What is Groundfloor about?
GROUNDFLOOR is taking private real estate lending public. We’re paving the way to open a new $70 billion lending market to all – and that’s in single family home renovation and construction lending alone. You can read more about how we’re doing that here.
More broadly, we like to think of the company as an exposition on a theory of capital markets. We believe the broadest base of capital wins—because it’s faster, cheaper, more flexible and more efficient.
What are the three main advantages for investors?
- GROUNDFLOOR makes real estate investing more accessible than ever before. We create new investment opportunities for non-accredited investors; a group of Americans that have never had access to these types of investments before.
- Our typical loan term is dramatically shorter than what you see with P2P lending products like Lending Club. Our average term is 6 or 12 months, compared to 3-5 years for typical deals elsewhere.
- We offer dramatically higher returns than traditional investments. During our one-year pilot in Georgia, the average annualized yield for our investors was over 12 percent. For context, that means that GROUNDFLOOR outperformed the compound average annual return of Charles Schwab’s mutual funds between 1970 and 2014.
What are the three main advantages for borrowers?
- It’s fast and simple to get funded on GROUNDFLOOR. You can submit a project by checking your rate in less than 5 minutes. Projects have 30 days to fund, but most projects fund much sooner once they are posted. The closing process is quick and painless using the same closing attorneys you already use.
- GROUNDFLOOR is a reliable source of capital. We fund construction, renovation and other loan types that are typically difficult to bank finance, and we offer low fixed interest rates starting at 6% (not including fees).
- We offer terms that fit borrower needs. Most of our loans run from 6 to 12 months. Borrowers can repay their loan at any time to reduce borrowing costs, and personal guarantee and cross-collateralization is not required in most circumstances.
GROUNDFLOOR backs independent builders with secured loans that pay 5-26% annually. During our one-year pilot in Georgia, the average annualized yield for our investors was over 12 percent.
What is the background of Groundfloor? Who are your seed investors?
GROUNDFLOOR was founded in February 2013 and is based in Atlanta. We have raised $2.5 million in seed funding from angel investors including Michael D. Olander Jr, Bruce Boehm, Tibor Nagygyorgy, Mark Easley Sr. and Inception Micro-Angel Fund.
Brian Dally is co-founder and CEO. He has spent his career building disruptive technology startups during stints in Silicon Valley, Boston, London and the North Carolina Triangle region. Previously, he led the launch of Republic Wireless to take on the big four cellphone carriers to international acclaim.
Nick Bhargava is co-founder and EVP of regulatory affairs. An expert in securities law, Nick was heavily involved in the JOBS Act as an early pioneer who advanced the concept of equity crowdfunding. Nick and Brian met through Groundwork Labs in the Triangle-area startup hub the American Underground. His years in finance have included work for the Financial Services Roundtable, SEC, FINRA, TD Waterhouse and RBC Financial Group.
Is yours a bespoke platform?
GROUNDFLOOR is a fully independent platform that was built from the ground-up by our team.
Groundfloor recently submitted a SEC Tier 1 Regulation A+ filing. What does that mean for your business and for your investors?
On August 31, 2015, GROUNDFLOOR was qualified by the SEC as an issuer of securities under Regulation A. (commonly referred to as Regulation A+)
In practical terms for investors, we’ve lowered the financial hurdle for participating in this market by at least one order of magnitude.
For GROUNDFLOOR, this qualification increases its addressable market by 10X.
No longer do individual investors face the false alternative of ponying up for whole loans or Wall Street’s black-box mortgage REITs as a way to get a slice of the real estate lending pie.
What are your next steps? Will Groundfloor become available in more states?
GROUNDFLOOR is now open to residents of Georgia and eight newly approved jurisdictions, including: California, Illinois, Maryland, Massachusetts, Texas, Virginia, Washington, Georgia and the District of Columbia. We plan to launch nationally later this year.
Do you plan to offer a secondary market?
GROUNDFLOOR’s Limited Recourse Obligations (LROs) are transferrable. There is no secondary market for trading them yet.
Is it a challenge to win new borrowers? Which marketing channels have been most effective so far?
Winning new borrowers hasn’t been the challenge. When we speak with borrowers, they’re thrilled to find an alternative source of capital and eager to get started. The results of our pilot in Georgia confirm as much.
The next challenge will be scaling our work with borrowers in new states that are farther from our homebase.
I would also point out that, from a marketing perspective, GROUNDFLOOR needs to bring together lenders AND borrowers to scale the business. For that very reason, we’re intentionally invest in a diverse mix of channels to bring together both audiences.
During our pilot, we took great pride in building direct relationships with borrowers. Local marketing channels worked best in that case. For investors, we have invested in a mix of channels including some very successful campaigns on Facebook and Twitter. You can expect to see us continue our multi-faceted approach to marketing.
Where do you see your current position in the real estate market? Do you serve a special segment?
We’re particularly strong in single family home renovation and construction lending. As I mentioned, that’s a $70-billion market on its own. What we like about our position is that it aligns perfectly with our mission to gives access to the broadest base of lenders and borrowers.
In case of a recession, which sector will be more affected: p2p lending to consumers or p2p loans secured by real estate? What is your opinion on the impact a recession would have on Groundfloor loans?
That’s really too hard to predict for anyone. What we will say is this: there’s a good reason why private lending for real-estate has been hogged by wealthy investors and hedge funds for so many years. There’s risk in every investment, but successful investors always seem to flock to investments where the value is based on something tangible.
We’re committed to building GROUNDFLOOR into an enduring, long-term business. Each major decision we make, from hiring to marketing to product development is viewed through that lens.
Where do you see Groundfloor in 3 years?
In 3 years, we see GROUNDFLOOR firmly established as both the pioneer and leader in public lending for real estate. When other players in private lending are dominated by the same old institutional money, GROUNDFLOOR will have built an enormous base of investors and the best borrowers across the country. That gives us an enormous edge on the market – we’ll be faster, cheaper, more flexible and efficient than anyone else out there.
P2P-Banking.com thanks Brian Dally for the interview.