September 6, 2019 • 25 mins
In this episode George speaks with Chris Brauckmuller, Chief Product Officer and Creative Director of Fundrise. Chris is involved in all investor-facing aspects of the business, from new product development to the visual presentation of the platform. Prior to joining the Fundrise team, Chris ran his own independent interactive design studio for three years and spent two years as an interactive designer at a large digital agency, where he took design leadership on accounts for the Fortune 500, including Microsoft and BAE Systems.
Fundrise allows individuals to diversify their portfolios into private market real estate investments. Fundrise launched their first online opportunity seven years ago after working with the SEC through multiple filings and audits. The concept was largely made possible due to the JOBS Act of 2012. As a result, Fundrise has invested in nearly $2 billion worth of real estate across the country and has 500,000 members.
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Episode Transcript
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Intro VO (00:10):
Work.
Wealth.
Wisdom.
This is DC Entrepreneur.
We're sharing stories, ideas,and lessons from businesses in
the pursuit of innovation.
And we're helping build acommunity of problem solvers and
thought leaders in theWashington area.
Here's your host GeorgeMocharko.
George (00:35):
This is George Mocharko.
Here on WERA 96.7.
Today I'm in the studio withBrauckmuller.
He is the Chief Product Officerfor Fundrise.
Fundrise is a real estateinvestment startup located in
the Washington DC area.
Thanks so much for joining metoday!
Chris B. (00:54):
Thanks for having me.
George (00:56):
So Chris, talk to me about the background of
Fundrise, how it started, andwhat you all do.
Chris B. (01:01):
Sure thing.
So Fundrise is an online realestate investment platform.
Uh, starting in 2012.
Ben Miller is the co-founder andCEO of Fundrise and he was, I
would say the genesis for the,the um, the original idea I
guess you'd say for the company,as we know it now.
He and his brother Dan.
So they're doing small realestate developments in DC 2009,
(01:24):
2010, 2011.
They want to move into H streetor other emerging
neighborhoods...
and the capital from theirtraditional capital partners
just isn't there.
The, traditional capitalplayers, the private equity
firms, or other institutions whoare, um, who are basically the
normal guys who help put moneyinto real estate projects
because the developers, veryrarely are the only guys
(01:46):
providing capital on a deal.
They weren't really seeing thevision for the neighborhood.
So they...
Ben had this problem right wherethere he saw an opportunity to
make good investments, but thecapital wasn't there because the
, um, the counterparty, theother, the guy, there were
people who even normally partnerwith, just didn't see the vision
for the neighborhood.
So Fundrise was really born fromthis idea, basically that the
(02:07):
people who live in cities,should ultimately be able to
invest in cities too.
And to hopefully, um, be able toearn a return or, you know,
realize financial gain from whatto us is, is a very strong,
historically strong investment.
And, and to basicallyparticipate in, I would say,
(02:28):
economic value creation through,through development of property.
And I'd say there's a, there'san urban flavor to that.
Um, like a, a city based flavor.
But there's, that's kind of, Ithink that that vision is
expanded because now we'redoing, we're, we're basically
investing all over the country.
We're investing in urban areas,we're investing in suburban
areas.
But the common thread being thatwe're investing where people
(02:49):
want to be, it's ultimately astory about people.
And it's about a story aboutknowing where, um, where people
want to be and doing what theywant to be in, in the sense of
like the, the product, you know,um, whatever that may be for
sale housing or apartments orretail or what have you.
But it's ultimately about wherepeople are going and where they
(03:09):
want to be.
Um, and, and investing ahead ofthat and allowing anybody to
participate.
Allowing anyone who's, um, whobasically is interested and is
willing to invest some money.
But with a low minimum to beable to participate.
George (03:26):
So let's talk about that for a second because I think
traditionally this type of realestate investment was mostly
open to accredited investors.
So now it's open to just anyonethat wants to invest in urban
real estate.
Chris B. (03:37):
Um, yes.
So you do not have to be anaccredited investor to invest on
the Fundrise platform.
Um, and that's actually aconsequence of the JOBS Act,
which Obama passed I believe in2012.
Um, and then I believe it waspromulgated.
So it basically came into effectin 2013.
But before that, if I didn'tknow you and I wanted to raise
(04:02):
money to invest in a deal withme, you would have to be what
the SEC calls— SecuritiesExchange Commission calls— an
accredited investor, which is aperson who has some minimum
requirements on income or networth.
Um, and so the jobs act allowedus to basically, um, move beyond
that limitation and to acceptinvestment from anyone.
(04:24):
Um, who had, in our caseoriginally$1,000 in now$500 is u
s resident and otherwise, um,the only restriction being that
they can't contribute more than10% of their, their income or
net worth in a year.
So it was a huge, basicallyopening up of the access to that
type of capital, that smaller,investors as well as smaller
(04:50):
capital raisers could connect inthat way.
It was completely just a gamechanger for the way we were able
to grow our business.
George (04:56):
Yeah.
What's interesting about that tome is that it also happened
around the same time that yousaw this explosion of
crowdfunding for a lot ofstartups and for a lot of
projects and, um, even, youknow, creative projects like
films and things.
Like on Kickstarter.
So is there a parallel there?
Chris B. (05:12):
I think there's a parallel in the sense that the
internet has created this justcrazy multiplying factor on, um,
on everything.
So it connects people, um,people is capital in ways that
were previously impossible.
I mean, even with, uh, even withthe regulatory changes that the
jobs act brought about, I mean,doing that business right with
paper would be ridiculous.
(05:34):
Trying to manage that in atraditional way, not online, it
just doesn't make any sense.
Um, so in that way I would saythere's a parallel to the extent
that there's that increasedconnectivity that the Internet
has brought about.
Um, you know, the, the, theykind of go, mmm, they go
alongside one another in thatway.
So talk to me about theinvestment approach.
Like, what are you investing in?
(05:55):
Are these like mixed usedevelopments or like urban
Speaker 4 (05:58):
centers or are they just buildings themselves?
Like what, what exactly doesthat look like?
Speaker 3 (06:02):
So we have quite a diversified portfolio of
different types of investmentswe're making.
Um, I t the, the common thread.
