Building wealth and rebuilding the American neighborhood. You would be hard-pressed to come up with a more meaningful organizational mission statement—but that is exactly what Brew Johnson, Founder and CEO of PeerStreet, and the rest of his team are striving to accomplish.
Originate Report recently had the opportunity to chat with Johnson for a peek behind the curtains of the industry’s first ever two-sided marketplace for investing in real estate debt.
What was the inspiration behind PeerStreet?
Much of the inspiration for starting PeerStreet came from the 2008 ﬁnancial crisis that brought the global economy to its knees. It showed clearly that the mortgage securitization system is overly complex with too many middlemen. We wanted to change that. So, when the crowdfunding laws changed with the JOBS Act to allow for more direct investment in loans, we saw an opportunity to reduce friction in a very complicated system. The result has been the democratization of this asset class in a way that was never possible. With PeerStreet, investors can create and fund an account and start investing in fractions of loans. This allows investors to achieve broad diversiﬁcation across loans, real estate projects, geographies, lenders, etc.
How has PeerStreet leveraged technology to enhance client experience?
PeerStreet’s two-sided marketplace is completely enabled by technology: From creating and funding an account, to how investors access opportunities to invest in, to the software we have developed for borrowers and lenders, technology is in everything that we do and the cornerstone of our business.
What types of loans do you source from lenders? Is there a vetting protocol? What factors do you focus on when selecting the loans?
We see billions of dollars of loans from hundreds of lenders across the country. We source loans from private, non-bank lenders and brokers. The loans are typically short-term bridge loans (as well as 30-year rental loans) on residential or multifamily properties. Lenders and brokers must be approved to submit loans into the marketplace. Submitted loans are run through a vetting and diligence process by PeerStreet (and/or third parties) before those that satisfactorily meet our standards are passed on to our investors.
How does PeerStreet aim to rejuvenate local communities?
The U.S. housing stock is in desperate need of an upcycling—the average home in the US is almost 40 years old. Historically, many communities were underserved by investment capital that would allow them to undertake necessary improvements. Most of the investments available on our digital investment platform are bridge loans to real estate entrepreneurs who buy undervalued properties to ﬁx the property up and either sell it to a homeowner or rent it out to a tenant. The unique aspect of a platform like PeerStreet is that investor capital not only provides returns to our investors, but also improves properties, creates jobs, and revives local communities across the country. Contractors and vendors are hired, materials are purchased, real estate agents are engaged and renters and home buyers are presented with updated housing. As that plays out over multiple properties, entire communities can be signiﬁcantly updated and revitalized. To date, roughly $5 billion has been invested in loans through PeerStreet, which has resulted in thousands of neighborhoods throughout the country improving and more than a billion dollars in estimated value creation for loan investors, borrowers, and communities where the properties are located.
What types of investors do you typically work with? What types of returns can they expect?
We work with both individual and institutional investors. I think the asset class appeals to a wide variety of investors and the fact that we have taken an asset class that was historically diﬃcult to access and manage and made it a fully digital experience is appealing to many types of investors. That attractiveness seems to be increasing in an environment where many stocks are down 50% or more, trillions have been lost in the crypto space, and even “safe” bond funds are down 6% and more.
What role does the PeerStreet team play in managing/servicing the loans?
For investors on the digital platform, PeerStreet is the master servicer, and we handle collections, accounting, distributions, reporting, taxes, etc. PeerStreet acts on behalf of investors to achieve fast and favorable outcomes.
What makes PeerStreet unique? What qualities set it apart from the competition?
As the only true digital platform and marketplace for private real estate loans, PeerStreet provides beneﬁts to all parties. Lenders get a tech-driven platform and dedicated team of account managers, underwriters, closers, servicers, and marketing to help them exponentially grow their business without growing their headcount, as well as access to capital to fund their loans. Borrowers indirectly can access more capital through these Lenders. Investors can digitally build the most diversiﬁed portfolio of loans from all across the country with unprecedented access to thousands of lenders and borrowers while only having to deal with a single counterparty: PeerStreet in a fully digital format.
What does PeerStreet have planned for the future?
PeerStreet plans to continue providing valuable technology services for investors, lenders, and borrowers. We are working to build a platform where a borrower for any real estate loan can get access to capital within days. The process of funding that loan is as easy as the consumer-facing applications you use daily to book ﬂights and hotels or purchase goods.
We also recently launched several products that we expect to provide tremendous value to our clients:
- PeerStreet Pocket is a short-term cash-alternative investment vehicle that yields 7x more than an average savings account.
- PeerSuite is a white-labeled loan application and loan scenario tool customized to the originator’s branding. PeerSuite’s features allow originators to collect borrower data and streamline their process completely digitally. We are very bullish on this approach, and initial tests are showing this eﬀort will pay oﬀ for everyone involved.
- Automated Investing gives our investors the advantage of not missing out on loans that ﬁt their selected criteria. This tool provides the beneﬁt of being the ﬁrst into an investment without even logging on.
- Early Access loan investment opportunities provide investors with yields that are generally reﬂective of market conditions in real time. This gives our investors a more responsive rate when market rates change quickly.
- Flex Loans recently launched with the goal of giving originators and borrowers more loan opportunities with wider credit terms, better rates, and lower maximum leverage.
Additionally, we are preparing to launch our Index Portfolios built from a cross-section of loans from our platform that will provide investors with instant diversiﬁcation with some of the best interest rates in the market. Portfolios will include underlying properties of single-family or multi-family residences with loan terms of 24 months or less. We also plan to expand our Pocket product, giving investors more options that keep their uninvested dollars working for them while they wait for the right opportunity.