By George Popescu, CrowdFundBeat Guest post, Patch of Land (PatchofLand.com), a marketplace lender for real-estate, announced today the signing of a $250m lending facility from an undisclosed credit fund.
Patch of Land was founded in October 2013 and offers real-estate secured short-term loans in a true peer-to-peer model. The company has funded about 200 projects to date. Since founding the company has collected more than $20M in principal and interest payments without any defaults. The average blended rate of return to investors is about 12%.
Selection bias ?
This large capital facility of sophisticated money validate’s Patch Of Land’s model. It will also allow for faster growth as it will enable the company to focus more on customer acquisition. In addition it will allow Patch of Land a quicker deal closing which may be an advantage when competing for the same customers with other online marketplace real-estate lenders.
By offering a real-estate collateral Patch of Land may appear as a better trade-off in cost vs reward for lenders. However one wanders given the high-cost of the capital on their platform why aren’t their borrowers able to access much cheaper capital at traditional lenders ? And therefore, is there is a selection-bias where online marketplace real-estate borrowers are only those customers who are unable get access to traditional funding ?
Arbitrary real-estate lending rules in tare real reason
On the other side post the 2008 crisis the traditional real estate funding sources have restricted themselves to extremely strict rules which are often arbitrary. As a result many very-interesting real-estate projects can not find financing because they break such a rule. For example it appears that operators who focus on short term investments in which they purchase a property, renovate it and sell it back, can not obtain more then 9 loans at a time from a bank. When these operators work on projects that offer a 20% IRR in less then 1 year, it makes sense for them to borrow at 15% percent interest for 6 months .
According to our information the online marketplace real-estate lending represents $1.5b in total origination in 2015. We expect this section of marketplace lending to be the fastest growing in 2016. The limiting factor of the sector growth seems to be the lack of transparency of the platform’s data in general as seen here where the name of the credit fund providing the $250m facility was not disclosed.