Will investors be able to buy and sell direct real estate from their stock trading account, much like they buy shares in companies such as Apple, Google and Tesla? That’s what the European investment platform Estating is hoping to deliver.
The company has developed the Real Estate Linked Certificate (RELINC): a security under Luxembourg law with its own international securities identification number (ISIN). Essentially, Estating offers a securitization product that allows qualified investors to participate in direct real estate investment of an individual property from their securities accounts. The platform aims to make investing in physical real estate as easy and transparent as buying stocks or bonds.
Although not yet available to U.S investors, Estating is scouring investment opportunities in the U.S. The company recently closed on its first acquisition, a $600,000 condo at the Legacy Hotel & Residences under construction in Miami on behalf of 12 individual investors from Europe and Latin America, and the firm has more deals in the pipeline for early 2022. WMRE recently spoke with Martin Halblaub, founder and chairman of Luxembourg-based Estating to hear more about the platform and the firm’s investment strategy in the U.S.
This interview has been edited for length, style and clarity.
WMRE: You target individual properties. So, this is not a REIT structure. Can you describe how this platform works exactly?
Martin Halblaub: What we are bringing to the market is a new financial product that allows property picking and portfolio building inside the securities account. So, basically what you can do today with stocks and bonds, in the future you can do with properties.
WMRE: Does this security create more liquidity compared to other fractional ownership structures, or do people buy and hold?
Martin Halblaub: In general, real estate investments are mid- to long-term. So, our products are mid- to long-term products. However, by securitizing them you make transferability much easier on the underlying asset. So, you can fractionalize it. You make it bankable, by investing through your securities account. And it becomes transferable as a security with all of the consequences related to transferring a security, although you are not transferring the underlying asset itself.
WMRE: Is the simple explanation that it takes fractional ownership and puts in the wrapper of a security, like a DST?
Martin Halblaub: No. You are not buying fractional ownership of something. You are buying a security that refinances the investment in a single property that is 100 percent collateralized by that property. You get all the benefits, all the value upside and all the dividends and cash flows out of it, but you do not own it. It clearly is not a DST structure. Estating handles all of the management of the underlying property, and you get the value of ownership without the hassle.
WMRE: What’s your minimum investment amount?
Martin Halblaub: We have started with 50,000, either U.S. dollars or euros, simply because the investors we are targeting usually don’t make investments much smaller than that.
WMRE: What’s your target base for investors?
Martin Halblaub: We distribute to qualified investors, or what you would call accredited investors. Our initial markets started with where our founders are from. So, our original distribution markets are Latin America, hence the importance of Miami, and Europe. In the next step, we will look to Asia, the Middle East and the U.S.
WMRE: How does your platform translate to the U.S. market?
Martin Halblaub: Currently, we are originating investment opportunities in the U.S., but we are not distributing in the U.S. The product works, in theory, for the U.S. market, but there needs to be some adaptions made to use the Luxembourg RELINC security in order for it to be distributed in the U.S. We would need to fulfill the necessary regulatory requirements that will allow us to distribute to U.S. investors. As U.S. distribution is on our roadmap, the sooner we can achieve that the better.
WMRE: Do you have any timeline of when your U.S. distribution could be up and running?
Martin Halblaub: It depends a bit on how fast we scale, but probably early 2023. There is quite a lot of preparation work that needs to be done.
WMRE: You are sourcing investment opportunities in the U.S. What types of properties are you looking to acquire?
Martin Halblaub: We have chosen an area where very few people go to today on the commercial real estate side, the fund side or the REIT side. We have intentionally chosen prime residential real estate, and we do this completely unlevered. That might sound strange, but we have been looking for a product that allows investors to park money with positive cash flow along with an implicit inflation hedge.
We are currently living in an interest rate environment, which for many countries, is a negative interest rate environment. You have to pay money to hold your cash, and we’re coming in to real asset inflation for the next years to come. So, we have been looking to structure a product where people can park their money somewhere where they earn positive cash flow; they have very little volatility on the underlying asset; and they can take the full upside of the value increase. We currently originate in three cities or countries: Miami, Spain and Germany.
WMRE: What types of residential investments are you looking to acquire?
Martin Halblaub: It is usually apartments or condos with the strategy that we are following, but we are not limited to those types of deals.
WMRE: Have you made any acquisitions yet?
Martin Halblaub: We are getting ready to announce our first deal. It is a new construction at the Legacy building in Miami. We have taken a unit for $600,000 and we have placed that with 12 different investors in Europe and Latin America. We have another four or five deals in the pipeline for the first quarter of 2022. Deals that we have in the pipeline are again in Miami, Madrid and Berlin.
WMRE: What are your return expectations for investors?
Martin Halblaub: Our business model has been structured so that we can give to an investor what he would get if he would invest directly. We are not earning money on assets under management. We are only getting paid our costs on an annual basis. Our model is based on a transactional model. We get an initial fee for fractionalizing the property and distributing the securities, and if there is a later resale that utilizes the platform, then we would collect a percentage. So, if you put your money directly into a condo in Miami and you would get a gross return of 5 or 6 percent and a net return of 1 to 2 percent, that is exactly what you get with us, plus the full value upside.
WMRE: Do you have a set amount of capital to deploy?
Martin Halblaub: It’s a demand driven business. We allow our investors to pick the properties they invest into. What we do is source deals, vet them and decide if they can go on our platform. We don’t make the investment decision. We show it to our investor clients, and if they like it, then we buy it. It is difficult to say where demand is going, but we are scaling on both sides—the distribution market and the origination market.
Investing cross-border is one of the most difficult things there are, and most individuals don’t do cross-border investing because they are uncertain about the regulations, the laws, the language. We take all of that away by doing it for them.
WMRE: There are a number of different global private equity investment funds and REITs. What do you think is attracting investors to your platform?
Martin Halblaub: The total volume of the real estate market is equally big as stocks, bonds and cash combined. Recent statistics I have seen are that roughly only 6 percent of real estate can be bought through a securities account. That clearly means there is a lack of bankability in the real estate sector. It is usually direct investment with people buying something and sitting on it. By bringing individual property into the securities account is something that didn’t exist. I believe that this property picking and portfolio building inside a securities account is a value proposition, which currently is not offered by anyone else.
WMRE: Overall, what are some of your long-term goals for growing the Estating platform?
Martin Halblaub: Our goal is to be the global leading real estate investment platform. We want to be a combination of Amazon, Facebook and Nasdaq for the real estate sector. So, we have a large mission, and that mission is bringing real estate investment to everybody going down to the single retail investor inside the financial world. There is growth on both sides, distribution and origination. On the distribution side, Latin America and Europe are the first regions. The other three to come next are Asia, the Middle East and the U.S. On the origination side, we are currently in three countries, and we plan to announce another three countries by the end of the year and then grow year-by-year. But first, we need to build confidence in that region and understand the property dynamics before we can put it on our platform.