This past March, PeerStreet, a real estate crowdfunding platform, announced that it had topped $2 billion in transactions and over $1 billion in Assets Under Management. Three months early in January, that transaction number stood at $1.7 billion. If that pace holds, PeerStreet should be nearing $3 billion in transactions by the end of the year thus firmly establishing itself as a leading property lending platform. While some sectors of real estate crowdfunding have struggled, PeerStreet does not appear to be one of them.
In a blog post, PeerStreet said that volume matters because it is integral to the health of their service but it is not the only benchmark they should be measured by. PeerStreet stated:
“To truly transform this industry, we’ve aimed to integrate relatively novel concepts in the space: access, control, transparency, and the ability for all our investors to easily diversify (a common strategy to mitigate against potentially changing markets). That’s how we are working to level the playing field between Wall Street and Main Street.”
Currently, short term debt in the real estate market is a fragmented, analog ecosystem. PeerStreet is turning that fragmentation into digital opportunity.
Up until March, astonishingly, PeerStreet had reported no net losses to investors. That quality could not remain forever as the platform scaled. PeerStreet has reported that of the over 4700 loans they have transacted 136 loans have gone into default. But since each loan is secured by the property investors stand a good chance of recouping their investment.
PeerStreet is debt based only and, according to their website, annualized returns range from 6% t0 9%. Most loans are short in duration (6-24 months) with LTVs typically below 75%.
While PeerStreet is only available to accredited investors, the platform has recently lowered its minimum investment to just $100 as it seeks to open up the investment opportunity to as wide of an audience as possible.
Crowdfund Insider recently reached out to PeerStreet for an update on their platform and expectations for the coming year. Our discussion with PeerStreet co-founder Brett Crosby is shared below.
PeerStreet has now facilitated over $2 billion in real estate lending. Is your growth accelerating? Where do you expect that number to be at the end of 2019?
Brett Crosby: Yes, growth has accelerated fairly consistently as we have built out our marketplace. As we continue to automate manual tasks with software, there are many inefficiencies to unlock in this space for PeerStreet, our investor-base and our lenders. The opportunities are pretty staggering.
What is the “sweet spot” for your deals? Will you be expanding into larger projects?
Brett Crosby: Our sweet spot has been short term bridge loans for fix-and-flip and buy-to-rent borrowers. That’s still the bulk of our business, but last year we also added new investment options including small balance commercial and multifamily loans.
Because we have hundreds of lenders that we work with, just 6 months after we rolled out these new loan types, they represent over 20% of our volume.
Last month we also launched a 30-year residential-for-rent loan option to our lenders.
It is early, but we’re already seeing good traction on that product and expect to see it grow nicely. This product is filling a real void in the market for private lenders and their borrowers.
Any interest in adding Reg A+ offerings to your options?
Brett Crosby: Our goal is to allow as many people as possible to invest in short term real estate debt, so it is something we have looked at along with other potential options. But we don’t have anything to announce on that at this time.
We also believe there is room for change in the definition of an accredited investor, and it’s something we hope to see happen soon.
Brett Crosby: The ability for investors to have liquidity in real estate debt would be potentially game-changing as the “term” or duration of the underlying loan could become much less of a factor.
A secondary market could open the ability for people to invest in 30 year mortgages for example, without having to stay in the investment for any longer than they wish.
There are a variety of ways to make this happen, but we don’t have anything to announce at this time.
What about blockchain and tokenization. Are you considering going crypto?
Brett Crosby: We’ve explored many opportunities in crypto, but at this time, there isn’t an entirely clear path forward that unlocks tremendous user advantages over our current system.
But the blockchain could be an interesting foundation for creating a secondary market.
What happens when the real estate market slows?
Brett Crosby: The housing market already showed signs of slowing last year but our business continued to grow. If there is a major slowdown, we believe there is a big opportunity for PeerStreet as our marketplace provides a very differentiated opportunity for investors as well as lenders and their borrowers.
We created our business as a two-sided marketplace so that we’re not reliant on any single lender or any single capital source.
Instead, both lenders and investors benefit by PeerStreet being the intermediary that connects them to a number of counterparties that would be nearly impossible to access on their own. Because of that, we believe our marketplace will continue to be the place where capital and deals can connect.
Our belief is that while certain lenders may stop lending and some large institutions in the market may stop buying loans, others will step in to fill those voids and connect via PeerStreet.
I tell lenders all the time that if they are selling their loans to buyers backed by a single capital source, they should be thinking about the risk of a slow down and consider an alternative like PeerStreet before it happens.
Similarly, investors can access deal flow from hundreds of lenders and multiple loan types, all in different markets around the country. That provides much more opportunity for diversification through various market cycles.
Any big announcements on the horizon?
Brett Crosby: We have one planned for this quarter, and will keep you posted!