Um, and actually I'll, I'll, Icould list off a few of the
different types of deals we'redoing, but to, uh, to take a few
examples.
So, um, we're looking at, uh, inthe southeast United States, we
(06:22):
will go in and directly, youknow, in purchase a, um, uh,
kind of like a garden apartmentstyle community, um, where this
move's been around for a littlelonger.
Uh, maybe not, uh, theapartments inside or a little
bit out of date, but thebuilding's really solid and
we'll go in and do value add, dorenovations.
Um, and that'll allow basicallyus to drive, drive the value of
(06:44):
the property through basicallymaking it more competitive and
being able to charge morecompetitive rents.
Right?
So that's one.
Um, all the way through to, um,something like the Louisiana 14
on, uh, on, um, 14th street inDC, which is like your classic
example of like a, an urbanmixed use sort of retail
investment.
Um, in La in particular LosAngeles, we see a tremendous
(07:06):
amount of opportunity just withthe unique, uh, demographic
factors in that city at play.
But, um, a few different thingswe're doing there.
Um, working with folks who areentitling land to basically up
zone it for higher densityusage.
So we'll actually go and investin projects like that where
you're taking what maybe oncewas like two or three parcels of
land, which each are like, Ihave a single family home, just
(07:28):
a one story home combining thosethree parcels together and then
subdividing it to build like 18or 20 new homes there.
Speaker 4 (07:35):
So multiunit dwellings basically for a lot of
these[inaudible] these projects.
Yeah.
Speaker 3 (07:39):
So I mean I would say that uh, housing is probably
the, as far as the product typeis the most common thread.
But I think the real, the realthing is basically is around
potential and around value add.
So it's around places where wecan go in and through either
through physical work, likerenovations or through, um,
through legal work likeentitlement or, um, or basically
(08:01):
through letting the marketbasically act on our behalf
around us that, um, we're, thatthere's basically an opportunity
for a lot of value add that wecan see.
Um, and where we can basicallyto the extent that we can make
smart investment decisions andwork hard, um, can affect that
value add.
Speaker 4 (08:16):
Are you seeing that the trend of urbanization is
happening nationwide still atthis point?
Cause it seems like there's beenthis wave of redevelopment for a
lot of cities.
Um, but has it cooled off?
Cause I'm starting to see thatit looks like there's, you know,
there's almost peakconstruction.
Like you're not seeing as manycranes up anymore, but you're
not seeing kind of the sametypes of projects anymore.
(08:37):
Has everything cooled off or isthe market still kind of moving
in that direction?
Speaker 3 (08:41):
So I think there's, um, like anything, there's,
there's nuance there.
But certainly in, um, in, youknow, in New York for example,
um, or even I think DC, there'sstill quite a lot of
construction going on, but to us, um, pricing has gotten really
high.
Um, it's really difficult toinvest in some of the, like, top
five major metro markets now tocome into where we are at this
(09:04):
phase in the market.
And, um, and basically targetwhat we think is an attractive
risk adjusted return becausethere's asset prices are just
through the roof.
Um, construction costs are high,land costs are high, and there
are people who are willingbasically to take, um, what we
think is basically a lower, youknow, lower return than they
should be willing to take.
And so we're basically not, um,we're not really feeling like
(09:27):
it's, uh, we're competing that,uh, we're, we don't want to
compete, um, in that type ofsituation.
Okay.
So are you going to like midmarket cities now?
To some extent, yes.
Um, so, so la obviously beingthe exception there because La
is just to us a unique animaland there's so many cool things
going on in La.
Um, it's just, it's so big.
Um, and in the housing supplythere is just so constrained.
(09:51):
They don't have the density,they don't have the density vast
and kind of sprawled out.
Right?
It covers the whole valley andit's this like, you know,
basically a lot of single familyhomes, but, um, even where there
is a little bit higher density,it's lower than you would see
like in d c for example.
Um, and they're just, it's justso big.
Um, but yes, to answer yourearlier question, basically we,
we are going into, um, what youmight call secondary markets,
(10:13):
right?
So we've done a lot of investingin Florida for example, um,
which has growing the populationgrowth in Florida is just, it's
crazy.
I mean, it's growing so quickly.
Um, and you can see that threadthroughout the, I mean the
sunbelt basically, if you will.
Um, it's sort of with La beingthe, the West anchor of that and
sort of the Georgia, SouthCarolina, those coastal areas.
(10:37):
Um, Savannah, we recently had a,a rather large portfolio
acquisition there too.
Um, and so I think the theme tosome extent, um, more recently
as people leaving the north, um,and, and, and migrating south,
um, and, and you can see that inthe, um, manifest basically in
the population, um, changes yearover year from, you know, who
(10:59):
are the biggest gainers and whoare the biggest losers.
Um, in terms of population.
I mean like the Midwest, it'sjust not growing right.
And you don't see us doing a lotof investing there.
Um, for that reason becauseagain, going back to my earlier
point, um, we want to be wherepeople are going.
Um, and, and those, if you'repaying attention to those trends
, um, it's, it's pretty clearwhere basically where people are
(11:22):
moving and where we thinkthere'll be going over the next
five, 10, 15 years.
Yeah.
I think what's also interestingtoo is that you're giving a
chance for really a generationto invest in real estate that
has been kind of locked out ofthat, that hasn't been able to
afford their own properties.
In essence, a lot of times theyrent in an apartment, but
they're able to reinvest in someof these, these areas by having
(11:42):
kind of like a piece of theaction.
Right.
I mean, ultimately we, um, ifyou wanted to try to sum it all
up, I mean, we want to make itso that every individual, um,
can basically access the highestquality real estate investments
in, in the self-directed manner.
They can, they can basically acton their own behalf, um, come to
us and, and we can serve, um,basically serve as their, um,
(12:06):
their location for where they'regoing, you know, their platform,
um, for where they can invest in, um, real estate and
specifically real estate, um,via the private market as
opposed to investing in like apublic rate for example.
Um, so it, it, to us that's,it's a much closer parallel to
owning your own property, tohaving your name on the title,
(12:26):
um, without obviously the, theactive, the Ma, the active
management required there.
Um, but it has some, some of thesame benefits.
You wouldn't necessarily have tohave somebody that, you know, is
a property manager in essence,right?
