I had a chance to speak with Lloyd from SmartRe a few days ago. We discussed his ongoing ICO, the benefits of using SRE tokens and the long term outlook for the token. It was a very great discussion and it’s presented below:
I would expect that there would be a wide variety of major investors interested in your ICO, is that correct?
The VCs we have talked are more traditional, there are two blockchain VC’s we have talked to and they plan on both equity and token purchases. A portion of the VC’s will do a pure equity play. For our token, our hard cap, like it’s said in the white paper, is 12.5 max USD. It’ll be hard to reach, there is a lot of ICO fatigue right now; our soft cap is 5.5 mln. Our equity raise I can’t give exact numbers but it’s around that too.
What’s the elevator pitch for the SRE
Let’s start with the SRE, what’s SmartRE, its a platform whereby homeowners can liquidate the equity of their house without debt and then investors around the world can buy that equity at any price point. The utility of SRE is that there are fees associated with the platform, the buyer fee is 0.5%, with the SRE’s you only pay 25% of 0.5%. In the future, when the platform gains more transaction, the tokens will be very beneficial. The homeowners will also pay a 6.5% fee as well (sell side). We would love to give fees back to the token holders, but with the current regulatory rules we can’t return any fees without turning the SRE into a security.
What are the benefits of purchasing the token vs a REIT and other crowd sale sites.
The biggest advantage against a REIT is that you don’t get to choose where your capital is invested and that most REITs are invested into commercial property. It’s almost impossible for a REIT to purchase a swarth of homes in Pacific Heights in San Francisco; it just won’t happen. For other crowd sale sites, the majority of sites are for new builds. Additionally, the crowdfunding is for debt, I lend them 100k and then they promise me 3-5% for two and half years.
So one of the biggest benefits of the SRE is that you don’t go into debt?
Yes, we’ve talked to homeowners and retirees, baby boomers, they are hitting that age that due to the financial crisis, some of their friends have lost their homes, so this is a way to cash out some, because they are equity positive, so they can top up their mortgage.
Its almost like a reverse mortgage then?
Correct but without the reverse mortgage issues.
How has the demand been so far for homeowners?
When we first start we are targeting the 150 billion plus home equity debt market and when we gain critical mass we believe we can attack a market that’s bigger than that, because a lot of home equity debt holders, they need extra cash or a buffer, but with what we are offering, there is no debt and no commercial interest rates, so for them to cash out some of the equity in their homes they can help out their kids or put the money towards their college fund. The market can expand.
So is there a minimum period for the homeowners on the platform?
Yes, we ask the homeowners not to sell the house for at least three years.
Do they sign a contract or is it a MOU?
It’s a contract. If they do decide to sell before the 3 year period, there is a target return we want them to give back to buyers.
What’s the longest period you are working with?
Indefinite. Obviously some investors don’t want to be locked in for decades and there will be others who want to cash out for good, and we have options for that. If you are living in a house that will grow in price in the long run, like Manhattan, it has a general uptrend, so during the next recession, there will be buyers for that property because they believe it will go up.
Will you eventually roll out to other areas which don’t have the same growth outlook?
When we first start we need to be more conservative and show the business model works. However in the future we believe that we will add other lower growth areas.
What are the requirements for the homeowners to list their homes?
Right now we don’t allow rental properties and secondly, we want to ensure that the homeowner is equity positive, meaning they need to own 51% or more of their house. If they only have 51%, they can only liquidate 49% of their equity. (49% of the 51%, for example.)
Can homeowners extend the period on the platform?
There is really only the requirement of the initial period (of three years), however, if they want to keep going then they go along business as usual.
I saw that when the tokens are deployed you can’t list them on the exchanges.
We cannot say that we want them on the exchanges, due to regulations, and this is why we use Waves, so if there is demand, they will be listed, but we can’t list them ourselves.
Tell me about the team and the idea.
We got a lot of pushback from the crypto community about how my co-founder was listed with just his initials, but this is due to the fact that my co-founder works for a big company, one of the biggest phone manufacturers out there and he wants to make sure he doesn’t get in trouble before his contract is up. The other advisor with BlackRock, we don’t want any pushback from his company. I used to work in Asia, in Shanghai for a while, and the startup which went public at 8 billion was based out of there and Silicon, and we saw a lot people from there talk about real estate and say how hard it was to invest in good areas. It’s almost impossible for them to buy a house, so they wanted a way to invest in them. This got me thinking if there was something I could do about it, in 2015, so I started having conversations with my friends and I looked into blockchain tech for this possible use, and over the months I would meet with T. and we would talk about this idea and it started to gel. T. is the main tech guy and I’m the tech/business guy.
Will there be any expansion outside of residential property in the future, will you add commercial property as well?
We started to look at commercial real estate from the first day, but it’s not legal right now without registration. We need to make sure the legal system works with us. We want to expand in the future into rental and commercial properties when the laws allow it. When the SEC says we can give dividends from rental properties, we would love to provide that, but until then we have to position ourselves. We would love to do that.
What’s in the future for SmartRE?
I would love for my Grandma to be able to use blockchain technology! No one cares how blockchain tech works as long as it works. She knows how to use her online bank, but I want her to use our tech without knowing it.
So in the first 12 months we want to bring on 500 homes. We expect initially to get 15% liquidation. While 500 may seem like a lot for a startup, it’s only 2 houses per work day. And just by talking to homeowners associations and retirees, we are getting 10 signups a day. The marketing people we will hire this year will understand the approach we are taking and how to approach both homeowners and buyers. Then in the next years we want to build to 2,500, then 10,000 and 40,000 in the following years. In the 4th and 5th years we expect the hockey stick effect to occur and to take off and hit 180,000 homes in the 5th year. We believe that is achievable in just the San Francisco Bay area, but we will expand to the SoCal area by 3Q 2018 and Manhattan in the second year.
Where do you see SmartRE expanding in the future?
We want to focus on doing this well first before we expand to other sub-sectors. But you can imagine in the future when people who want to, and this is what real estate agents and brokers have talked to us about without our prompting it, purchase a million dollar house and have the funds for it, the estate agent can raise another 500k to “upgrade” to a $1.5M property, so the homebuyer would own 2/3 of the house. You don’t take on debt, but you take on a bigger house without a mortgage. Plus the agent automatically gets higher fees since it’s a percentage. Everyone wins.
In the next year though we plan to have a FIX protocol API for funds so they can do their automated trading through our system.
Do you think this is an attractive asset for wealth managers then?
Well, we have talked about this with several wealth managers and while they may have some interest, the crypto currency world is not something they want to touch yet. The more contemporary and up to date wealth managers definitely want to talk to their clients to add this to their portfolio, its a new class of asset to add. In Asia there is a lot more demand for the token and I believe we will get a lot more signups from Asian wealth managers. What is good about the crypto world is that everyone gets a chance to invest, both trickle up and trickle down, so we are attacking it from both sides.
Great, thank you Lloyd, I appreciate your time and I will be watching the crowd sale intently.
Thank you for the interview.