AdaPia D’Errico
AdaPia D’Errico

Our Q&A with AdaPia D’Errico of Patch of Land

AdaPia D’Errico
AdaPia D’Errico

Bankless Times chatted with AdaPia D’Errico from Patch of Land and discovered several key topics to expand upon.

1. Transparency

Transparency is paramount in growing awareness about our company, earning customer trust, and building credibility for the industry at large. Both in finance and real estate, transparency is a relatively new concept.

For example, in an informal conversation after my most recent Real Estate Crowdfunding Education & Networking (REFCEN) Meetup in Boston, several people agreed that just openly talking about real estate finance is foreign to many people. Can you believe that?

Maybe it’s because I’m a borderline Millennial, (I’m technically Gen X), but to me, in today’s day and age of limitless opportunity, there’s no reason to be proprietary or secretive, except perhaps where intellectual property or trade secrets need protection.

Making a decent investment return – whether you’re an investor or borrowing developer – is everyone’s expectation.

2. Government regulation

Not much regulatory guidance exists at the moment that specifically mandates or prohibits transparency or disclosures of certain information.

For example, private placement offerings to accredited investors under Regulation D do not specifically require a private placement memorandum (PPM for short, but basically a document that discloses certain risks about an investment), but most platforms have one anyway, as a matter of good practice.

The banking and lending industries have been historically non-transparent, in contrast to what some are now terming “sunlight banking” (or marketplace lending). Generally, platforms can be as transparent as they like.

The FTC doesn’t speak on transparency specifically, but does regulate “unfair or deceptive trade practices.”

3. Groundfloor’s impact

Groundfloor made a bold move and we commend them on making the effort. They were likely attempting to be the first to have a continuous filing (in the style of Prosper and Lending Club) and may have gotten into regulatory complications with the SEC.

The approved filing may be an immensely scaled and whittled-down version of their initial draft. And that’s OK – they took a risk, which is what entrepreneurship is all about, and it didn’t work out. You win some and you lose some.

4. Underlying collateral

Our move from selling unsecured (or very indirectly secured) notes to directly secured notes (was only a matter of time).

The beauty of real estate lending (as well as b2b marketplace lending, in some ways) is that there is an actual tangible asset to recover against at the end of the day.

We’ve always taken first lien positions in all properties from day one. Our recent move just allows us to offer that first-lien security interest to our investors.

The concept isn’t new, but no one lending against collateral thought to apply the concept of secured lending to the marketplace lending industry or the borrower payment dependent note instrument.

It took us over a year to figure out how to properly structure our new model, but we are pleased to be able to offer investors this much more protective product. It lets our investors sleep better at night and moves the marketplace lending industry forward in a significant way.

5. Communication

One key way we provide transparency is the level of information we place on each project when we post it for funding. Using this as a baseline, we are continuing to add to the detail and depth of information we provide.

It’s very important that investors are given the information and tools to make an informed decision.

Given the level of risk inherent in the loans – something we’ve never tried to hide – we believe that the basic tenet of transparency begins with providing information to a prospective investor. In a growing age of empowerment through access to knowledge, people are becoming more active in their money management beyond the use of robo-advisors.

We take that information availability very seriously, which is the reason our FAQ section of the site is so robust.

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6. Important strategies

The days of picking a few channels, developing a single strategy, making creative assets, deploying and sitting back are over.

Reaching people is easier than ever due to the proliferation of media, devices, technology and the Web. However, this plethora of channels makes it far more difficult to get their attention.

Another complexity is the very distinct audiences that we need to reach – investors on one side, and borrowers/developers on the other side.

However, one strategy that I’ve always believed in, is reaching people through events and conferences. I give major props to organizers like Crowdnetic for bringing thought leaders together for an event like Crowdfinance in NYC.

7. Valuable experience

I’ve always believed strongly in building relationships, networking, and being honest and humble in communications.

We’re still fragile as an industry, and under massive pressure to grow and scale.

I’m an entrepreneur at heart, and was independent for seven years after working in banking and at a hedge fund in Switzerland. My experience developing intellectual properties and franchises through brand licensing, and then simultaneously taking those to market through digital media, online communities and social strategies has given me a broad understanding of how to deal with complexity in a quickly-evolving world of reaching the customer.

8. Down cycles

We get this question a lot, and we believe that having a well rounded product set – and by this I mean real estate financing products – will help us move through the cycles, since different forms of financing will be in demand at different times.

Many real estate professionals will say that there is plenty of money to be made during a downturn, just as traders and hedge funds are able to make money during cyclical market corrections.

It’s a matter of diversification, some timing, and deep understanding of where the market is moving.

We’ll go through each cycle, and each local market cycle, by being close to the customers – both investors, and borrowers, who are experienced, knowledgeable and themselves understand their local market, demand, and trends.

9. Managing growth

A few key challenges have been trying to grow on a very constrained, bootstrapped budget; raising that first significant round of capital; staffing and key hires; the see-saw of too much/too little capital vs. too much/too little deal flow; managing expectations of investors, customers, industry.

Our underwriting is overseen by very experienced underwriters and a credit committee. We’ve built technology that consumes bluechip data sources, aggregates and performs predictive and trend analysis and is then passed through our custom pricing and risk models.

Internally, our staff can investigate each market from the perspective of each of our data sources, compared to our current portfolio performance, and use our scenario development tools to model possible events in each new market.

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