Correct.
Yeah.
I mean, we're doing, we're,we're completely vertically
integrated.
I mean, you're, the whole ideais that it's a, it's a
completely passive investmentfor you.
(12:46):
Um, and we're doing all theactive work on your behalf and
we're keeping all that activeworker as much of it as we can,
is economically feasible for usunder one roof.
So we have as much control overthe process, basically from the
time that the money leaves yourbank account until it goes into
the property and comes back out.
That's all be to the extent thatwe can keep as much of that
under our, under our purview.
(13:08):
Um, we think that, um, that'sultimately going to be a
superior model.
So, Chris, what's fun rises atBessman approach.
So, um, I think I spoke a littlebit about, um, earlier how we
think about, um, basicallyinvesting in real estate and
looking for opportunities to, toadd value and to control that
value add.
Um, but there's also just this,um, what I'd say is like a
(13:28):
structural difference, right?
Between investing in a realestate via the private market as
opposed to, uh, in, in publicrates are really that matter for
public stocks or bonds.
Um, and, and to us, um, that inour thesis, which are, you know,
over over a period of time, thatthesis will ultimately be proven
to hold water and not to holdwater, but we think is a, uh, a
(13:51):
strong one, um, is basicallythat there, um, in the, in the
public markets, right?
Um, the information is perfect.
So you have, um, there's aschool of thought basically
that's very popular right nowwhen it comes to investing that
you should basically be indexingbecause there's no way to
outperform the market.
Right?
So that's sort of this, um,that's where ETFs are, your next
(14:14):
funds were born out of.
Um, and that's why you see guyslike, I mean, I see the ads on
TV all the time.
It's like, you know, Schwab andvanguard and Ameritrade, they're
all basically erased to thebottom.
There's this, I'd say prevailingschool of thought that there's
no way to outperform the market,so you should just invest in the
market.
Um, and so, um, to, to s to someextent we agree with that.
(14:37):
We think that's true when you'retalking about the, the nuance
areas that we're talking aboutthe public market, right?
So, so the thesis is basicallythat, um, they're in the public
market information is perfectright there.
That the, the advent of theInternet, um, and basically the
mass communications we haveavailable to us along with all
the crazy trading tools andeverything.
I mean, everyone basically hasinformation parody.
(15:00):
Um, it's so efficient that it isin fact very difficult to
outperform, um, the publicmarket when you're investing in
publicly traded stocks andbonds.
Um, it's, and you know, youthere, there are probably people
who would still to some extentdisagree with that, but that's
the sort of the prevailingschool of thought, um, as it
comes to investing today.
And if you look at really, uh,even the roboadvisor kind of the
(15:20):
advent of those guys wherethey're, um, they're, you know,
if you, if you go sign up withone of them, they're basically
putting you into a pool of ETFsand they're not, they're not
really claiming, um, or, ortrying to sell you on the value
proposition of them having somekind of like special, um,
basically special likeinvestment philosophy that's
going to outperform the marketthrough like them actively
(15:42):
picking investments effectively.
They're, they're indexing.
Um, they're indexing accordingto some risk parameters you give
them and their value add isbasically doing the stuff that,
um, is a little bit maybe hardfor you to do as an individual.
Like the tax loss harvesting forexample, um, in rebalancing.
Like they kind of take care ofthat stuff for you and then they
do that for really low fee.
Um, but nowhere in there reallyis their message about like, we
(16:05):
actually think we can get alpha.
Right.
Um, on the contrary, from whatwe see in the private market,
information is extremelyinefficient.
Pricing is not in real time.
Trades are not happening, youknow, millions of times a day or
you know, intimidation or even,you know, down to the micro,
people are worried about themicrosecond, their latency from
(16:27):
the high frequency trading.
I mean, that's sort of beingtaken to, it's logical, like the
flash boys kind of got stuff.
Exactly.
Yeah.
So, so actually on the contrarythough is like in the private
market information, um,asymmetries really, really
common and it's, it's the norm.
Um, so you actually can with, orwe believe you can with the
right Intel basically, um, to do, you can get alpha.
(16:52):
Um, and you can do that by, byknowing markets intimately, by
knowing people intimately, um,people being the, both the
demographic, uh, you know, thepeople in your city, but also
the, the sponsors and the realestate people you're working
with.
So let's talk about that for asecond.
So what is the differencebetween the public and private
real estate market?
So, um, when you're investing ina public rate, for example,
(17:14):
right.
Um, and I think that, um, using,using the, um, the framework of
time is actually probably thebest way to think about this.
So when you're investing in, ina public rate, you're investing
in what are very like late stagereal estate assets is one way to
think about it.
So, um, you're investing in afinished product where a lot of
the, like basically a lot of therisk to some extent, but, but
(17:37):
not really.
It's a different kind of riskbecause there's a lot of, it
depends on the, the likeprevailing interest rate
conditions, but a lot of theuncertainty or, but also you
could see a lot of the potentialhas been, um, his basically been
baked out of the project.
You're investing in the finishedthing.
So if you go look at like, Idon't know, um, Starwood or one
(17:57):
of the big rates, um, and one ofthe big office ones, for
example, they're, you know,they're, they're the kind of
prime office buildings or retailcenters or whatever, um, and
their, their big shiny buildingsdowntown and they're done.
They're completed buildings,they're leased up.
Um, and they're basically intechnical real estate terms,
they're sort of stabilized, um,deals, right buildings.
(18:21):
Um, and so the differencebetween that sort of model that,
that being the primary type ofasset you're investing in and
what we're doing is we'reinvesting a, or when you're
investing with IC, you have theopportunity to invest in Mo, I
would say more early stage realestate assets.
So this is like pre-leasingperiod.
This is like, could be like,it's an empty piece of land that
we're entitling to build newhomes on.
(18:42):
It could be, like I talked aboutearlier, the apartment building
that needs renovation, right?
It's, um, we're buying it andwe're going to put work into it,
um, to, to basically make itmore competitive.
It could be construction toground up, like basically
building a brand new, um, a setof condos or apartments.
But you're, you're basicallyinvesting earlier in the
business cycle.
(19:03):
Um, a, we're in the businessplan where there's more of a
potential to add value.
