On October 24, 2016, the Ontario Securities Commission (OSC) announced the launch of OSC LaunchPad, the first dedicated team by a securities regulator in Canada to provide direct support to fintech businesses in navigating regulatory requirements.  OSC LaunchPad strives to keep regulation in step with digital innovation.
 
To assist the OSC with policy development and considerations given the ever-changing technological environment, the OSC LaunchPad created the FinTech Advisory Committee, bringing together industry participants and experts to advise OSC leadership on developments in the fintech space as well as the unique challenges faced by fintech businesses in the securities industry.
 
NexusCrowd is thrilled to announced that our CEO, Hitesh Rathod, has been appointed to the 2018 OSC FinTech Advisory Committee. His goal will be to advise OSC leadership on opportunities within the Ontario regulatory framework to shape policies and decisions that make online private investing simple, seamless and accessible for Canadian investors. Link to press release.

What excites you about NexusCrowd?

Commercial real estate is an asset class that I have wanted to participate in for a long time, but I did not  know where to find opportunities. NexusCrowd has solved this for me by bringing quality debt and equity deals at a capital commitment level that is accessible and allows me to build a diversified portfolio.
 
You occasionally invest in start ups, how do you select which ones to back?

The start up community is full of exciting and ground breaking ideas and it is easy to get overwhelmed by the number of opportunities. After initially being inundated  with deal flow and the required due diligence, I put in place a rules based approach to help identify the opportunities worth the appropriate focus.
 
Any potential investments had to have three characteristics: a large addressable market, a strong coherent leadership team that I could meet with in person, and a catalyst. 
 
These characteristics are not exhaustive. Other considerations are growth rates, valuation, structure of the cap table, corporate governance and competitive landscape. If I  cannot tick the boxes on the three characteristics I’ve identified, I move on to other potential opportunities.
 
What is your biggest takeaway after 25+ years in the investment/financial services industry and working in different countries?

We all, for better or worse, operate from a framework defined by our experiences. Typically our more painful experiences factor more prominently in regards to decision making. After entering the financial markets in the late 80’s I experienced the liquidation of Long Term Capital Management in 1998, the internet bubble in 2000 and the financial crisis of 2008. All of these events inform my view that there is always a potential “train wreck” lurking out there and that preserving capital is paramount.

I approach every investment with the question: What if I am wrong? Managing the risk and limiting my downside is always my focus.
 
Why do you like real estate investing ?

Real estate is a tangible asset that is relatively easily understood, it offers inflation protection and diversification from other financial instruments. Global population growth and migration serves as a powerful tailwind for long term returns. Also in this low interest rate environment real estate can offer relatively high stable income returns.
 
I appreciate the range of investment possibilities – debt and equity, varying credit quality and the returns commensurate with the risk I am willing to take.
 
What career advice would you give your 25 year old self?

Looking back, that list of advice would be long. One of the top ten would be to find a mentor. A mentor can help by offering candid actionable feedback, framing issues to ensure you are considering different perspectives and helping you manage your blind spots. I had a few mentors throughout my career and I am immensely grateful for the time they spent guiding and coaching me.
 
What books have you read recently and why?
 
Win Bigly by Scott Adams. Scott Adams created the Dilbert comic and was an early predictor of Trump’s win. I wanted to understand the author’s take on the Trump campaign and presidency.
 
The Four by Scott Galloway. I was interested to hear the author’s theories  on some of the darker aspects of Amazon, Apple, Facebook and Google especially in light of a potential regulatory focus regarding the power and reach of these companies.
 
Evicted by Matthew Desmond. This book is recommended by Bill Gates. Desmond is a Harvard sociologist who thoroughly examines extreme poverty and its devastating social consequences.
 
Ian’s Bio
 
Ian has more than 25 years experience in the global financial services industry focused on investment and risk management. His experience spans roles in fixed income, equity derivatives, prime brokerage, equity finance and proprietary trading across Asia, USA, UK and Canada.
 
In his latest role, Ian was a Managing Director at Goldman Sachs Asia responsible for Pan-Asia Macro Trading managing delta-one derivatives, program trading and index arbitrage. Ian was a member of the deal team involved in several high profile structured corporate deals. Ian served on the Asia Pacific Finance Committee tasked with allocating capital, balance sheet and resources in the region. Ian was also involved in various industry organizations meeting with financial regulators around the region. Prior to Goldman Sachs, Ian was a fixed income trader for a US based hedge fund responsible for non-dollar government arbitrage trading.

