Financial Poise

A Few Minutes With…Sharestates’ CEO Allen Shayanfekr

Allen Shayanfekr is the CEO and Founder of online real estate investment platform Sharestates.  In a little more than a year, Sharestates announced this month, the company has crossed the $100 million mark in loans originated.

Shayanfekr is admitted to practice law in New York  and Connecticut. The company says his legal expertise in securities law is paramount to Sharestates’ ability to promote and produce public and private offerings in a highly regulated space. Shayanfekr interacts regularly with the Securities and Exchange Commission, in addition to spearheading daily operations at Sharestates.

Before he launched Sharestates, Shayanfekr joined Atlantis National Services as its National Title Producer and Account Executive, holding approximately 28 Producer’s licenses across the Country.  His other credentials include acting as an editor of the Municipal Lawyer, a quarterly journal published by the New York State Bar association. Shayanfekr received his J.D. Magna Cum Laude from Touro Law Center where he graduated in the top 6% of his class and earned his B.A. in Political Science from New York University.

Allen, tell us about Sharestates.

Sharestates is an online marketplace for accredited investors and institutions to invest in carefully curated real estate projects backed by actual assets. What makes Sharestates different from other real estate marketplace lending platforms is that we have unmatched access to dealflow. This allows us to be incredibly selective about the deals that we ultimately offer to our base of investors. Currently we are approving roughly 2 percent of the applications we receive. Since we launched in early 2015, we’ve offered more than 130 deals, originated more than $100 million in loans, returned more than $20 million to investors on 30 loans paid in full and with a principal loss of zero.

The key to our success is our underwriting ability. We put every deal we look at through a 34-point analysis that covers a deal’s financial profile, its property specifics and the borrower’s track record with regards to the specific type of project and asset class. We then score the deal A+ through D-, which determines the interest rate we’ll charge on a risk adjusted scale. Our underwriting program is detailed on our website, so investors can know exactly what we look at in making our determinations.

How did Sharestates begin?

My co-founders started in the real estate industry over 15 years ago. Initially they speculated with house flips on properties they found at auctions and through tax liens. Eventually, they became weary of profiting from the misfortune of others, so they went into the title insurance business. From there, the business evolved into providing a full range of services for real estate investors, including deal sourcing, syndication, due diligence and networking, along with their core title services. That business has grown to 34 states and has overseen more than $4 billion in deals, while cultivating a massive network of industry contacts.

When I came on board in 2013, it was to work on the title business. At the time, peer-to-peer lending was beginning to take off and the JOBS act opened the real estate industry to crowdfunding. I became fascinated and approached my partners with the case that real estate crowdfunding was an online version of what we were already doing extremely well, namely loan syndication and underwriting. Like me they were hooked, especially because our network of institutional investors and borrowers enabled us to source the most promising deals with relative ease. Within 12 months we had a robust platform up and running.

Approximately 50-60 percent of our title clients are also looking for the types of short-term loans we provide, and they usually come to us before they go to the banks because they know and trust us. Even in marketplace lending, real estate is still very much relationship-driven. While most platforms struggle to attract dealflow, we have an established pipeline from which to select the ‘cream of the crop.’ This has enabled us to grow as quickly as we have. But the reality is that any crowdfunding platform has to deliver on its ‘win-win’ promise to both investors and borrowers. Otherwise, you’ll quickly wind up with neither.

How is institutional capital impacting the space?

Institutional investors play a number of important roles. First, they provide liquidity. For example, we’re working with several funds that have and will continue to be purchasing tens of millions of loans from our investors. This enables investors to diversify by continually rolling their profits into new deals. It also reduces their exposure to loan exits, which is usually where the risk lies. Institutional investors also function as a second set of eyes on our deals, which validates our underwriting expertise. The fact that Sharestates is attracting this type of capital engenders confidence among individual investors, who sleep more easily knowing they are investing alongside real estate pros.

At the same time, if a platform isn’t committed to the original purpose of crowdfunding, specifically to make direct real estate investing possible for more people, it’s very easy for them to close themselves off from the people they initially wanted to serve. Some platforms are ok with that. Others, like Sharestates, are not. In fact, we’ve turned down large funds that would have insisted on first right of refusal for investing in deals. All of our deals remain open to accredited individual investors.

Are there other trends you’re noticing?

Right now, the industry is having trouble attracting pension funds. The high interest rates are creating apprehension as they associate rates in excess of 6 percent as signs of high risk. At some point, these funds see that certain platforms are consistently delivering results and they’ll ease their way in. As this happens, the funds will pressure the platforms to pull back a little bit on their rates. This will enable the funds to alleviate concerns, among their own constituencies, that they are taking on too much risk.

The result will be a cheaper borrowing cost and more stratification in terms of borrowers and rates. Returns will still be excellent across the board, but for deals with pension fund investment, we’ll be looking at less aggressive rates. The sweet spot for these loans will probably be somewhere between 8 percent and 9 percent. That being said, the tradeoff will be more capital and an even more dynamic marketplace lending environment for everybody.

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