Recap: New Property Marketplaces - Danish perspectives
New Marketplaces is a series of 3 blogs published during, before, and after our member event: New Markedplaces held on April 2nd 2020.
Introduction
Throughout April we look closely at New Property Marketplaces. April 2nd we ran our first digital session, where we anchored the theme within a Danish context. In the first two parts of this blog, we gather the main points from our speakers:
Jesper Johansen, Managing Director for Kameo in Denmark, that unfolds Kameo’s journey as a crowdlending platform for developers. He emphasizes some great takeaways for future marketplace entrepreneurs targeting real estate:
Validate the problem your platform fixes by speaking up about it to your target users
Consider an established industry partner to increase your credibility
Rather than replacing existing players, find your place in the existing ecosystem
We were joined by Troels Lau Laursen, COO at Colliers International Danmark, an industry leader within real estate advisory and broker services. He highlighted how the transactional value chain is not only defined by marketplace challengers like Kameo, but also required a wider reset for traditional industry players, including:
Developing a collaborative approach to value creation for the customer
Prioritizing internal innovation training for your organization
Sector innovation calls for industry leaders to give up existing ownership
Finally, in the blog’s third section, we add perspectives on current barriers to innovation within Danish real estate, provided by:
Mikkel Scheel, CEO at Scheel & Co, the advisory firm consulting on real estate projects, valuation, and market analysis.
Jesper Bo Winther, Partner at PwC Denmark, with wide experience within real estate transactions and operations.
Thomas Midtgaard, CEO at Brickshare, the online marketplace that democratizes property investments.
1. New Property Marketplace case: Kameo With Jesper Johansen, Kameo’s Managing Director in Denmark
Introducing Kameo
We are an online platform that facilitates loans to developers from thousands of private and professional investors across Denmark, Sweden and Norway. Often Kameo is used as a supplement or alternative to traditional financing on a short to medium term basis. With increasing regulations and constraints on traditional sources many developers find a need for access to capital critical to get their projects started. Then at a later stage they can secure or access financing from traditional sources at a lower interest since the general risk associated with specific projects are likewise lower. We facilitate loans for construction, purchase of land/property, renovation and/or refinancing of equity.
About 80 percent are residential projects, the rest is within commercial real estate.
Our primary revenue stream is that we take a fee from the developer side: 3-6 percent of their target capital for a given project. We take the fee, when the majority of the target capital - 80 percent - is met by our investors. Across the Nordics we have only had 2-3 investment cases, where we did not reach 100 percent of target (out of 250 projects).
Where is Kameo right now?
Well, COVID-19 aside and the uncertainty that brings to the whole country at the moment, our plans for the immediate future is to continue creating awareness among both investors and borrowers in the Danish market. Being a start-up one of the most critical elements to focus on is visibility and awareness for those we are trying to solve a problem.
With developers it is to explain how the platform works, the terms and conditions for the loan and how much capital we can raise and how fast we can do it. In every case it depends on how strong the project is and if we can reach an agreement that is satisfying for both the developers and our investors. We do a thorough due diligence of all projects and have set up an independent credit committee with industry experts in order to ensure we price risk accordingly.
How does your company add new to the overall value chain of real estate?
Our marketplace offers additionality to the traditional way of doing real estate transactions via two aspects. For developers at an early project stage + as an awareness platform for potential buyers later in the stage of a project.
We are always looking for new partnerships and companies to work together with. If you take a case where a developer has a project cost of 20m DKK, most likely he or she can probably get somewhere between 40-60% financed through a traditional source. The rest they must fund themselves. In the best-case scenario that’s not a problem. They fund it and start construction. But in many cases the developer may only have 20-25% to put in and so they need a short-term source of funding. Or it can be that they have multiple projects that must start around the same time and so they don’t want to tie up all their equity in one project only. In this case Kameo can provide a short-term source of finance as a supplement to the traditional source and the equity provided by the developer.
Additionally, if you are looking to sell or rent out houses/apartments once they have been built, Kameo offers a unique way to market your property to thousands of potential buyers / tenants. We do this free of charge for companies since it helps the project find capital and attracts more investors to our platform.
Developing your platform: priorities on the horizon?
We are currently in dialogue with several traditional sources where we want to partner with them and facilitate the bridge loan to strong projects.
Last year in the UK there was actually an initiative where banks would send companies that did not live up to the requirements for a loan directly to a crowdlending platform. Offerings like ours are completely integrated in the financial ecosystem there, also in the US, where you can say we cater to the credit worthy group of developers rather than the traditionally bankable.
Development of the platform is ongoing – we are continuously working on improvements and upgrades. The recent events have made us slow down slightly in order to adapt to a potential lower activity level. But like all other start-ups and tech firms the foundation for our future growth is very closely tied to the scalability of our platform and the customer experience we provide.
What kind of projects perform well on the platform?
We can definitely see traction with investment cases, where there is an element of human identification. Investors respond to that. It could be residences for students, a project with a green profile or an innovation profile, eg. by being module-based. So to put our strengths in short is the ability to create a case for investors that is interesting outside the commercial perspective, but at the same time offers a sense of a reliable return on investment.
Advice for other marketplace entrepreneurs?
One of our biggest learnings is speaking up about what we do and testing that we are solving a problem for people. In this case validation that a group of developers have difficulty raising loans for projects.
And then it has played a role for us to have had an established partner. Our biggest owner is ABG Sundal Collier, which is an investment bank a lot of people know. That works as a stamp of approval.