Online real estate investing has experienced tremendous growth over the last several years as a way for individuals to access an untapped market. It also provides a means for developers to capture new sources of debt and equity funding. 
 
Given the relative newness of this model, questions are bound to arise. We have addressed a few common myths below.
 
1. Projects that cannot get ‘traditional’ funding (i.e. lower quality projects) are showcased
 
NexusCrowd provides individual investors access to high quality and vetted real estate deals that are led by our institutional partners. Bottom line: NexusCrowd investors are never the only ones to invest – we always invest on the same terms with our partners and their investors who are high net worth clients, family offices and institutional investors.
 
Our priority is always our investors and NexusCrowd conducts an extensive and in-depth due diligence process on both our partners and their deals before listing them on our platform.  Each of our partners has 30+ years of experience structuring and financing residential and commercial properties worth billions of dollars in Canada and globally. Learn more about our current partners.
 
2. There is no regulatory body governing these platforms
 
NexusCrowd is Canada’s first regulated online real estate platform. In other words, we went through an extensive end-to-end vetting process by securities regulators to be designated as an Exempt Market Dealer. Before choosing a platform, it’s important to do your homework to ensure the platform has a license and investor interests are being protected.
 
3. I am making an investment based on good faith and trust
 
NexusCrowd investors create a private online account where they have access to due diligence material for each opportunity.  To ensure security and transparency, funds are tracked and documented and we only transfer investment funds upon completion of each transaction. If, for any reason, the transaction does not close, your investment amount will be fully refunded.
 
Once the investment is made, investors receive quarterly updates in their private online account and via email. The NexusCrowd team is always available in person or on the phone to answer questions or walk you through the process. Contact Us
 
4. No good developer would raise money using an online platform
 
While it is true that several large developers have a steady stream of funding, there are an equal number of very reputable developers who seek high quality and consistent alternative sources of capital.
 
NexusCrowd partners with developers and investors who fall into this ‘sweet spot’ by working with them to offer an alternate source of capital with little/no administrative hurdles. We are very selective about who we partner with and only collaborate with recognized developers and investors with strong knowledge, connections and a plan to mitigate unforeseen risks.
 
5. This method of investing is suitable for all investors with all risk profiles
 
No investment is risk free. However, NexusCrowd mitigates risk in a number of ways. These include selecting established and experienced partners to source and manage deals, thoroughly vetting each deal and not being the sole investor in any deal.
 
Finally, NexusCrowd follows a Know Your Client (KYC) process before any investment decision is made to determine individual investor suitability. If we determine that the inherent risk in an investment is not suitable for you, we will let you know.

We are pleased to announce that we have launched our fourth debt deal for a development property in Markham, Ontario with our partner Downing Street.

The deal provides investors with an opportunity to participate in a structured first mortgage paying 10.6% interest with a 77% LTV. The development is an infill townhome and condo development in the Berczy Village area of Markham.

NexusCrowd is participating in the $1.625 million deal with an allocation of $500,000.

To find out more about the current offering, sign up here.

On August 2nd, the Wednesday before the Civic long weekend, we launched an investment that allowed our investors to participate in a mortgage deal brought to us by our new partner, Vector Financial. NexusCrowd had the full $1 million allocation for the junior position of a $11.2 million structured first mortgage. By the following Tuesday, August 8th, the deal was oversubscribed. The deal closed on August 17th.

In our opinion, the deal provides an attractive risk/return profile for 1.9 acres of lands being developed into townhomes in Markham, Ontario. Our investors will be receiving a net interest rate of 13.5% with a loan-to-value ratio of 70% and monthly interest payments. The development is also located in a highly desirable area of Markham.

We look forward to providing our investors with access to new quality real estate investment opportunities soon.

We are pleased to announce that we have launched our third debt deal for a townhouse development in Markham, Ontario with our new partner Vector Financial Services.

All Vector deals are funded by a combination of outside investors and by the existing shareholder group (and related companies), allowing Investors to take comfort in the fact that their interests are aligned with management.

To date, Vector has funded more than $2.5 billion dollars in mortgages and loans in major centers throughout Southern Ontario. They pride themselves on maintaining consistent relationships with Borrowers, Brokers and Investors, which has been the fabric of their success for over 45 years.

We look forward to building a long-term relationship with the team at Vector.

To find out more about the current offering, sign up here.

