective trust allows the agent some flexibility in what types of opportunities they put forward. If you have been in the business for a while, the assumption is you know how to properly underwrite a deal.

That is one of the ways Bullseye separates themselves from some of the other platforms out there, Mr. Block said.

“They are professional syndicators and long time dealmakers. They were doing this before crowdfunding came along and in doing it now they are simply exposing their opportunities to a wider audience.”

“A lot of the sites out there are not being offered by real estate people. They are being offered by tech people. The deals are very simple garden variety opportunities because that’s what is easy for people to understand.”

The best investment opportunities are often the more complex ones, and those take someone with knowledge that can only be gained through years in the business, Mr. Block said. Offering them on Bullseye allows those professionals to access a professional network from across the country that can assist with providing contacts in a new area or by doing some groundwork for a partner.

Seasoned investors recognize this, and are drawn to Bullseye because while they value the concept of real estate crowdfunding, they prefer better opportunities, Mr. Block said.

BCMPP - Logo Hi Res“The experienced people are not going to these websites because they don’t need them. They don’t offer a lot of value.”

Mr. Block has an interesting background. He is a CPA by training and started out at Price Waterhouse. He recalls working on a syndicator’s contract and liking the partnership agreement much more than the tax work, so he went into syndication and completed eight deals in the next two years.

In 1990 he created a company that started out providing stock quotes by fax and raised $10 million before selling it to a Fortune 500 company in 1995. Since then he has bought, sold and advised companies in such areas as construction and autos, investing in some 50 deals as a principal.

In 2008, he decided to return to real estate, and if your first impression is, “Wow, bad timing,” you are missing the point. Mr. Block said he knew the market was at its bottom and opportunity abounded.

He set to work creating Bullseye but was very deliberate in its design.

“I spent so much time in venture capital, I understood how capitalization structures need to be organized for a new platform like this one,” he said.

Mr. Block turned down plenty of venture capital, preferring to access capital from partners and the increased freedom it brought.

“Most people don’t understand venture capital,” Mr. Block explained. “It is about one thing – putting your money in and pulling your money out.”

“That’s not necessarily in the best interests of the company. Those interests are not always aligned.”

Mr. Block draws an interesting parallel between the birth of the internet 20 years ago and real estate crowdfunding today: The money is flocking to deals like it was back then, with valuations skyrocketing. Companies are built to sell.

Such companies may not last, Mr. Block believes, as they have major flaws in their business models. Many have poor underwriting standards which have not been exposed because they have not been tested yet.

Are some of the people running these platforms aware of of the issues? Don’t bet against it.

While there are similarities between 2015 and 1995, there are also important differences, Mr. Block said.

“Everyone thinks this business is about technology. It isn’t. It’s about sales and marketing.”

So far, lenders are doing better than equity platforms because computers can do a decent job of predicting lending cycles and behavior. The reason equity is behind once again is the human factor, the experience that can only be gained through decades on the job.

“Transactions are based on the art of the deal,” Mr. Block said. “The same deal in one guy’s hand is not the same deal in another’s. It takes skills in negotiating, managing and structuring a transaction.”

“Good promoters are like the jockeys on a horse. They can’t necessarily make the horse a winner but they can sure make the horse a loser.”

Still, technology has its place, and in the hands of seasoned dealmakers, wonderful things are possible.

“One of the great things computers allow us to do is to do what we want when we want,” Mr. Block said. “They allow us to tap into the crowd, and to have SEC offerings with a fair degree of consistency.”

Take between 40 and 200 sophisticated operators and a secondary securities market becomes possible, Mr. Block believes.

Who will best be able to capitalize on that, the experienced real estate hands or the technological experts?

“The race is on and we’ll see who wins.”

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