Um, and more of a, I would saymore of'em.
I'd say you as a, um, as a, theperson deploying the money, you
have the ability to, um, tobasically have agency over the
performance of your investments,either through, um, buying
(19:24):
correctly, which is a lot of it,but also through the hard work
that you put in yourself orselecting a really good partner
who's gonna put in that hardwork to make those improvements
or renovations to the property.
Um, that's ultimately where the,where the, the, the Alpha we
think comes from th the outsizereturn.
One of the thing I want to asktoo is like, do you have a
certain amount of reservecapital for a project when
(19:46):
something could happen?
You know, we're like the realestate conditions or market
turns and go south.
The, the short answer is yes.
Um, and, and, but ultimatelythat's going to depend on the
project structure.
So a lot of times with, um,where we're doing a development
basically where we're, um,either lending to construction
or basically financing, um,construction or, or, or some
(20:06):
other early stage valuecreation.
We're, um, we're basicallyacting as the bank, so to speak.
In a lot of cases we'reproviding, um, for providing a
loan.
So we're, um, we're committing afixed amount of capital, which,
um, which is basically entitledto a fixed rate of return.
The same way that when you buy ahouse, um, your borrowing from,
(20:27):
you know, Bank of America, WellsFargo at three or 4%.
Um, in our case hereby barringfrom us at what could be, you
know, eight or 10% because ofthe nature of the project.
One of the things that's aninteresting thing about the
product is that you can getexposure to private real estate
for a pretty low amount.
W what does that look like forthe typical investor?
That is a diversified portfolioof real estate assets.
(20:51):
That's nationwide, that'smanaged directly by us.
And that fits, um, our, ourinvestment parameters for, um,
kind of that, that opportunistic, um, value add opera, um,
creation, you know, valuecreation that we, um, that we
look for when we, when we makeinvestments.
So is that like class a stock,like in a project?
I'm, how does that work?
Like what does it look likewhenever you, you purchase$500
(21:14):
say or upwards of that.
Sure.
So, um, if you want to get intolike the nuts and bolts of it,
you're actually investing in aportfolio of funds, those funds,
it's like a fund to funds.
Sure.
So, um, when you invest, whetherit's$500, whether it's$5,000 or
$500,000, um, ultimately you areinvesting in directly into, on
(21:36):
average I would say between fourand six, uh, funds that fund
dries managers and those funds.
Um, so basically you'repurchasing common stock, common
shares in those funds, and thosefunds are actually, uh, what are
going out and making the realestate investments.
Let's talk about the, uh,investment in fund rise itself.
So you're a tech startup, you'rebased out of Washington, D C
(21:59):
You've had to raise capital as astartup.
I've had, uh, Casey Berman fromCamber Creek who was an investor
in fund rise on the show.
Can you just talk to me aboutthe approach that Fundrise's
gone to create investment?
It's an in it's own company.
As I spoke before, the, the jobsact really did open up the
opportunity basically forcapital formation.
Um, and so we've, uh, we'vealways really admired vanguard,
(22:24):
um, and they're sort of investorowned model.
So our longterm philosophy hasalways been, um, if you can
basically make your investor,um, and when I say investor, I
mean our platform investor orretail investor.
If you can make them your ownerto, um, then you don't have to
serve two masters, you canultimately always act on behalf
(22:47):
of the individual investor andwhat's in their best interests.
So once, uh, basically we sawthat we had, uh, both the
regulatory means but also the,the product market fit, right?
We, um, we saw a tremendousamount of growth.
Uh, once we launched thenon-accredited, basically we
opened it up to nonaccreditedinvestors.
(23:09):
Uh, once we saw that we had theproduct market fit and, and the,
the regulatory means we, um, tous it just made perfect sense
that we would, uh, basicallyfinance our growth of the
company from those who are alsoinvesting in, um, in our
platform.
Who are customers of theplatform, if, if the, the, just
the distinction between investorand, and, uh, being a little,
(23:29):
you know, if that's not clear.
So are you still investing in DCor is it now just other cities
at this point?
Um, we have, we have done someinvestments in d c recently.
Um, we have a, um, a loan on anew construction project in Shaw
, um, over by basically the,the, the entrance of the Shah u
street metro.
I think it said about 19 youdown there.
(23:51):
Um, and we have been doing somesingle family home investments
in d c Too.
So I'm both purchasing singlefamily homes and renovating them
as well as, um, as well as, uh,doing condo conversions.
We have a few of those as well.
Um, but, uh, not quite to thevolume of where we maybe were a
few years ago.
Talk to me about the tech behindfund rise.
(24:12):
Like how does that work?
We've built everything in house.
It's all proprietary.
Um, from everything from ouriPhone app, which we launched in
April, all the way to like the,the automated investment
processing that runs in thebackground, um, every, every few
hours basically to, um, to lookat the orders.
Um, the, the accounting softwarethat moves money basically from,
(24:33):
from folks accounts into thefunds that handles everything
from like the dividenddistributions to figuring out
what you owe on your taxes.
We basically, we bring all thatin house.
Um, and it's this incrediblysophisticated, um, robust set of
both front and back, uh,basically back of house systems,
um, that allow us to operate areally, really lean, um, you
(24:55):
know, uh, model on the side ofthe, on the investment
management side of things.
I mean, like to take oneexample, our, you know, we tact,
we generate all of our 10 99, sotax documents, um, in house
every year.
We have a team of people whodoes that and the amount of, of
just like insane, complexexecution of bringing together
(25:15):
the accounting team and the, um,the engineers to like, to
literally generate like tens ofthousands of this year, it'll
probably be more than a hundredthousand, 10, 99 documents and
to get them done right and toget them done on time.
Um, it's both like something wecould have only done in house,
um, because working with anylike third party, we would just
either be insanely expensive or,um, or maybe they just told us
(25:37):
that couldn't be done.
Um, but, but ultimately, I mean,I just think it adds this, um,
it adds an insane amount ofvalue to the business.
That's a Chris Burke Miller.
He is the chief product officerfrom fun rise.
Chris, thanks so much.
Thank you so much for having me.
Speaker 1 (25:52):
Took it to the next time here on DC.
Entrepreneur.
Work.
