From Crowdfunding to Peer-To-Real-Estate Lending P2RE

By AdaPia d’Errico

adapiaderrico

Patch of Land recently presented the concept of P2RE℠ at the pre-eminent online direct lending conference, Lendit, and to an audience of mainly institutional investors and P2P (peer-to-peer) lending industry participants. What is P2RE℠? It is Peer-To-Real-Estate lending and Patch of Land’s stake in the ground.

Patch of Land straddles crowdfunding (as defined by Title II of the JOBS Act) and P2P (Peer-to-Peer Lending) because we focus on creating a marketplace for real estate lending to be transacted online, in which individuals and institutions can participate seamlessly. We are the P2RE (peer-to-real-estate) marketplace.

Thesaurus
When an industry is created, it takes time for definitions to become established. Whatever the name of the concept, the basic tenet is the same: companies, including Patch of Land, are bringing new financing and investment opportunities to individuals and institutional investors through technology, transparency, consistency and efficiency.

It would be fair to say that the term crowdfunding as we use it, is better described as crowdfinancing, since it involves transactions where money is exchanged for shares or interest that finance operations, growth, and give back monetary returns. Perhaps you’ve even seen the term crowdlending, which is also more closely correlated to what we do.

Recent History: Crowdfunding 
Crowdfunding opened a floodgate of opportunities that even today have not been fully realized; so far we’ve all only seen a trickle of the possibilities inherent in the JOBS Act’s goals to revive economic growth for small business.  When the SEC’s longtime regulations were adjusted so that equity and debt private placement offerings could be openly solicited via crowdfunding (Title II), the race was ON.

Real estate quickly took the lead in capital raised, eclipsing it’s nearest competing category by 3x, as shown by a recent reportby Crowdnetic, which tracks dollar amounts committed to private placements, per sector. It’s easy to understand why: real estate is tangible. Real estate is the “rich man’s” way of staying rich. Real estate is everywhere and everyone understands it in one form or another.

real-estate-benefited-most-sec-general-solicitation-rule-change

Patch of Land launched its first deal on October 15, 2013—as soon as regulations allowed it. This was the first of ten crowdfunded real estate projects: a short-term bridge loan to finance a fix and flip in New Jersey. Every one of our projects to date has been a loan to a real estate professional rehabbing a residential property in their own community. Investors from across the country have contributed to that person’s ability to do so. And we have all benefited from the transactions and projects both underway and already completed.  It’s been a win-win-win-win.

Parallel Industries
For the past two weeks, the Patch of Land executive team has been traveling across the country to present, exhibit, speak at and participate in various events in real estate, financing and crowdfunding. We have been extending the brand’s presence, raising awareness, and this week we made our debut in an industry that has been chugging along for a few years. This industry, called peer-to-peer lending, is a form of crowdfinancing, but instead of investors getting shares of a company, investors are lending money to people and small businesses. In effect, investors are lenders providing financing to borrowers. Why? Why not get a loan from a bank? Because the banks cannot and will not lend. Meanwhile, without credit being extended (aside what you get with astronomically high credit card rates), the economy cannot recover as quickly as it could if more money were circulating to make things happen, like purchases or starting new companies.  The result of the banks’ ignominious complacency is that billions of dollars (yes, $$$billions) of loans have instead been issued through marketplace companies (i.e. Lending Club, Prosper, FundingCircle) who connect borrowers and lenders. The people have come together to replace traditional banking institutions. We suddenly have disruption in a stodgy old industry that hasn’t seen efficiency gains since 1900. #truth

Welcome MarketPlace Lending
MarketPlace Lending is the new term defined by Charles Moldow of Foundation Capital to better describe what’s happened to P2P in the last two years. Namely, that the “peer” component has fallen to the wayside as hedge funds, pension funds and other large money managers have taken notice of this new industry and, starved for high yields, they have been buying up as much of the lending transactions that they can get their algorithmic hands on.

MarketPlace Lending by Foundation Capital

Marketplace Lending is meant to describe this new era of matching borrowers to lenders (individuals and institutional) through an intermediary (portal) that underwrites the loan and credit risk, acts as a conduit that facilitates more transactions to take place, creates more equality in rates for both parties, and creates efficiency through technology. We are looking at the new banks, and they are built (virtually) for people, by people. They are online. They are nimble. And they are providing access to capital through simple transactions, funding individuals and businesses that need the money, and are good for it. The opportunities are vast: personal loans, business loans, merchant cash advances, student loans, auto loans, and real estate loans. At a few billion dollars, this revolution has only just begun.

Why P2RE℠ Makes Sense
It should now be easy to see how Patch of Land fits into the online lending landscape, and the renewed vigor we are putting into our company’s sole focus of real estate lending. It’s not that we don’t like real estate equity deals, in fact they are a parallel and complimentary asset class with its own benefits. However we only want to focus on providing the best debt opportunities in real estate, both for borrowers and lenders. We are speaking to institutional investors who want to fund many loans on our platform, and that will contribute to our company’s growth. Our core business – originating the best, secured real estate loans through our P2RE℠ marketplace – is making a giant leap. And we are ramping up because the opportunity ahead of us is not only visible – like the horizon, it is tangible, like the real estate assets that we are working with.

A Final Consideration
As Patch of Land’s CMO, I’ve been reflecting on how to best communicate our direction within this jumble of terminology and new industries being defined on a daily basis. Branding and reputation become paramount. I can also see a massive challenge the marketplace lending industry faces, since institutional investors are jumping into this “new financial asset class” with hoards of money. This begs the question of how an individual investor can compete to obtain good investment opportunities and not just pick from the institutional leftovers?

The challenge for the marketplace portals will be to ensure that individuals are not lost in the shuffle, that they are Individuals with a capital “I” just as much as institutions.  We are here because of crowdfunding, which, like peer-to-peer lending, is built on people and communities. Yes, Patch of Land is a technology company and a finance company and a real estate company. However, Patch of Land is also a company that believes in providing opportunities through P2RE℠ for everyone so that we can continue to promote a win-win-win-win business model.

By: Chief Marketing Officer

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