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Bringing Real Estate Debt Investing Home L ong before Brew Johnson (right) practiced real estate law, he
limited the ability of real estate in- vestors to get financing to acquire investment properties. We believed that we could use technology to create standardization and reduce the opacity, confusion, and ineffi- ciency of investing in fragmented markets in a way that would benefit everyone in the real estate invest- ing ecosystem.” PeerStreet uses technology to give investors access to real estate debt, a unique asset class that financial institutions have enjoyed investing in for decades, but was often too cum- bersome and opaque for individuals to invest in. The company built the industry’s first two-sided market- place for investing in real estate debt that, on one side, empowers accredited investors to make more informed decisions and diversify their portfolios with unprecedented data and transparency into their investment options. The other side of the marketplace provides private lenders with diverse capital sources and technology to make lending pro- cesses more efficient, which enables these small business lenders to grow and make more loans to real estate investors so they can acquire more investment properties. “Loans become fractionalized, like stocks,” Johnson said of the marketplace. “Investors can invest in a fractional piece of loan and create a cash-flowing portfolio of investments in real estate backed loans of their choosing. The ability to invest in a fractional piece of a real estate backed loan is an inno- vation that we think is important
was fascinated by the opportunities the real estate industry offered. The foundation of this interest may have been laid by his best friend’s father, an experienced real estate investor whose stories bolstered Johnson’s curiosity for this industry. But it was actually the 2008 mortgage crisis, and all the bright-red warning signs leading up to it, that drove Johnson to consider real estate from a differ- ent point of view. There was a clear, desperate need for innovation in the mortgage finance space. This eye for innovation and the idea to use technology to empower a better way to invest in real estate spurred Brew to found PeerStreet in 2014 with a mission to level the playing field between Main Street and Wall Street. “We thought that if we could take some of the positive aspects of the traditional mortgage finance markets and apply them to markets that were historically underserved by investor capital, we could create value for individual real estate investors and small real estate lending businesses,” Johnson said. “We focused on the small real estate investor market, which is a hyper-local and extremely fragmented market. Because of the fragmentation, historically there was inconsistency of data, legal documentation, process, compliance, etc. This inconsisten- cy prevented capital to efficiently flow into the market, which in turn
because it makes it much easier for investors to diversify, a strategy for risk mitigation. In the future, investors may even be able to sell their investments through the PeerStreet marketplace.” PeerStreet brings a much-needed level of transparency to its platform, with lender background information, borrower details, property photos, and more to give investors more insight into each opportunity. PeerStreet expects to continue on its rapid growth trajectory, and with more growth comes more loan volume. This volume drives greater diversification for individuals and financial institutions, increasing investor demand. That demand, in turn, leads to more diverse capital sources and lower costs for lend- ers, enabling them to make more loans to borrowers and submit more loans to the marketplace, bolstering data and compounding user benefits by giving investors more options. This is the kind of virtuous cycle that can make Peer- Street’s two-sided marketplace self-sustaining. Aggregating supply of lenders and loans. Increasing diversifica- tion for investors. Providing trans- parency. That is PeerStreet.
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