Wealth.
Wisdom.
This is DC Entrepreneur.
We're sharing stories, ideas,and lessons from businesses in
the pursuit of innovation.
And we're helping build acommunity of problem solvers and
thought leaders in theWashington area.
Here's your host GeorgeMocharko.
George (00:35):
This is George Mocharko.
Here on WERA 96.7.
Today I'm in the studio withBrauckmuller.
He is the Chief Product Officerfor Fundrise.
Fundrise is a real estateinvestment startup located in
the Washington DC area.
Thanks so much for joining metoday!
Chris B. (00:54):
Thanks for having me.
George (00:56):
So Chris, talk to me about the background of
Fundrise, how it started, andwhat you all do.
Chris B. (01:01):
Sure thing.
So Fundrise is an online realestate investment platform.
Uh, starting in 2012.
Ben Miller is the co-founder andCEO of Fundrise and he was, I
would say the genesis for the,the um, the original idea I
guess you'd say for the company,as we know it now.
He and his brother Dan.
So they're doing small realestate developments in DC 2009,
(01:24):
2010, 2011.
They want to move into H streetor other emerging
neighborhoods...
and the capital from theirtraditional capital partners
just isn't there.
The, traditional capitalplayers, the private equity
firms, or other institutions whoare, um, who are basically the
normal guys who help put moneyinto real estate projects
because the developers, veryrarely are the only guys
(01:46):
providing capital on a deal.
They weren't really seeing thevision for the neighborhood.
So they...
Ben had this problem right wherethere he saw an opportunity to
make good investments, but thecapital wasn't there because the
, um, the counterparty, theother, the guy, there were
people who even normally partnerwith, just didn't see the vision
for the neighborhood.
So Fundrise was really born fromthis idea, basically that the
(02:07):
people who live in cities,should ultimately be able to
invest in cities too.
And to hopefully, um, be able toearn a return or, you know,
realize financial gain from whatto us is, is a very strong,
historically strong investment.
And, and to basicallyparticipate in, I would say,
(02:28):
economic value creation through,through development of property.
And I'd say there's a, there'san urban flavor to that.
Um, like a, a city based flavor.
But there's, that's kind of, Ithink that that vision is
expanded because now we'redoing, we're, we're basically
investing all over the country.
We're investing in urban areas,we're investing in suburban
areas.
But the common thread being thatwe're investing where people
(02:49):
want to be, it's ultimately astory about people.
And it's about a story aboutknowing where, um, where people
want to be and doing what theywant to be in, in the sense of
like the, the product, you know,um, whatever that may be for
sale housing or apartments orretail or what have you.
But it's ultimately about wherepeople are going and where they
(03:09):
want to be.
Um, and, and investing ahead ofthat and allowing anybody to
participate.
Allowing anyone who's, um, whobasically is interested and is
willing to invest some money.
But with a low minimum to beable to participate.
George (03:26):
So let's talk about that for a second because I think
traditionally this type of realestate investment was mostly
open to accredited investors.
So now it's open to just anyonethat wants to invest in urban
real estate.
Chris B. (03:37):
Um, yes.
So you do not have to be anaccredited investor to invest on
the Fundrise platform.
Um, and that's actually aconsequence of the JOBS Act,
which Obama passed I believe in2012.
Um, and then I believe it waspromulgated.
So it basically came into effectin 2013.
But before that, if I didn'tknow you and I wanted to raise
(04:02):
money to invest in a deal withme, you would have to be what
the SEC calls— SecuritiesExchange Commission calls— an
accredited investor, which is aperson who has some minimum
requirements on income or networth.
Um, and so the jobs act allowedus to basically, um, move beyond
that limitation and to acceptinvestment from anyone.
(04:24):
Um, who had, in our caseoriginally$1,000 in now$500 is u
s resident and otherwise, um,the only restriction being that
they can't contribute more than10% of their, their income or
net worth in a year.
So it was a huge, basicallyopening up of the access to that
type of capital, that smaller,investors as well as smaller
(04:50):
capital raisers could connect inthat way.
It was completely just a gamechanger for the way we were able
to grow our business.
George (04:56):
Yeah.
What's interesting about that tome is that it also happened
around the same time that yousaw this explosion of
crowdfunding for a lot ofstartups and for a lot of
projects and, um, even, youknow, creative projects like
films and things.
Like on Kickstarter.
So is there a parallel there?
Chris B. (05:12):
I think there's a parallel in the sense that the
internet has created this justcrazy multiplying factor on, um,
on everything.
So it connects people, um,people is capital in ways that
were previously impossible.
I mean, even with, uh, even withthe regulatory changes that the
jobs act brought about, I mean,doing that business right with
paper would be ridiculous.
(05:34):
Trying to manage that in atraditional way, not online, it
just doesn't make any sense.
Um, so in that way I would saythere's a parallel to the extent
that there's that increasedconnectivity that the Internet
has brought about.
Um, you know, the, the, theykind of go, mmm, they go
alongside one another in thatway.
So talk to me about theinvestment approach.
Like, what are you investing in?
(05:55):
Are these like mixed usedevelopments or like urban
Speaker 4 (05:58):
centers or are they just buildings themselves?
Like what, what exactly doesthat look like?
Speaker 3 (06:02):
So we have quite a diversified portfolio of
different types of investmentswe're making.
Um, I t the, the common thread.
Um, and actually I'll, I'll, Icould list off a few of the
different types of deals we'redoing, but to, uh, to take a few
examples.
So, um, we're looking at, uh, inthe southeast United States, we
(06:22):
will go in and directly, youknow, in purchase a, um, uh,
kind of like a garden apartmentstyle community, um, where this
move's been around for a littlelonger.
Uh, maybe not, uh, theapartments inside or a little
bit out of date, but thebuilding's really solid and
we'll go in and do value add, dorenovations.
Um, and that'll allow basicallyus to drive, drive the value of
(06:44):
the property through basicallymaking it more competitive and
being able to charge morecompetitive rents.
Right?
So that's one.
Um, all the way through to, um,something like the Louisiana 14
on, uh, on, um, 14th street inDC, which is like your classic
example of like a, an urbanmixed use sort of retail
investment.
