Realquidity Aims to Create Online Secondary Marketplace for CRE Investment

Realquidity Aims to Create Online Secondary Marketplace for CRE Investment

Realquidity is a Silicon Valley startup that launched a new only online marketplace in June for buying and selling fractional interests in existing commercial properties. NREI recently interviewed Realquidity co-founder and CEO Shawn Silk to get his insights on how the platform works and what’s ahead for future growth opportunities.

NREI: Can you briefly describe the Realquidity platform and how it works?

Shawn Silk: Realquidity is a secondary market for commercial real estate. We treat existing buildings that generate revenue similar to the way the stock market might treat companies by allowing owners to sell portions of those buildings to individual investors. Nothing like Realquidity has really been out there before. Our focus is on bringing greater liquidity and transparency to the real estate market.

Sellers can set a reserve price associated with the building. They provide a certain level of diligence information that is made available to investors on the system, and the buildings are set for sale. Individual investors can look at those buildings and bid on portions of those buildings that are up for sale. The pricing can go up if people are competing for ownership in those assets.

NREI: It looks like fractional ownership. Do you typically break that up into a certain amount of shares?

Shawn Silk: It really varies by the discussions with the seller. Some sellers might want to sell in smaller blocks than other sellers. But our goal is to get as many participants and bring as many new investors into the real estate market as possible. So you could see 20 potential fractions or as many as 400 or 500.

NREI: For sponsors that have a dozen or more investors, that can be their biggest headache and a big challenge. When you are bringing in new fractional owners, how do you end up managing those relationships?

Shawn Silk: All of the buildings on the system have to be managed. So either there is an in-place manager that we have done diligence on, or it is something that we are going to manage in terms of the size of the building. We are effectively managing that entity and the interface with the other owners in the building.

NREI: When did you officially launch?

Shawn Silk: June 25th. We were operating for some time before that, but largely in the beta mode.

NREI: Who are your target investors?

Shawn Silk: Right now, we are focused on accredited investors and institutions.

NREI: What types of properties will you target for listing on your online marketplace?

Shawn Silk: It is relatively broad in terms of the types of assets. We want cash flow properties so that investors can get a return soon after investment. In terms of the type of buildings, it is going to vary. We will do retail, office, medical office, multifamily and even, if it was the right economic threshold, we would do self-storage. Geographically, while we are focused on the western U.S. and the coasts, we want to look at core urban markets and favorable secondary or suburban markets that are near those core centers. But if a building had the right economic characteristics, we are willing to do it across the U.S.

NREI: What do you have active right now in terms of offerings?

Shawn Silk: We do have a live offering. I can’t talk about that because of the SEC rules associated with that.

NREI: Have you closed anything yet?

Shawn Silk: We did close a capital raising event while we were in beta. Since we launched, we have not closed anything, but we expect to do so in the very near future.

NREI: Can you talk about the property you closed in your beta test?

Shawn Silk: It was a building in the Bay Area. It was a $56 million development deal where the sponsor was selling 85 percent of the equity. In our system, any buyer can come in and buy all of the units for sale. That is effectively what happened.

NREI: What was the result in terms of the pricing or capital raise?

Shawn Silk: I can’t give you too much more detail on that because there are a few things outstanding yet that need to be done.

NREI: There are so many financing sources out there, and a pretty aggressive buyer’s market. Why would an owner want to go this route?

Shawn Silk: Realquidity is the first marketplace that allows owners to sell a partial interest in a building. Say a building has three or four partners and two of the partners wanted out. Today’s market doesn’t solve that problem. What generally happens is that they have to source the funds, and they may have a disagreement about what to do with the asset. We give them a solution.

The solution is that for the two partners that want out can sell that 50 percent ownership interest on the Realquidity system, while the other two partners can remain in the building. In addition to that, because we are providing a marketplace where there are a lot more people participating, we are increasing the odds that those partners can get fair market value for that 50 percent interest.

Another benefit to sellers is if they just wanted to hedge. If they have been sitting on a property for three or four years and they think it has run up in value, now they can actually take some profits and raise some cash and still stay in and maintain some of the cash flow on the asst. Again, this is not something that exists out there in the market in terms of a seller trying to get the capital and retain ownership.

NREI: I realize it is early days, but can you offer any data on traffic to the site?

Shawn Silk: I can’t share that right now, but I can tell you that the response has been very positive.

NREI: Do you have a target goal for the year on how many properties you would like to get in the pipeline for online investing opportunities?

Shawn Silk: We would like to do 15 to 20 deals in the next 12 months.

NREI: Do you have any competitors in this space?

Shawn Silk: We do have competitors in so far as the existing industry and the traditional way that things get done. That’s what we really view as the biggest competition. We want to change that. We want to make it easier for sellers to have this option and create more deal flow for buyers who didn’t otherwise have an opportunity to participate in these investments.

NREI: Do you have any other competitors in the online space?

Shawn Silk: There has been a lot of activity in the real estate technology space over the past 24 months. We don’t have any direct competitors that I am aware of. There has certainly been a lot of activity in some other online fields, such as crowdfunding. There are some that are collateralizing, but for the most part it is uncollateralized preferred structures that are leant to a particular project for a duration term. In our system, sellers are looking to sell buildings and price assets, and we want to provide a true marketplace similar to an exchange where that pricing discovery is going on.

NREI: What have been the biggest challenges to setting up an online marketplace for fractional investment in real estate?

Shawn Silk: There are many challenges to it, from thinking through the technology piece, articulating the benefits of the platform to the sellers and the investors and buyers in the system, and going out there and communicating it. A lot of it has been challenging, but it is something that we are very enthusiastic about.

NREI: What is your background whether that is technology or real estate or both?

Shawn Silk: My background is law and finance. I was a securities attorney at a very large firm, Pillsbury Winthrop. I started doing advisory work, advising technology companies in capital markets types of transactions for CBRE for years. My co-founder Harris Ross has an investment banking background, and he also was in the advisory field at CBRE. That combination of the law, finance and banking is something where we saw if we could bring these things together by the means of technology, that there was going to be a lot of benefit to the market participants and potential participants that are out there.

NREI: What do you think of the future growth potential for the online fractional investment niche?

Shawn Silk: We think it’s significant. If you look at just the size of the real estate industry and the asset base, the numbers thrown around are $10 to $13 trillion. You talk about the volume of transactions that might go on of $400 to $500 billion. In a big year, that might go up to $800 billion to almost $1 trillion when you include all types of assets. We think it is safe to say that at least 10 percent of that is a market that is open to partial sales.

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