239 Nav Athwal, RealtyShares Special

What Happened

In his 1974 book Winning Through Intimation Robert Ringer describes how (some) real estate developers will build apartment buildings in the Sinai Desert – where nobody could possibly want to live – if there are investors willing to finance the project. The point he’s making of course, is that of the tail wagging the dog, that even where there is no substance whatsoever, if an investor is willing to pony up the money, there’s always going to be a developer willing to build the right project in completely the wrong place.

It is exactly what is happening in some corners of the online real estate syndication world of crowdfunding today. In fact the next shoe to drop after Realtyshares - if no other platforms fold first - will be when developers start to fail because they are building unrealistic projects in unrealistic places to unrealistic returns and they’re at it because investors are willing to give them the money to do it.

RealtyShares recognized this and got that part of the equation absolutely right. The company was ultra-diligent in ensuring that the projects they put on their platform were prudent and thoroughly evaluated. Ironically, a challenge RealtyShares faced was that the deals that were getting through their detailed screening process were showing return profiles lower than other crowdfunding platforms and some independent development deals because they were true to prudent underwriting and didn’t succumb to hyping the real estate assumptions just to drive up returns and draw in more investor capital.

Where the company failed was where some real estate developers also fail; they sought out and allowed the capital upon which their business model was reliant to dictate how the business was to be built.  Through Robert Ringer’s lens they built the right product – an extremely diligent real estate underwriting platform where investors could find credible deals - but they built it in the wrong place, putting it into the high-octane world of tech startups instead of the more sedate real estate world where a steady, long term perspective is the key to longevity and wealth.