Fundrise, a platform that aims to give everyday people access to real estate investment opportunities, recently launched a $1 billion venture capital fund to expand into the tech industry. The fund mimics the company’s ongoing real estate mission to making investments easier and affordable, but instead shifts focus towards late-stage venture capital and private growth equity investments.
While this investing sector certainly differs from real estate, Fundrise believes that by using the same, low-barrier entry method it can attract everyday people and open up access to another, traditionally closed-off area of the market.
FinLedger recently spoke with Ben Miller, co-founder and CEO of Fundrise, about the company’s journey, how it has tackled changing markets and its ongoing efforts to open up investment access for everyday investors.
Q: First off, can you describe Fundrise and the services you offer?
A: We democratize investing into real estate. Previously real estate wasn’t something individuals could invest in, except through public vehicles, and so we leverage technology to make that possible. We now have over $7 trillion dollars transacted in real estate and over $2.8 billion managed in equity on behalf of 300,000 investors.
Q: Looking back to the company’s beginning, why did you set out to start this company?
A: I started the company back in the post-2008 period when the financial crisis hit, and every major institution I knew almost went bankrupt. Goldman almost went bankrupt, Bank of America, J.P Morgan, Lehman Brothers. Why? Because they actually so many of these institutions were actually not looking out for the investor. I came away thinking the system was broken, and that we had to build a new system that was built around an individual rather than built around the institution. I started Fundrise in 2012 and tried to basically build an alternative financial system for individuals.
Q: How have you seen things change in property technology and the real estate industry in general since then? What have been the biggest takeaways and changes?
A: I actually don’t think there’s been that much effect from technology. I think it’s actually something coming, but not so far. A lot of the tech, most tech, hasn’t changed how the industry behaves. I think that’s going to change. I definitely think we’re going to have a huge impact on the industry. Other companies will probably mature. The only place we see proptech really having a big effect on real estate is in single-family rentals (SFR). That’s where the most technology exists, like keyless entry and the way that electronic leases are handled. That’s where it’s most impacted the industry.
Q: I see that you are focusing more on the single-family rental market. Can you talk about your reasoning behind that and what you’ve seen so far?
A: I’ve been building Fundrise for 23 years now. Along that long period we came away with this conclusion that real estate is a way to capture growth. Pick something that’s growing, like e-commerce is this growth trend. How would you capture that in real estate? With industrial last-mile logistics buildings, right?
If you really to invest in real estate, you want to find something that’s like a mega-trend, and capture it with good real estate. And then the mechanism, the skills of the return, is leverage. Your cost-basis and the day-to-day quality of execution. Back early in my career, back from from 2000 to 2020, the demographic trends have changed in cities. Nobody wanted to live in like Lower East Side or Brooklyn. That wasn’t young and up and coming, it was very much down on its heel. Washington D.C. versus L.A. versus Chicago is really just like the 60s and 70s era. They were bankrupt in the 70s. D.C. was bankrupt the 90s. Cities were basically decimated and no institutional investors wanted to invest in the cities. Everyone only wanted to invest in suburbs. And then from 2000 to 2020, that changed a lot. Cities got rebuilt, they got lots of young people in there and then Baby Boomers started moving there and empty nesters. It’s just a huge change in real estate markets.
That was the best thing in real estate, that and technology. Now that is going in reverse and going south, and that is mostly because of technology. Work from home (WFH) technology. And so that’s what we’re investing in, that trend towards work from home, towards lower cost living, because probably living in New York, D.C. and San Francisco is too expensive. They are way too expensive, so people are moving towards less expensive. They can work with us remote technology, social norms.
That’s the biggest thing that’s happened in real estate by far. The real estate industry is literally in denial, because they’re not beneficiaries of the change. New York office space is going to basically get decimated, trillion dollars of office lost. Just in New York. It’s going to make some people trillions, and some people lose trillions.
Q: Fundrise recently invested in Saltbox, which feeds into your point about last-mile logistics facilities. What are your thoughts there? What have you been doing there and where do you see that moving forward?
A: Obviously that trend is well known and very well recognized in the industry. It’s still a trend, right? It’s still a growth trend. The main difference is people recognize it now, or they didn’t recognize it 10 years ago. Most people didn’t. You can invest in good investment trends that are well recognized, and the hard part with industrial is getting a good cost basis. You have the right trend, but you have to get good cost basis, good leverage and good execution. The way we get to the cost basis is we mostly use new supply of industrial. You can get new supply or you can get old supply and renovate it, re-release it or rehab it. And so we still get the same trend, but we get good cost basis through the execution.
Q: Last year you secured a $300 million credit facility from Goldman Sachs. How did that transaction come about and what have been your real plans for that moving forward?
A: That’s fully drawn, we have moved on. We’ve got another deal in the works and now we have to turn to that line. We took a different approach with single-family rentals. At the time almost institution doing single rental and overnight real estate, 99% of institutions doing it were doing it through buying existing homes, basically off MLS, and then rehabbing them and renting them. With the money Goldman lent us, we probably bought 2000 new homes or something like that. It was an opportunity to do 100% new construction. We only build or buy new homes. Our customers is the individual, right? Our investors are people like you, and people like you don’t like competing to buy your own home against institutional money. We don’t want to do that with our customer, so we only build new homes as a result.
Q: How do you go about building these homes? Is it through partnerships with national home builders, or is there another way that comes about?
A: It’s a combination. We have more than a half dozen home builders we work with in all sorts of ways. We do land finance for them. We have people on staff so we can build homes directly by ourselves, homes. We’re obsessed with basically trying to deliver this product to market. This is a 20-year trend. I’m getting older and at this point, I remember when they were doing like urban infill projects in D.C. or urban infill projects in Times Square Bank. People thought you were crazy. Then it was 10 years later, people were like wait, that’s pretty good idea. By 2015 that was a three or four [trillion] market cap. It’s not 1999, and this trend is probably 2001 or 2002, and we’re only a few years into this mega trends. It’s going to play out for a long time. It’s just where people live, how they work and how they live.
Q: Looking at Fundrise, what are your big projects and goals this year?
A: Our goal is to be the 10th largest real estate investor in the world by the end of the year. That’s a goal. I have to look at the numbers. Maybe we end up being top 15, but our goal would really be in the top 20. I look for what is the top. We look at the top real estate investors in the world. I’m going to say like number three or four might invest like three or four billion a year, maybe five. I have to look at the numbers, but I think we can be in the top 20, maybe close to the top 10, biggest real estate investors in the world this year.
Q: What would you say are the biggest challenges you deal with right now at Fundrise? Day-to-day but also overall with the themes in the current market?
A: Hiring is the biggest challenge. Getting enough of the right talent is the big one. Obviously the markets and is it in disruption again, and we could actually argue it is in recession. It wasn’t in recession in December, it was it was supposed to be incredible, whereas the growth market and now stock markets are collapsing. Bond markets are collapsing, interest rates are continuing to go up, so we’ve really weathered that storm well. Most great real estate has. You know if you look at Blackstone, they’ve weathered it really well. Because if you own it, Sunbelt and Rocky Mountains multifamily housing, industrial and e-commerce has all done great. But it’s scary, right? The reason why recessions are scary is that when things go bad, more things go bad.
Q: Is there anything else you think I should know about the company or industry in general?
A: We’re going to apply technology to change who has access to what. We started in a real estate, and we are now on the way to really changing that industry. We took a while to get to a level of scale and power where we could, and now we’re on the verge of what we get to do with that power as an individual. That’s going to be really interesting, and that’s where I think there’s going to maybe be some interesting news over the coming months and years.