COVER STORY
PEERSTREET
ing decisions were driven by the Wall Street securitization machine, financial engineering, and crazy risk-taking with other people’s money.” PeerStreet strives to take the advan- tages that private lenders have over “mega-banks” and institutional lenders, namely nimbleness, flexibility, and com- mon sense according to Johnson and Crosby, and create a large-scale market- place for lenders and loans. Inside that marketplace, everyone involved under- stands the risks, rewards, and collateral involved in the deals. “We connect small local lenders to a national capital market so that together they can compete with larger institutions. We use technology and capital to empow- er those local lenders and sell their loans to our investors. Overall, transparency is key to serving the needs of both lenders and investors,” said Johnson. WHERE IT ALL STARTED: MAKING COMPLEX THINGS EASY Johnson had the idea for PeerStreet while working at one of the top real estate firms in the country, where he practiced real estate law during both the housing boom and at the beginning stages of the subsequent bust. Johnson left the firm in 2005 to move into other aspects of real estate law, includ- ing estate planning. While working with his brother on a new tech business, John- son saw clearly how the inherent flaws in the pre-crash lending environment could be addressed by pairing the right technolo- gy with the right lending platform. “I realized if you could create the right platform, you could literally create effi- ciencies and value for the real stakehold- ers in the market,” said Johnson. “There are a lot of unnecessary intermediaries in the market that are really just leeches and provide no benefit to anybody or anything but themselves,” he added. When applied to private real estate financing for investors, this revelation
than on a borrower’s likelihood to repay the loan, future appreciation of the collateral, or any other intangible factor, Crosby was hooked. “One of the beautiful things about technology is that it levels the playing field. We wanted to use technology to give a lot of people, real estate investors and private lenders in particular, oppor- tunities to do something that previously could only be done by people or entities with access to certain information or
would be groundbreaking because removing the unnecessary pieces of “the system” for private lending meant that far more investors and private lenders would be able to work together to fund and do deals. “Taking complex things but making them easy to use, taking things that are not necessarily intuitive or obvious and making them as simple as possible, that is what we believe the real estate and lend- ing industries need from our platform,” Crosby added. Johnson knew his college friend,
HOW ITWORKS
Crosby, would be the perfect business part- ner. Crosby had spent the previous decade working at Google as a director of product marketing after his pioneering web analytics compa- ny was acquired by the search behemoth in 2005. In fact, Crosby’s analytics company served as the foun- dation for what is today’s Google Analytics. While at Google, Crosby helped launch the inaugural format for Google Mobile Ads, Google Drive, and many other products. When Johnson explained what he was hoping to create, a lending platform based on the solid value of the real property collateral behind the loan rather
The two founders and their team constantly refine the PeerStreet marketplace to make transactions smoother, safer, and more profitable for participants.
modest set of goals for a high-powered real estate attorney and a former Google mar- keting director and software developer.
well, that’s great. But when someone can access the funding to make it happen 50 times in a community, then the entire community is lifted up. Local jobs are created; money goes to local stores and local businesses, and, over time, there’s the potential to uplift many participants in the community. This could impact the state of the entire U.S. housing stock.” The two founders and their team believe they are providing a far greater service than just improving the nation’s housing stock, however. PeerStreet believes its mission is to provide transparency to a historically opaque industry: finance. “Let’s go back 50 or 60 years. Lend- ing was very local,” explained Johnson. “Banks lent in their communities to constituents they knew. They made loans in the community that changed the community, hopefully for the better. Then, securitization came into play, which started out positively by pro- viding more capital for banks to make more loans in their communities, but, over time, lending became totally de- tached from the community and lend-
WHEN BREW JOHNSON AND BRETT CROSBY, co-founders of Peer- Street Lending, first joined forces, the old friends never once thought about their private lending project on a small scale. Nor do they think on a small scale today. “We have created a technology plat- form to empower lenders to make loans to borrowers in their communities. It’s about developing a more efficient way to provide capital to real estate industry participants,” said Johnson. He added, “Our idea was to create a platform where high-quality lenders of any size could access both cutting-edge technology and capital in a way that allows them to compete with major financial institutions and truly level the playing field. And those lenders, in turn, provide capital to real estate entre- preneurs and investors that enable them to buy, build, and fix up properties.” Crosby chimed in, “When people invest in loans on PeerStreet, they help borrowers improve communities one house at a time.” All things considered, it is a relatively
REAL ESTATE BACKED LOANS
UNPRECEDENTED TRANSPARENCY IN A MISSION THAT MATTERS
YIELD OVER 12 MONTHS (FOR EXAMPLE)
The technological platform that John- son and Crosby created has done more than 1,000 loans for a value of hundreds of millions of dollars in just about four years. While the numbers are impressive, the pair believes that the real benchmark for the company is the opportunities it provides to every entity involved in a real estate transaction, from the lender and investor to the eventual buyer and the community at large. “Even if you’re not a direct participant in our platform, you benefit,” said Crosby proudly. “We are enabling more houses to be improved, which positively impacts communities throughout the country. Our lenders fund projects that turn ne- glected homes into respectable residenc- es. If that happens once in your area,
Any accredited investor can sign up with PeerStreet and use the website to start investing in loans. “As soon as they’re part of the marketplace, they can start essentially being the bank,” said Crosby. Real estate investors can send in the details on projects and get in front of multiple lenders that might partner with them on a deal. “At our core, we’re not a lender. We partner with a network of existing lenders with local knowledge to underwrite in their local areas,” said Crosby. Accredited Investor: an investor who has a net worth of at least $1,000,000 excluding the value of their primary residence or an income of at least $200,000 each year for the last two years ($300,000 if married) and has an expectation that they will make the same amount this year.
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