On May 19th, the Friday before the Victoria Day long weekend, we launched an investment that allowed our investors to participate in a mortgage deal alongside Downing Street. Our allocation for the $3 million deal was $500,000. By the next business day, Tuesday May 23rd, the deal was oversubscribed and we increased our allocation to $550,000. It closed on May 30th.

The deal, in our opinion, provided an attractive risk/return profile for 2.8 acres of lands being developed into townhomes in Richmond Hill, Ontario. The deal enabled our investors to invest with Downing Street and their investors in the junior position of a structured first mortgage investment with a net interest rate of 11.2% and a loan-to-value ratio of 63%. In addition, close to two-thirds of the townhome units were pre-sold with the remaining going on sale soon.

As we continue to grow NexusCrowd, we look forward to providing investors with access to quality real estate investment opportunities.

​In October 2015, NexusCrowd Investors participated in the development of the Galleria Centre, a 238,000 sq. ft. retail centre being developed by our Partner, Terracap Investments through an equity investment. The centre is located near Dixie and Dundas in Mississauga, Ontario. 

We are pleased to announce that demolition is complete and remediation is underway at the site with construction of the project expected to begin soon after.

As with any real estate development project, there are risks. Whether it be receiving municipal approvals, remediation, timing, construction costs, pre-sales, etc., having a development partner with the experience and track record to mitigate these risks is crucial for investors.

As a NexusCrowd Investor, accredited investors have the opportunity to invest alongside our partners and leverage their expertise in developing large scale projects. As an individual accredited investor, unless you have the time, expertise, capital and/or the relationships, participating in these types of investment opportunities is simply not possible. We are changing this.

Last week, The Toronto Star published an article titled “The high-risk world of syndicated mortgages.” The article shed light on something that seasoned real estate players have been aware of for a while but is less understood by most individual investors. It revealed that certain institutions promise extremely attractive interest rates for real estate backed mortgage investments. However, investors aren’t always fully aware of the risks associated with these investments.

The question then becomes, How do you avoid syndicated mortgage investments with disproportionate risk/return profiles?  

Below are a few things to consider before investing in a syndicated mortgage:

1. What are the funds being used for?

• For development projects, syndicated mortgage are typically used to refinance existing debt and/or to cover “soft” costs (eg. legal, planning, permitting, admin, etc.)
• For income producing properties, the borrower is likely looking to take equity off the table to deploy elsewhere
• Fees paid to mortgage brokers and others should only represent a small fraction of the use of funds

2. What is the loan-to-value ratio (LTV)?

• LTV determines how much debt is on a property relative to the value of it. Generally speaking, a lower LTV means a more secure investment
• All syndicated mortgage investment opportunities should disclose the LTV
• Finally, the property value should be determined by a reputable independent appraiser

3. Where does the syndicated mortgage rank in the event of default?

• Syndicated mortgages are often a second mortgage. Second mortgages rank behind first mortgages (senior debt)
• If a syndicated mortgage ranks behind a first and second mortgage or if the LTV is high prior to considering the syndicated mortgage, you should proceed with extreme caution as the risk profile of the syndicated mortgage may be mimicking that of an equity investment which carries much greater risk
• As an investor, you should consider where you rank in the event of a default and if there is enough security to cover your investment

4. Is there collateral security?

• To reduce the risk profile of a syndicate mortgage, the borrower may provide collateral security which may include a blanket mortgage or general security agreement on other assets and/or personal guarantees
• Collateral provide investors greater comfort in the event of default. Even if the subject property cannot recover all the capital, investors will have security on other assets that may make up the difference

5. Risk Disclosure

• Are the companies that are selling you the investment providing you with adequate disclosure of the risks? No investment is risk-free or guaranteed so be aware of companies that claim this.
• Generally speaking, investments that are earlier stage will have a higher risk profile (eg. An office building that is being developed is riskier than an office building that is complete and has tenants paying rent). Higher risk investments should provide higher returns.

6. Is the company offering the investment licensed?

• The companies selling the syndicated mortgages should be licensed by either securities or mortgage investment regulators

7. Who are you investing alongside?

• Investing alongside sophisticated investors who manage a syndicated mortgage provides you with the piece-of-mind that in the event of a default, you will have a professional group working with you to recover your funds
• Investing alongside novice investors may leave you poorly represented in the event of default making your investment a nightmare

​Syndicated mortgages are a great way for investors to gain exposure to private real estate investment opportunities and for developers to raise capital at lower costs but the returns must align with the risk profile. If not, you may be exposing yourself to equity risk for debt returns.