The Credit Junction had the pleasure of interviewing AdaPia d'Errico, Chief Marketing Officer at Patch of Land, to learn more about the real estate crowdfunding space, and what Patch of Land does to support the growth of America's communities.
What led to the creation of Patch of Land?
In 2011, Jason Fritton, Patch of Land’s Co-Founder and Executive Chairman, saw an opportunity to help rebuild neighborhoods that had been abandoned after the real estate crash through the potential collective power of the crowd. Crowdfunding for products, music and film had been growing strong since 2009 and Congress was pushing for a version of crowdfunding that would allow small business to raise capital. This, he thought, could also be applied to purchasing properties that were routinely being left behind at auctions. He worked alongside those lobbying for the JOBS Act (Jumpstart Our Business Startups Act) while planning how he could use technology and the Internet to leverage the new crowdfunding exemptions.
Jason joined forces with his brother, Co-Founder and CTO Brian Fritton, to build state of the art technology with Los Angeles entrepreneur and angel investor Carlo Tabibi. Together, they shared a vision of a financial intermediary that could make real estate lending more viable and efficient through the mechanisms of crowdfunding.
The Founders united their ideas, experience and resources to form Patch of Land, where transparency, low minimums, project-by-project investment and ease of transaction would set the stage for real change and real profit.
How has crowdfunding grown in recent years?
Real estate crowdfunding has grown tremendously. Crowdfunding is estimated to have passed $30 billion in 2015. Real estate crowdfunding in 2016 could easily top $60 billion and surpass some traditional forms of finance. The Securities & Exchange Commission passed final rules around the JOBS Act this year, allowing all investors to participate in equity crowdfunding through Title IV, and we’ll be seeing even more innovation and growth in 2016.
What is the most common misconception about crowdfunding? Where do you recommend that individuals go to find more information about crowdfunding?
The most common misconception about crowdfunding is that it’s all the same. There are different categories and in real estate crowdfunding the difference is that a platform can either be debt or equity based. In regards to real estate crowdfunding we recommend that individuals do their own research, but Patch of Land has created a resource center for people interested in learning more about real estate crowdfunding and how it works. We want potential and current users to be as informed as possible when making their decisions to invest and borrow.
What effect did the most recent financial crisis have on the real estate industry?
The creation of the JOBS Act, combined with an ever-more connected world, has led to the new lending platforms that operate online and exist in a new, open environment of increased transparency and peer-to-peer funding.
What regulations have been put in place in the real estate sector since the financial crisis?
Most regulations are within the consumer mortgage space, i.e. mortgages for people who buy and live in their own homes. For example we now have the Consumer Financial Protection Bureau, which has already recovered billions in dollars for consumers from financial institutions that violated federal laws. Also, the Financial Stability Oversight Council and Orderly Liquidation Authority now monitors financial stability of the many “too big to fail” institutions. Part of the reason that private lenders, hard money lenders, and now companies like Patch of Land exist, is that the regulations imposed on the banks also affected their ability to lend on any kind of large loan, especially a loan relating to an undervalued asset.
What role will POL play in the future of real estate finance?
POL has already been part of the change to real estate finance by utilizing JOBS Act regulations, technology and the power and reach of the Internet. Financing real estate can and should be much easier than it has been historically. The use of real-time, data, efficient processes, and the crowd of investors, all leads to greater transparency around pricing a real estate loan for the real estate professionals who are always on-the-go, and have little time to waste with applications, and seeking out new lending partners when they have new projects. There will come a day when these people will all, automatically, go online to fill out an application with us, and get their loan approved and funded within a few days. And because our funding comes from such sources: individuals, credit funds, family offices, etc. we are never tied down to just one source of funding, and we have flexibility around products, and returns, for those investors.
Why is building communities so central to POL’s mission?
Building communities is central to our mission because we were founded on this principal. Both Jason and Brian lived in Chicago during the housing crash; Jason especially wanted to make his hometown great again. From borrower to investor, everyone can feel part of building and reviving communities together. Our loans not only close the gap between banks and traditional lenders, but also the gap between borrowers and investors. We are enabling our borrowers - the real estate professionals - to literally rebuild homes, neighborhoods and the communities they live in. And we are creating communities of investors who come together to lend money for those projects, through our platform. We believe our community of investors is one of our greatest assets.
How does POL focus on doing this?
POL is focused on doing this by continuing to grow our platform, offering new and diverse products, and always being transparent. We know we need to earn our customers’ trust, whether that customer is a real estate rehabber, or an investor.