Um, in La in particular LosAngeles, we see a tremendous
(07:06):
amount of opportunity just withthe unique, uh, demographic
factors in that city at play.
But, um, a few different thingswe're doing there.
Um, working with folks who areentitling land to basically up
zone it for higher densityusage.
So we'll actually go and investin projects like that where
you're taking what maybe oncewas like two or three parcels of
land, which each are like, Ihave a single family home, just
(07:28):
a one story home combining thosethree parcels together and then
subdividing it to build like 18or 20 new homes there.
Speaker 4 (07:35):
So multiunit dwellings basically for a lot of
these[inaudible] these projects.
Yeah.
Speaker 3 (07:39):
So I mean I would say that uh, housing is probably
the, as far as the product typeis the most common thread.
But I think the real, the realthing is basically is around
potential and around value add.
So it's around places where wecan go in and through either
through physical work, likerenovations or through, um,
through legal work likeentitlement or, um, or basically
(08:01):
through letting the marketbasically act on our behalf
around us that, um, we're, thatthere's basically an opportunity
for a lot of value add that wecan see.
Um, and where we can basicallyto the extent that we can make
smart investment decisions andwork hard, um, can affect that
value add.
Speaker 4 (08:16):
Are you seeing that the trend of urbanization is
happening nationwide still atthis point?
Cause it seems like there's beenthis wave of redevelopment for a
lot of cities.
Um, but has it cooled off?
Cause I'm starting to see thatit looks like there's, you know,
there's almost peakconstruction.
Like you're not seeing as manycranes up anymore, but you're
not seeing kind of the sametypes of projects anymore.
(08:37):
Has everything cooled off or isthe market still kind of moving
in that direction?
Speaker 3 (08:41):
So I think there's, um, like anything, there's,
there's nuance there.
But certainly in, um, in, youknow, in New York for example,
um, or even I think DC, there'sstill quite a lot of
construction going on, but to us, um, pricing has gotten really
high.
Um, it's really difficult toinvest in some of the, like, top
five major metro markets now tocome into where we are at this
(09:04):
phase in the market.
And, um, and basically targetwhat we think is an attractive
risk adjusted return becausethere's asset prices are just
through the roof.
Um, construction costs are high,land costs are high, and there
are people who are willingbasically to take, um, what we
think is basically a lower, youknow, lower return than they
should be willing to take.
And so we're basically not, um,we're not really feeling like
(09:27):
it's, uh, we're competing that,uh, we're, we don't want to
compete, um, in that type ofsituation.
Okay.
So are you going to like midmarket cities now?
To some extent, yes.
Um, so, so la obviously beingthe exception there because La
is just to us a unique animaland there's so many cool things
going on in La.
Um, it's just, it's so big.
Um, and in the housing supplythere is just so constrained.
(09:51):
They don't have the density,they don't have the density vast
and kind of sprawled out.
Right?
It covers the whole valley andit's this like, you know,
basically a lot of single familyhomes, but, um, even where there
is a little bit higher density,it's lower than you would see
like in d c for example.
Um, and they're just, it's justso big.
Um, but yes, to answer yourearlier question, basically we,
we are going into, um, what youmight call secondary markets,
(10:13):
right?
So we've done a lot of investingin Florida for example, um,
which has growing the populationgrowth in Florida is just, it's
crazy.
I mean, it's growing so quickly.
Um, and you can see that threadthroughout the, I mean the
sunbelt basically, if you will.
Um, it's sort of with La beingthe, the West anchor of that and
sort of the Georgia, SouthCarolina, those coastal areas.
(10:37):
Um, Savannah, we recently had a,a rather large portfolio
acquisition there too.
Um, and so I think the theme tosome extent, um, more recently
as people leaving the north, um,and, and, and migrating south,
um, and, and you can see that inthe, um, manifest basically in
the population, um, changes yearover year from, you know, who
(10:59):
are the biggest gainers and whoare the biggest losers.
Um, in terms of population.
I mean like the Midwest, it'sjust not growing right.
And you don't see us doing a lotof investing there.
Um, for that reason becauseagain, going back to my earlier
point, um, we want to be wherepeople are going.
Um, and, and those, if you'repaying attention to those trends
, um, it's, it's pretty clearwhere basically where people are
(11:22):
moving and where we thinkthere'll be going over the next
five, 10, 15 years.
Yeah.
I think what's also interestingtoo is that you're giving a
chance for really a generationto invest in real estate that
has been kind of locked out ofthat, that hasn't been able to
afford their own properties.
In essence, a lot of times theyrent in an apartment, but
they're able to reinvest in someof these, these areas by having
(11:42):
kind of like a piece of theaction.
Right.
I mean, ultimately we, um, ifyou wanted to try to sum it all
up, I mean, we want to make itso that every individual, um,
can basically access the highestquality real estate investments
in, in the self-directed manner.
They can, they can basically acton their own behalf, um, come to
us and, and we can serve, um,basically serve as their, um,
(12:06):
their location for where they'regoing, you know, their platform,
um, for where they can invest in, um, real estate and
specifically real estate, um,via the private market as
opposed to investing in like apublic rate for example.
Um, so it, it, to us that's,it's a much closer parallel to
owning your own property, tohaving your name on the title,
(12:26):
um, without obviously the, theactive, the Ma, the active
management required there.
Um, but it has some, some of thesame benefits.
You wouldn't necessarily have tohave somebody that, you know, is
a property manager in essence,right?
Correct.
Yeah.
I mean, we're doing, we're,we're completely vertically
integrated.
I mean, you're, the whole ideais that it's a, it's a
completely passive investmentfor you.
(12:46):
Um, and we're doing all theactive work on your behalf and
we're keeping all that activeworker as much of it as we can,
is economically feasible for usunder one roof.
So we have as much control overthe process, basically from the
time that the money leaves yourbank account until it goes into
the property and comes back out.
That's all be to the extent thatwe can keep as much of that
under our, under our purview.
(13:08):
Um, we think that, um, that'sultimately going to be a
superior model.
So, Chris, what's fun rises atBessman approach.
So, um, I think I spoke a littlebit about, um, earlier how we
think about, um, basicallyinvesting in real estate and
looking for opportunities to, toadd value and to control that
value add.