Automation is one of the wide trends across new property marketplaces. How does that apply to Kameo?
It definitely applies to us, especially in terms of how we distribute the cashflow with investors. They can get returns paid out through one-click disbursement across 1000 single investors at once.
Our credit reports on a given company seeking investment can also be pulled very quickly from a combination of sources.
I want to add that we still rely on a very human industry committee to review cases on a weekly basis - automation does not do it alone.
What about making your platform user-centric?
Well speed is part of it, that we can set up an investment project and get the target capital as fast as within seven days. If we receive material on a project that we know is not enough to work on the platform, for instance that the pictures are not good enough, we also have a back and forth advisory process with the developer.
And face-to-face meetings are not completely replaced. If I get a loan request from a developer and the project is within manageable distance, I or another person from our team will drive out there. I don’t believe we can ever do a platform for seeking property funding and you just type in your CVR and receive a yes or a no. There are big stakes at play here, human beings that put their own personal assets as caution. Then you need to show up.
2. Bringing innovation into the transactional value chainReflections from Troels Lau Larsen, COO, Colliers International Danmark
Starting with the big picture: Why has Danish real estate not developed an innovation culture faster?
The industry is driven by relations and the human factor plays a major role. Knowledge is still tied to people rather than processes. If you are an institutional buyer in the CPH space, especially the high end of the market, you will reach out to people you already know that get things done.
There is also a generational aspect in it, comparable to the financial sector. It comes down to habits of doing things that take time to rewire.
The degree of complexity, when it comes to real estate transactions is worth mentioning too. We see that some of the companies investing in real estate get advisory and analytical resources in-house. Just to say, these are not necessarily the aspects of the value chain, where it is easiest to come in as a new tech-driven player.
For you, the ideal innovation approach is to look at the full value chain. Why?
For me, the place, where an innovation mindset can play the biggest role, is across the value chain. If you are a customer, where the endpoint is that you buy a property, you have interactions with a mortgage provider earlier in the cycle, a broker, a lawyer, and other advisory resources potentially. If you can increase the synergy between these players, the customer experience can improve significantly. In other words, thinking these things together benefits the sustainability of the sector as a whole.
This collaborative approach has clear value for the end customer, but the mortgage providers too and players like Colliers that spans across broker functions and investment advisory.
The future lies in creating the ideal experience for the customer, no matter the type of marketplace. But thinking about the customer journey as an entry point to all of your business is not an easy step. It takes years of internally prioritizing the change: a focused training of people within each organization.
It is not enough to hire the new skillset, because then you don’t get the buy-in from the existing stakeholders. Colliers have been partnering with proptech entrepreneurs globally and there are amazing approaches to tap into - concerning everything from data sharing, easy contract handling, and new administrative systems. However the real potential is unlocked in combination with an understanding of the full value chain.
How do we get there?
We all need to have a wide-reaching understanding. Of each part of the transactional process and of the relevant digital tools. And then we probably need to sacrifice a bit of ownership. It’s less important what brand name is on the door for the customer, if you provide a quality experience through a partnership approach. Finally, it of course requires capital to improve a complete value chain.
3. How to strengthen the capabilities for innovation within Danish real estateAdditional perspectives from Mikkel Scheel, CEO at Scheel & Co, Partner at PwC, Jesper Bo Winther, and Brickshare’s CEO, Thomas Midtgaard
Mikkel Scheel, Scheel & Co
Why has innovation not happened before? For many years you could do very little and make a lot of money in this industry. Now, you have a wave of people that are good at the technology side and you have people that understand the property side. But we need hybrid companies, combining both, to drive innovation.
For me both sides need to reach out. The mature industry players need to be extremely open. But the data scientists also need to open the conversation. To put it frankly: I would welcome that phone call.
The craft of being a good broker, as I see it, will still be needed. The first marketplaces for residential real estate, such as Boliga, did not replace the broker. But the broker needs to expand his skill set - for instance by selecting the right property data to improve his assessment of the market for the buyer or seller. New marketplace platforms will make the market more transparent. So the brokers are forced to sharpen how they add value.
Jesper Bo Winther, PWC
If you think about a digital marketplace, it is hard to imagine a platform that benefits all stakeholders. It can be something making the transaction process easier for property owners or tenants. I think it is important to define the commercial win-win in this industry.
Automation is already happening, which I think creates a need for a conversation about new kinds of risk management, across the different digital touchpoints. We need to ask: One thing might become more efficient, but does it make us vulnerable in a new way too?
Finally, I see the big innovation potential within new development projects, this is where the natural focus should be. Existing properties are often tied to an established ownership and legal structure, which might weaken the motivation for doing things differently.
Thomas Midtgaard, Brickshare
As a marketplace startup that comes into the industry, a few things are important:
Get industry allies that can be ambassadors for what you do. And be respectful rather than the new noisy boy in the classroom. Brickshare has the strength of not taking a part of an existing market, but rather opening a market for a new group of investors that did not have the capital requirements to invest traditionally. But - looking at it at large - over time new players in the industry bring a wider distribution of influence.
And of course - be sharp on the pain points. In our case we give a new investor audience access + we handle the administration of their investment digitally, so they don’t need to worry about it. It’s easy compared to if they owned a single apartment as an investment and needed to be in contact with a tenant.
It’s important to say that the technology in this industry will be everyone’s game. It’s just an infrastructure that enables you to either run a more efficient organization or deliver a better experience for the customer.
