In4mational Interview: Kevin Guy
4 Questions for the CEO of Real Liquidity
Real estate investing has historically been an inefficient, exclusive and opaque process that the general public was never privy to. However with the emergence of crowdfunding, coupled with the JOBs Act regulation, the future could include a real estate investing industry that is efficient, inclusive and transparent. I’ve written in some detail on the emergence of real estate crowdfunding platforms (check out my post “It’s Crowded In Here”) but a constant issue for both old forms and new forms of real estate investing is liquidity. In today’s edition of “In4mational Interview”, I have the pleasure of speaking with Kevin Guy, the CEO of Real Liquidity. His company is striving to address the liquidity issues that faces existing (and new age) syndicates with a secondary market exchange platform. Below is the written transcript of our conversation. Enjoy!
Earnest Sweat (ES): Kevin, we were connected a little over a year ago by a colleague from Disrupt CRE, I would love to hear more about Real Liquidity and what your team is looking to accomplish in the real estate industry.
Kevin Guy (KG): Thanks, Earnest. Well, we’ve been sort of lumped in with the crowdfunding platforms but we are looking to address the needs of existing syndicates. Syndicates have existed for decades as a method of pooling capital together to buy interests in properties. Crowdfunding is simply a new way to do syndicates in the real estate space. We will provide services to crowdfunded properties but we also focus a large part of our business on existing syndicates. The existing syndicate market is in excess of $4 trillion. Real Liquidity’s goal is to provide a mechanism for investors involved in existing syndicates to actually exit some deals through our platform and gain liquidity for their existing investments. Essentially what we do is take a building, in Manhattan, for example, worth 50 million with 10 different partners, we bring that on to our exchange like an IPO and basically we take custody of those securities like a broker-dealer. Real Liquidity will conduct all the clearing and settlement activities for all these transactions. Once properties are on-boarded to the platform, we allow those that are interested in buying those shares and those who are interested selling, to transact just as you would in a stock market. We also provide the lens for the investor to have transparency over these deals. For example a doctor or attorney, who may not be an expert in real estate, but we provide them the data behind the opportunity so that they can make an informed investment decision. Our primary function is to provide the liquidity to existing syndicates. However, I do see an opportunity in the future of originating some of these deal on the platform. But I think for the foreseeable future, just because the market is so massive that we are simply going to focus on existing syndicates. We will trade crowdfunding deals on our exchange, but we will prefer to look at deals after they have been seasoned.
ES: How did you come up with the idea of Real Liquidity?
KG: I’ve been in commercial real estate for years and living through the down period of 2008 and 2009, when there was just zero liquidity in the marketplace, opened my eyes more to the issue of liquidity. No one was buying and no was providing funds. It showed us that we really need to come up with a mechanism to provide better liquidity in the marketplace. So back in 2011 and 2012, we really started to take a look and formulate an idea around the exchange. To do this properly, you have to go through the process of becoming a broker-dealer and having that specialized trading licenses. It takes time, it takes money and a heck of a lot of effort. We designed a platform that we can actually bring these types of securities on the exchange and trade them. It’s been a long haul with regards to figuring all the regulation and legalities to how we would do this and putting together an exchange where people could come in and make acquisitions based on the data we provide.
ES: What is the status of the platform right now and who are you guys looking to garner as customers for the future.
KG: Right now the technology is complete. We are currently onboarding our first property on the exchange. We go through a vetting process and due diligence process that is extremely expansive. And we have to be expansive to be FINRA compliant. We have to do all the verification for each individual shareholder. We have to take tests to distribute the shares and due to the hard work of the team, you will see the exchange go live soon. We will then be ready for an initial beta phase in approximately 30–45 days for potential investors to check out shares of properties.
ES: That’s exciting. Moving to a 30,000 feet perspective question, I would love to get your take on the real estate industry as a whole. As you know it has historically been characterized as an industry that is slow to change or innovation but we have seen an emergence in other industries with the use of mobile technology, sensors/IoT, and now crowdfunding — things seem to be shifting. How do you think this is going to play out in the short term and what is going to be needed for adoption within the industry to take the next step.
KG: You know that’s a great question. I’ve been in real estate for a long time and it is slow to adopt new technology. When it comes to the financial side and fintech, I think that we are seeing a much faster adoption rate, as it relates to debt and equity. This is not creating something new. The new part of this concept is the general solicitation to the public where they can participate. I think what you are seeing happening is an appetite from the general public that has been boxed out historically from this opportunity. The general public has never been able to invest in some of these commercial real estate assets that produce great yields. I think you are seeing a whole new class of real estate investors come in and participate. What’s needed at this point is for the crowdfunding portals and existing syndicates out there to maintain the integrity of deals that are being brought to the public. This includes quality in properties, management, sponsorship, and experience. All of these key components is going to be necessary for the real estate crowdfunding sector to be successful long term. It’s only going to take a handful of bad deals that burn the general public to stunt the growth of this industry. Right now it is more of a wild west and exploratory environment where people are trying to figure out what’s working best. It’s interesting because you are seeing a lot of deals — everything from single family rehabs for a $150K to $50M commercial office offerings. We are seeing the full gamut but people in the industry are going to have to be responsible for the quality of deals that are given to the public.
ES: The last question, let’s say you are able to go back in time and speak to a panel, that includes your formal self. What advice would you give to your past self and other there looking to embark on new ventures within the CREtech space?
KG: That’s a tough question. I’ve been an entrepreneur my entire life and so when I look at an industry that has not been disrupted like commercial real estate was 8 years ago I have to be honest that the industry was nothing like it is today. The advice I would provide other entrepreneurs, is to think of fantastic ways that we can morph this industry. Think of ways we can make real estate markets better, faster, and more efficient. I would probably give that same advice today that I would give myself prior to starting Real Liquidity. It’s really exciting because it is an industry that has not been disrupted yet. In fact, it is very difficult to disrupt this industry because a lot of industry insiders are entrenched in the old way of doing things. But that is the same in most industries — people always resist change. It’s a matter of perseverance and its a matter of providing a solution to a problem that makes sense. Speaking to colleagues and other professionals at different conferences and trade shows I always say ‘look towards the future because we are building a new industry within commercial real estate on the finance side, on the management side, and it is pretty much an overhaul of the entire industry.’ It will take a bit of time but we are starting to see significant traction in all aspects of real estate. And I believe it will only accelerate as the industry continues to move forward.
Earnest Sweat is a Startup Adviser and Business Ops professional for various accelerators. Sweat specializes in sourcing, managing and mentoring startups within the fin tech, ed tech, and real estate tech sectors. If you have any questions, comments or requests please connect with Earnest through LinkedIn, Twitter, or AngelList.
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