Um, but there's also just this,um, what I'd say is like a
(13:28):
structural difference, right?
Between investing in a realestate via the private market as
opposed to, uh, in, in publicrates are really that matter for
public stocks or bonds.
Um, and, and to us, um, that inour thesis, which are, you know,
over over a period of time, thatthesis will ultimately be proven
to hold water and not to holdwater, but we think is a, uh, a
(13:51):
strong one, um, is basicallythat there, um, in the, in the
public markets, right?
Um, the information is perfect.
So you have, um, there's aschool of thought basically
that's very popular right nowwhen it comes to investing that
you should basically be indexingbecause there's no way to
outperform the market.
Right?
So that's sort of this, um,that's where ETFs are, your next
(14:14):
funds were born out of.
Um, and that's why you see guyslike, I mean, I see the ads on
TV all the time.
It's like, you know, Schwab andvanguard and Ameritrade, they're
all basically erased to thebottom.
There's this, I'd say prevailingschool of thought that there's
no way to outperform the market,so you should just invest in the
market.
Um, and so, um, to, to s to someextent we agree with that.
(14:37):
We think that's true when you'retalking about the, the nuance
areas that we're talking aboutthe public market, right?
So, so the thesis is basicallythat, um, they're in the public
market information is perfectright there.
That the, the advent of theInternet, um, and basically the
mass communications we haveavailable to us along with all
the crazy trading tools andeverything.
I mean, everyone basically hasinformation parody.
(15:00):
Um, it's so efficient that it isin fact very difficult to
outperform, um, the publicmarket when you're investing in
publicly traded stocks andbonds.
Um, it's, and you know, youthere, there are probably people
who would still to some extentdisagree with that, but that's
the sort of the prevailingschool of thought, um, as it
comes to investing today.
And if you look at really, uh,even the roboadvisor kind of the
(15:20):
advent of those guys wherethey're, um, they're, you know,
if you, if you go sign up withone of them, they're basically
putting you into a pool of ETFsand they're not, they're not
really claiming, um, or, ortrying to sell you on the value
proposition of them having somekind of like special, um,
basically special likeinvestment philosophy that's
going to outperform the marketthrough like them actively
(15:42):
picking investments effectively.
They're, they're indexing.
Um, they're indexing accordingto some risk parameters you give
them and their value add isbasically doing the stuff that,
um, is a little bit maybe hardfor you to do as an individual.
Like the tax loss harvesting forexample, um, in rebalancing.
Like they kind of take care ofthat stuff for you and then they
do that for really low fee.
Um, but nowhere in there reallyis their message about like, we
(16:05):
actually think we can get alpha.
Right.
Um, on the contrary, from whatwe see in the private market,
information is extremelyinefficient.
Pricing is not in real time.
Trades are not happening, youknow, millions of times a day or
you know, intimidation or even,you know, down to the micro,
people are worried about themicrosecond, their latency from
(16:27):
the high frequency trading.
I mean, that's sort of beingtaken to, it's logical, like the
flash boys kind of got stuff.
Exactly.
Yeah.
So, so actually on the contrarythough is like in the private
market information, um,asymmetries really, really
common and it's, it's the norm.
Um, so you actually can with, orwe believe you can with the
right Intel basically, um, to do, you can get alpha.
(16:52):
Um, and you can do that by, byknowing markets intimately, by
knowing people intimately, um,people being the, both the
demographic, uh, you know, thepeople in your city, but also
the, the sponsors and the realestate people you're working
with.
So let's talk about that for asecond.
So what is the differencebetween the public and private
real estate market?
So, um, when you're investing ina public rate, for example,
(17:14):
right.
Um, and I think that, um, using,using the, um, the framework of
time is actually probably thebest way to think about this.
So when you're investing in, ina public rate, you're investing
in what are very like late stagereal estate assets is one way to
think about it.
So, um, you're investing in afinished product where a lot of
the, like basically a lot of therisk to some extent, but, but
(17:37):
not really.
It's a different kind of riskbecause there's a lot of, it
depends on the, the likeprevailing interest rate
conditions, but a lot of theuncertainty or, but also you
could see a lot of the potentialhas been, um, his basically been
baked out of the project.
You're investing in the finishedthing.
So if you go look at like, Idon't know, um, Starwood or one
(17:57):
of the big rates, um, and one ofthe big office ones, for
example, they're, you know,they're, they're the kind of
prime office buildings or retailcenters or whatever, um, and
their, their big shiny buildingsdowntown and they're done.
They're completed buildings,they're leased up.
Um, and they're basically intechnical real estate terms,
they're sort of stabilized, um,deals, right buildings.
(18:21):
Um, and so the differencebetween that sort of model that,
that being the primary type ofasset you're investing in and
what we're doing is we'reinvesting a, or when you're
investing with IC, you have theopportunity to invest in Mo, I
would say more early stage realestate assets.
So this is like pre-leasingperiod.
This is like, could be like,it's an empty piece of land that
we're entitling to build newhomes on.
(18:42):
It could be, like I talked aboutearlier, the apartment building
that needs renovation, right?
It's, um, we're buying it andwe're going to put work into it,
um, to, to basically make itmore competitive.
It could be construction toground up, like basically
building a brand new, um, a setof condos or apartments.
But you're, you're basicallyinvesting earlier in the
business cycle.
(19:03):
Um, a, we're in the businessplan where there's more of a
potential to add value.
Um, and more of a, I would saymore of'em.
I'd say you as a, um, as a, theperson deploying the money, you
have the ability to, um, tobasically have agency over the
performance of your investments,either through, um, buying
(19:24):
correctly, which is a lot of it,but also through the hard work
that you put in yourself orselecting a really good partner
who's gonna put in that hardwork to make those improvements
or renovations to the property.
Um, that's ultimately where the,where the, the, the Alpha we
think comes from th the outsizereturn.
One of the thing I want to asktoo is like, do you have a
certain amount of reservecapital for a project when
(19:46):
something could happen?
You know, we're like the realestate conditions or market
turns and go south.
The, the short answer is yes.
Um, and, and, but ultimatelythat's going to depend on the
project structure.
So a lot of times with, um,where we're doing a development
basically where we're, um,either lending to construction
or basically financing, um,construction or, or, or some
(20:06):
other early stage valuecreation.
