Capvee Equity Crowdfunding Pick: NYCE
The "Robinhood of real estate" offers equity crowdfunding investors a socially-driven spin on real estate investing
Company: NYCE
Platform: Wefunder
Minimum Investment: $100
Return Potential: >4x by 2024
Structure: Convertible loan ($50 million valuation cap)
Funding Status: “Almost Sold Out” @ $300k+
Capvee Equity Crowdfunding Pick: NYCE
NYCE has been called the “Robinhood of real estate.” The financial technology startup owns and operates real estate throughout the United States and allows retail investors to participate alongside with as little as $100. The company claims $495 million in real estate assets under management with a goal to reach $1 billion by 2024. Aside from its core operations, the company is focused on one of our favorite investing themes: access and inclusion. NYCE wants to help create a 100,000 “millionaires of color” by 2030. Who could say no to that?
The Problem NYCE Solves
Real estate is the world’s largest asset class with a total estimated value of $228 trillion. $34 trillion (15%) of that is based in the United States. In spite of its massive size, real estate is historically one of the least accessible asset classes to the average person. Traditional private real estate investment vehicles require $100,000 minimums. Broker commissions ranging from 3%-10%, transaction costs at 1%-3%, and additional line items have helped keep real estate ownership in the hands of the privileged few.
Real estate crowdfunding has changed the game, eliminating fee layers and, more importantly, bringing the investment size way down. NYCE allows its investors to put in as little as $100 to start building their real estate portfolio. For young investors without lots of cash to throw around, that’s only a handful of avocado toasts!
Building on the theme of access and inclusion, NYCE provides educational resources and has nurtured a diverse community of young investors passionate about building long-term wealth via real estate.
The Team
Philip Michael, Chief Executive Officer: Philip is a 36-year old from Denmark with a unique background, to say the least. He was formerly a Sirius XM radio personality who co-hosted a popular boxing show. He held a Director of Content Strategy position at Bisnow, which is a CRE-focused news and events company. He also wrote an ebook, titled “Real Estate Wealth Hacking: How to 10x Your Net Worth in 18 Months.” The book is relatively well-reviewed on Amazon. It’s clear that Philip is a skilled promoter and he is obviously passionate about wealth-building for historically underrepresented groups. That energy seems to have translated to a fast-growing community of young BIPOC investors eager to change their own financial futures while contributing to positive social change.
Martin Braithwaite, Chief Vision Officer: For readers who follow the legendary FC Barcelona, Martin’s name may sound familiar. The 29-year old is a forward on the team and has also played for the Danish national team. Martin is Philip’s nephew. The two make quite the promotional pair between Philip’s entrepreneurial skills and Martin’s star power.
The two founders distinguish the company from its competitors with their strong calls for racial equity and a broad social media reach (Martin has over 1 million followers on Instagram).
The team is complemented by Danny Cortenraede as Chief Commercial Officer. Danny is an entrepreneur who started his career in sales at various telecom companies before getting into the digital media space. His firm, Wannahaves, is a digital agency to sister company 433, a soccer-focused media business that claims to be the #1 global sports community with 5 billion impressions monthly.
Our view is that, while this team lacks traditional real estate finance experience, they make up for it with social and digital prowess. Their backgrounds and skills are evidenced by NYCE’s fast-growing community of young BIPOC investors eager to change their own financial futures while contributing to positive social change.
The Investment
The founders bootstrapped NYCE to what they describe as a $57mm portfolio. (From what we can tell, that $57mm is the projected terminal value of the assets completed and currently under development.) From there, they raised $1 million on Wefunder and Republic via an equity crowdfunding campaign in 2020. The company claims it was the fastest Reg CF real estate offering to hit $1 million.
The company is now offering a convertible note at a valuation cap of $50 million. For those new to this type of investing, a convertible note is an unsecured loan that converts to equity at some point in the future when the company raises an additional round of financing. If the company doesn’t end up doing another fundraise, the note matures and investors are paid their principal back plus interest, typically in equity as opposed to cash.
NYCE’s $50 million valuation cap is the number to focus on. The valuation cap means that, depending on a future financing, investor capital in this round will convert into company stock at a valuation no higher than $50 million. We find the cap reasonable as the valuation compared to real estate assets under management compares favorably to peer businesses. For example, Diversyfund’s 2020 raise was at a $94 million valuation with claims of $129 million in assets under management.
With the company so early in its growth cycle and the overall market opportunity ($34 trillion in the U.S. alone), NYCE has plenty of room to grow its portfolio.
What We Like
-Management distinguishes itself through a bold pitch, admirable causes, and tremendous social reach. This next generation of financial products will resonate most strongly with millennials and Gen Z, and that’s who NYCE is talking to today. The team has a demonstrated ability to build and engage communities of young, passionate users.
-Real estate crowdfunding has emerged as a popular alternative asset class for retail investors. In 2020, 60,000 investors participated in real estate crowdfunding with a global market valued at $13 billion. The category is expected to grow at an incredible 50%+ CAGR over the next 5 years.
-NYCE has generated impressive traction since launch last April. The company has 2,200 investors, 1,500 apartments and $260 million in real estate assets under management. The company’s collective social presence numbers in the millions of followers. NYCE appears on track to reach its goal of $1 billion in real estate assets under management by 2024. Even at an 80% LTV, the implied equity AUM could be as high as $200 million in just a few years.
-The company’s integrated approach allows investors to benefit from the real estate itself, truly opening access to an asset class typically reserved for the 1%. The company makes money by acquiring, developing, and selling real estate as opposed to the more popular marketplace model of posting deals and relying on transaction fees.
What Makes Us Nervous
-While we like NYCE’s model of developing real estate and not just taking a fee on investments into third party sponsors, the company takes on the risk of making bad investments. NYCE is yet to show a track record as a real estate investment fund. One of the company’s existing projects, the futuristic dorm/incubator at Temple University called, “The Temple,” features VR-based leasing, AI-powered concierge and facial recognition entry systems. That all sounds great (though, I am not sure why college students need concierges…) but is not clear whether the project will resonate with students and realize its projected value.
-The U.S. real estate market is red-hot right now. If the company maintains a highly-levered portfolio (80% LTV is very high for CRE), the painful lessons of 2007 could come back to haunt them. Overly ambitious projects with financing based on inflated assumptions could leave the company in a very tight spot if and when liquidity tightens.
-COVID-19, while (hopefully) not a long-term crisis, is not over. The epidemic has had a dramatic impact on multiple areas within NYCE’s strategy - from urban real estate to college campuses. If work-from-home and the exodus from cities transitions from a short-term trend to a long-term evolution, NYCE may need to diversify its approach.
-The company is not led by real estate investment veterans. We love the promotional and social justice-focused founder team, but NYCE would benefit from the guidance of a few real estate pros that have seen (and survived) a cycle or two.
The Capvee Call
The bold pitch, high ideals, and finger-on-the-pulse of community building makes NYCE a compelling new player in the real estate crowdfunding space. The company’s traction since April 2020 shows a fast-growing, engaged group of socially-conscious people that want to take control of their financial lives. If NYCE can continue to grow and engage their community, they could see assets grow quickly. Social and community-led investing is the future.
We believe the company’s $1 billion AUM goal is achievable. At that milestone, today’s $50 million valuation cap seems reasonable.
While the company still needs to prove itself as a real estate investor, we find the macro tailwinds and traction to date warrant a buy recommendation with potential upside of 4x by 2024.
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