For a long time, the real estate industry has resisted disruption. Many developers cling to their flip phones, preferring pen and paper to digital signatures. Nevertheless, change is here. Secure, cutting-edge technology is finally reinventing the business of buildings.
One of the foremost pioneers of the movement that is pushing real estate into the future is Allen Shayanfekr, co-founder and CEO of Sharestates. The New York-based digital platform crowdfunds mortgages to fix-and-flip developers faster and at more competitive rates than traditional banks can offer.
“We were one of the first real estate companies to enter the debt crowdfunding space,” said Shayanfekr, who dreamt up the company with partners Radni and Raymond Davoodi back in 2013 and officially launched it two years later. “When we first started this process, we didn’t anticipate nearly how complicated it would be or what the technology would look like. We just thought that we were building a crowdfunding website, with a frontend where investors can login and view opportunities, create accounts, invest online and receive distributions.”
But Shayanfekr and his partners quickly realized was that they had tapped into something much larger than they had anticipated. Over the last seven years, Sharestates has closed 2,640 loans worth $2.36 billion in 34 states. And in doing so it attracted thousands of investors from 44 states with an average investment size of $131,634. They quickly understood that building innovative proprietary technology was the only forward-looking solution.
“As our business grew, so did our need to develop automated and integrated technology,” Shayanfekr said. “We had to think about how to manage the borrowers, real estate speculators and developers we work with. How do those leads come into our system? How do we process them? How do we manage the underwriting process, the closing process and ultimately selling the loans, plus everything else that goes on?”
What Sharestates eventually built was a robust end-to-end process that covers both the investor side of the business, as well as the origination, or the borrower side of the business with “all the bells and whistles.” Shayanfekr said that during that process he discovered that what they had designed was unique to the industry – something that could eventually usurp the old fashioned process of applying for and receiving a mortgage.
For most institutional lenders, the borrowing process is exceptionally antiquated. Most banks still use a paper application that is sent to a processing team. That processing team enters data into an Excel file. They then email the borrower asking for a list of documents – and this information is not always sent or received on secure platforms.
“What we did was to take this unsecured process and create a new A to Z system with validations in place, with artificial intelligence components and algorithms that speed up the process and remove friction,” Shayanfekr said. “For example, where it took a traditional lender 60 to 90 days to close a loan, we can do it in under a month, and usually within two to three weeks. The entire process, all of the third party reports that need to come in, all of the documentation that needs to be executed, that has all been built into our online system.”
That automation also extends to Sharestates’ processing and underwriting teams, creating workflows and notifying staff to the status of a file. Vendors – including appraisers, title insurers, bank attorneys and settlement agents – can also log in and manage their entire interaction with Sharestates via a portal that centralizes paperwork and information.
The upshot is that where a traditional mortgage lender of a similar size relies on a team of roughly 80 to 100 people to process, underwrite and close a loan, Sharestates needs about 20 staff members.
“We close approximately $100 million a month in loan volume,” Shayanfekr said. “It would easily require five times the amount of staff that we have today if we didn’t have our software to support our processes. The mortgage world’s solution to any problem historically has been to throw more people at it because that was the only possible solution. What we have built means that is unnecessary. We could double our volume without having to double our staff.”
And for Sharestates’ investors, their technology means that a real estate venture is as easy as buying stock on E-Trade. Individual investors can simply log on, link their bank account, target individual loans and receive distributions on a monthly basis.
“I have always been very tech-conscious,” said Shayanfekr, who got his start as an attorney specializing in securities law. “I believe that automating things wherever you can and removing the possibility of human error is a good thing to do.”
Shayanfekr added that Sharestates’ software is so unique that his company will soon begin licensing it to other investment and lending platforms, quickening the pace of change in the industry.
“It’s happening,” said Shayanfekr. “But people need to understand that real estate is such a massive asset class, and there are so many parts to it and each one of those parts is so complicated, that you are not going to get a single technology provider or one piece of technology that will come out and overhaul the entire real estate industry. It’s happening in a more compartmentalized way within those different verticals and in each one of these subcategories.”
And despite that piecemeal disruption across the industry as a whole, Shayanfekr says that the breaking point is now.
“It took us seven years of development to get to this point,” he said. “We were a lender, not a software licensing company. And only now have we gotten to the point where we have a complete end-to-end process that can be customized, licensed out and monetized. I’m biased obviously, but we have built an absolutely fantastic product that will give other lenders who don’t have the time, resources or wherewithal tremendous value.”