Money360 is not a newcomer to the marketplace lending industry. They were first mentioned on Lend Academy in 2010 when real estate crowdfunding did not exist. Evan Gentry, Money360’s CEO, having seen the start of the rise of p2p lenders Lending Club and Prosper knew that this model could be applied to real estate. At the time, he knew he was still early so although Money360 remained in operation, they have ramped up operations just recently. We had a chance to speak to Evan to learn more about where they are at now.
Evan has a background in commercial real estate lending and applying technology to the mortgage lending business. Through other businesses he has experience acquiring distressed loans and is an expert in commercial real estate. Money360 officially launched 2 years ago when the team revisited the business model.
Their business mode focuses on income producing commercial real estate loans with a favorable LTV and in turn offering these loans to accredited investors as well as institutions. The minimum investment per loan is $50,000 and the platform allows for institutions and individual investors to invest side by side. Loans range from $1 million to $15 million, but typically fall between $3-$5 million. They have now been originating loans since fall of 2014 and to-date have funded $70 million in loans. $56 million of these loans were originated in 2015 and they expect to exceed $200 million in 2016. Money360 operates nationwide and have made loans in 40 states.
Although originations have been strong, Evan noted that they take a very methodical approach to their growth. Many members of the executive team have 25 years of experience in commercial real estate. The team of underwriters have experience working with originators and workouts. This brings a different perspective to the business as they have a unique understanding of how loans can go bad. Evan noted that this is one of their key competitive advantages. This history in the industry has also helped in borrower acquisition. Fifty percent of their loans come through relationships within the industry with the rest coming from third parties and some borrowers come directly online.
While many real estate crowdfunding companies focus heavily on technology first, Money360 is a commercial real estate lender first and applies technology to their business where applicable. One of the main advantages that companies like Money360 offer is the ability to underwrite and approve a loan extremely fast. With a marketplace model, this often poses an issue since investors need time to consider investments. Instead of waiting for a loan to fund on the platform, Money360 has taken a similar approach to other real estate crowdfunding companies. They operate two internally managed funds which benefit the platform in two ways. First, investors can invest in the fund to easily and automatically diversify their investment in many loans. Secondly, it serves as a warehouse line to the loans being funded. The loan is initially filled with proceeds from the fund and then is syndicated to other investors who manually choose which loans they invest in. Loans are typically filled in 1-2 weeks.
This advantage of speed has brought many real estate investors coming to Money360 for bridge loans who are unable to find another lender that can close a deal in a matter of weeks. These loans typically are 1 to 3 years in length and carry interest rates from 8% to 12%. Their more permanent financing product carriers interest rates of 4% to 6% with a duration of 5 to 7 years. Borrowers pay an origination fee, which varies between 0.5% and 3%. The average origination fee falls between 1.5% and 2%.
Once a loan has been approved and funded, distributions are made monthly to investors. The loan to value on their loans are typically 65%, but they go as high as 75%. Evan mentioned that when real estate investors hold 35% equity in a property they are highly motivated to ensure they don’t default. Although Money360 wants to make good loans, they are very aware of market cycles and understand that some loans will have challenges and defaults. When this happen, Evan said that they typically end up making more money on the loan due to a default. This in part due to the lower LTV on the loans. Returns to investors can be in the 8% – 10% range after a 1% annual servicing fee.
Finally, we asked Evan what his biggest challenge was as Money360 has grown. He said that the team has doubled in the last few months and they remain focused on controlling their growth, which they anticipate to quadruple in the next year. The company has raised a Series A round and Evan noted that they don’t see a need to bring on more capital at this point.
While some real estate crowdfunding companies have taken a much broader approach to the market, Money360 has taken a much narrower one. They believe strongly in their approach to only offering debt investments in income producing loans with low LTVs on commercial properties. With their seasoned team and rapid growth, Money360 is certainly a company to keep an eye on in the real estate crowdfunding space.