We're, um, we're basicallyacting as the bank, so to speak.
In a lot of cases we'reproviding, um, for providing a
loan.
So we're, um, we're committing afixed amount of capital, which,
um, which is basically entitledto a fixed rate of return.
The same way that when you buy ahouse, um, your borrowing from,
(20:27):
you know, Bank of America, WellsFargo at three or 4%.
Um, in our case hereby barringfrom us at what could be, you
know, eight or 10% because ofthe nature of the project.
One of the things that's aninteresting thing about the
product is that you can getexposure to private real estate
for a pretty low amount.
W what does that look like forthe typical investor?
That is a diversified portfolioof real estate assets.
(20:51):
That's nationwide, that'smanaged directly by us.
And that fits, um, our, ourinvestment parameters for, um,
kind of that, that opportunistic, um, value add opera, um,
creation, you know, valuecreation that we, um, that we
look for when we, when we makeinvestments.
So is that like class a stock,like in a project?
I'm, how does that work?
Like what does it look likewhenever you, you purchase$500
(21:14):
say or upwards of that.
Sure.
So, um, if you want to get intolike the nuts and bolts of it,
you're actually investing in aportfolio of funds, those funds,
it's like a fund to funds.
Sure.
So, um, when you invest, whetherit's$500, whether it's$5,000 or
$500,000, um, ultimately you areinvesting in directly into, on
(21:36):
average I would say between fourand six, uh, funds that fund
dries managers and those funds.
Um, so basically you'repurchasing common stock, common
shares in those funds, and thosefunds are actually, uh, what are
going out and making the realestate investments.
Let's talk about the, uh,investment in fund rise itself.
So you're a tech startup, you'rebased out of Washington, D C
(21:59):
You've had to raise capital as astartup.
I've had, uh, Casey Berman fromCamber Creek who was an investor
in fund rise on the show.
Can you just talk to me aboutthe approach that Fundrise's
gone to create investment?
It's an in it's own company.
As I spoke before, the, the jobsact really did open up the
opportunity basically forcapital formation.
Um, and so we've, uh, we'vealways really admired vanguard,
(22:24):
um, and they're sort of investorowned model.
So our longterm philosophy hasalways been, um, if you can
basically make your investor,um, and when I say investor, I
mean our platform investor orretail investor.
If you can make them your ownerto, um, then you don't have to
serve two masters, you canultimately always act on behalf
(22:47):
of the individual investor andwhat's in their best interests.
So once, uh, basically we sawthat we had, uh, both the
regulatory means but also the,the product market fit, right?
We, um, we saw a tremendousamount of growth.
Uh, once we launched thenon-accredited, basically we
opened it up to nonaccreditedinvestors.
(23:09):
Uh, once we saw that we had theproduct market fit and, and the,
the regulatory means we, um, tous it just made perfect sense
that we would, uh, basicallyfinance our growth of the
company from those who are alsoinvesting in, um, in our
platform.
Who are customers of theplatform, if, if the, the, just
the distinction between investorand, and, uh, being a little,
(23:29):
you know, if that's not clear.
So are you still investing in DCor is it now just other cities
at this point?
Um, we have, we have done someinvestments in d c recently.
Um, we have a, um, a loan on anew construction project in Shaw
, um, over by basically the,the, the entrance of the Shah u
street metro.
I think it said about 19 youdown there.
(23:51):
Um, and we have been doing somesingle family home investments
in d c Too.
So I'm both purchasing singlefamily homes and renovating them
as well as, um, as well as, uh,doing condo conversions.
We have a few of those as well.
Um, but, uh, not quite to thevolume of where we maybe were a
few years ago.
Talk to me about the tech behindfund rise.
(24:12):
Like how does that work?
We've built everything in house.
It's all proprietary.
Um, from everything from ouriPhone app, which we launched in
April, all the way to like the,the automated investment
processing that runs in thebackground, um, every, every few
hours basically to, um, to lookat the orders.
Um, the, the accounting softwarethat moves money basically from,
(24:33):
from folks accounts into thefunds that handles everything
from like the dividenddistributions to figuring out
what you owe on your taxes.
We basically, we bring all thatin house.
Um, and it's this incrediblysophisticated, um, robust set of
both front and back, uh,basically back of house systems,
um, that allow us to operate areally, really lean, um, you
(24:55):
know, uh, model on the side ofthe, on the investment
management side of things.
I mean, like to take oneexample, our, you know, we tact,
we generate all of our 10 99, sotax documents, um, in house
every year.
We have a team of people whodoes that and the amount of, of
just like insane, complexexecution of bringing together
(25:15):
the accounting team and the, um,the engineers to like, to
literally generate like tens ofthousands of this year, it'll
probably be more than a hundredthousand, 10, 99 documents and
to get them done right and toget them done on time.
Um, it's both like something wecould have only done in house,
um, because working with anylike third party, we would just
either be insanely expensive or,um, or maybe they just told us
(25:37):
that couldn't be done.
Um, but, but ultimately, I mean,I just think it adds this, um,
it adds an insane amount ofvalue to the business.
That's a Chris Burke Miller.
He is the chief product officerfrom fun rise.
Chris, thanks so much.
Thank you so much for having me.
Speaker 1 (25:52):
Took it to the next time here on DC.
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Amy Robach & T.J. Holmes present: Aubrey O’Day, Covering the Diddy Trial
Introducing… Aubrey O’Day Diddy’s former protege, television personality, platinum selling music artist, Danity Kane alum Aubrey O’Day joins veteran journalists Amy Robach and TJ Holmes to provide a unique perspective on the trial that has captivated the attention of the nation. Join them throughout the trial as they discuss, debate, and dissect every detail, every aspect of the proceedings. Aubrey will offer her opinions and expertise, as only she is qualified to do given her first-hand knowledge. From her days on Making the Band, as she emerged as the breakout star, the truth of the situation would be the opposite of the glitz and glamour. Listen throughout every minute of the trial, for this exclusive coverage. Amy Robach and TJ Holmes present Aubrey O’Day, Covering the Diddy Trial, an iHeartRadio podcast.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy And Charlamagne Tha God!