First of all, how are you and your family doing in these COVID-19 times?
Charles Clinton: We have been fortunate enough to remain healthy and safe during this trying year. As a lifelong New Yorker, it’s been hard to watch the pandemic’s effects on the city and the country. Our thoughts are with all of those who have been affected, and particularly the first responders and essential workers who have been on the front lines.
Similarly, I’m very thankful that all of my colleagues at EquityMultiple have remained healthy and that we are positioned well for a successful end of the year. I believe deeply in the resilience of America, and we look forward to participating in the economic recovery through the investments we offer on our platform.
Tell us about you, your career, how you founded EquityMultiple.
Charles Clinton: I founded EquityMultiple with my partner Marious Sjulsen in 2015, after beginning my career in real estate law with a large New York firm. A few years into my legal career, I worked on some of the biggest commercial real estate transactions in the country and earning a healthy salary, but unable to participate in the types of lucrative investments that I was working on as a real estate lawyer.
This really drove home the disconnect in the investing space and the opportunity for us. Historically commercial real estate has outperformed the stock market while exhibiting significantly lower volatility. Institutional investors like the Yale Endowment that have outperformed the public market often allocate heavily into real estate and other alternatives over a long period. However, for individual investors, access to institutional-quality commercial real estate has always been a challenge unless you are ultra-high net worth or well connected. We built EquityMultiple to make real estate investing simple, accessible, and transparent for all accredited individuals.
How does EquityMultiple innovate?
Charles Clinton: Our fundamental innovation is taking something that has always been opaque and complex and making it simple and accessible. We do this by sourcing, vetting, and underwriting real estate investments, structuring them to provide key investor protections, and offering them through an intuitive online platform. In this sense, we are simply modernizing old processes and practices, turning a slow-moving but highly lucrative industry on its head, pairing technology with real estate expertise to make a new asset class available to the self-directed investor. EquityMultiple allows investors to participate in real estate across the country, at minimums as low as $10,000, within just minutes through a secure platform. Much like Etrade did in the 1990s, bringing an offline industry online can fundamentally change who has the opportunity to participate.
How the coronavirus pandemic affects your business, and how are you coping?
Charles Clinton: Any time the economy faces such precipitous hardship, the real estate industry is bound to be impacted somehow. Almost overnight, we had to rewrite our investment screening process to reflect the new macroeconomic environment. We also significantly decreased the volume of new investments on our platform during the period of peak uncertainty. On the other side of the business, we saw very strong interest from new investors (Q3 was our highest number of new investors ever). Given the crazy swings of the public markets and more time at home than ever before, investors have naturally gravitated towards online investing platforms.
Going forward, we see three things as very important to our success and the success of our investors.
- Flexibility – Because we invest in a range of property types all across the country through a robust network of partner real estate firms, we were able to quickly adapt our sourcing and underwriting guidelines and focus on finding opportunities that make sense in the present moment. For example, while retail and hotels are experiencing deep challenges, multifamily and industrial properties are maintaining value in many areas.
- In-house Asset Management – Unlike some investment platforms which operate more as marketplaces, we have an in-house asset management team that vigilantly monitors every investment on our platform and works to mitigate risk and maximize investor returns. This team of experienced, diligent professionals should give our investors comfort as the crisis plays out.
- Future Opportunity – Every crisis creates opportunities for investors. While we scaled back our volume significantly in the early post-pandemic period, we are now seeing pockets of strong opportunities return to the market and are increasing our offerings again. The coming year should be a period of tremendous interest for investors and growth for EquityMultiple.
Did you have to make difficult choices, and what are the lessons learned?
Charles Clinton: It seems like in the startup world, you are always making difficult decisions. I try to rely on some of the frameworks for decision making that I have gleaned from other successful entrepreneurs. Stripe CEO Patrick Collison, for example, puts decisions on a quadrant with reversibility and impact. High-impact, highly reversible decisions are the most fun: you can iterate, fail fast, and hone in on what will deliver sustainable results. This applies to many challenges and decisions in UX, product, and marketing. I am fortunate to have a team of data-driven decision-makers in these areas that take this approach. Being a startup in the investing space is not like being a startup elsewhere, though. When you are a steward of capital operating in a heavily regulated industry, many decisions are not so reversible and are highly consequential. Because we live with each investment we offer for the life of the investment, our decision-making around what types of investments to offer tends to be slow, methodical and tilted towards conservatism. At times, this has been painful because we have passed on opportunities that would have an immediate positive impact on the business. However, particularly during times like these, we feel reaffirmed in that discipline of approach.
How do you deal with stress and anxiety? How do you project yourself and EquityMultiple in the future?
Charles Clinton: They say that depression is living in the past, and anxiety is living in the future. The investing business can be tough in this way because you’re always, to some extent dealing with the past (your track record) and the future (your target return objectives). We have a couple of guiding principles that really alleviate these existential pitfalls and, I think, help to promote a good relationship with our customers:
- No one can time the market or predict with certainty what will happen to markets in one year, let alone five. Hence, we frequently talk about diversification – both into alternative asset classes like private real estate and within asset classes (within one’s real estate portfolio). EquityMultiple pursues a diverse set of real estate investments and, through our low minimums and streamlined process, we encourage our investors to continually diversify. This alleviates our stress as far as being perfect all the time. We won’t be (and no asset manager will be over a long enough timeframe), but we aim to put investors in a position to realize strong risk-adjusted returns at the portfolio level.
- Be honest with people. Investors appreciate transparency, both when the news is good and when it isn’t. To paraphrase Mark Twain, “if you’re honest, you won’t have as much to worry about.” I find that honesty is both sound business practice and a way of avoiding anxiety.
Who are your competitors? And how do you plan to stay in the game?
Charles Clinton: There are a few other platforms that have been established in the past 5+ years that, like us, seek to bring private real estate to individual investors. PeerStreet and Fundraise are a couple that comes to mind. Many of them do good work, and at this point in the industry, I feel like all of the prominent platforms have carved out their own turf as far as the business model and what they offer investors. Our focus is commercial properties with a range of risk-return profiles so that investors can construct their own portfolios to meet their investing goals. Over time, we plan to introduce tools to make this portfolio construction even easier. We will also always strive to provide industry-leading investor services and asset management. I firmly believe that focusing on the customer is the key to longevity for any business.
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