I do love real estate
I have been making real estate investments for a long time. Not only in the brick and mortar world but also in technology companies that are changing the real estate world.
My first investment was in Curbed. Curbed is pure content in the real estate space. It attracts all seekers who are fascinated with the every changing world of real estate. Turned out to be a smart investment as Curbed is now part of Vox Media.
Then I continued on. Next came Nestio. A company I wrote about earlier in the week. One that just closed a round of funding.
Others followed. Sweeten a marketplace that connects contractors and other experts for your renovation no matter how big or small. Architizer the largest data base for architects to source and then buy products. CoUrbanize a platform that helps residents, real estate developers, city planners and municipalities build better cities together. I’d even add Tactile Finance to this. It makes home financing clearer. Something certainly needed after seeing the mess mortgages got the banks into.
I have added a few others to the mix. Bridgit construction punch list software. What I loved about this it not only the product but the founder grew up in the construction world. She gets it.
The other one is called Flip. They launch today. They are tackling something that nobody else has. Flip is reimagining the concept of a lease. They want to simplify the experience of getting on and off of a property rental lease with a few clicks. How? They are turning the lease into a liquid asset class that can be transferred from one person to another. Legally, when you are on a lease you have something called “leasehold interest.” Your leasehold interest is property that you can take to market.
Soon there will be also be a Flip Report to qualify yourself as a worthy tenant. This will make the process seamless for anyone. You can continue to update that profile as the years move forward so you can easily get an apartment that has been flipped.
Flip is a secondary marketplace for leases, allowing anyone to buy a lease directly from the outgoing tenant or sell a lease that they no longer want. Flip is giving power to the tenants to unlock the inherent value of their leases with new tools for reviewing and approving tenant applications, they are bringing the lease into the 21st century
This next generation is becoming more transient. When you find your first apartment in NYC it doesn’t last forever. Roommates leave and sometimes you want to leave them. I knew Flip was on to something when my daughter told me her roommate is moving to LA. Her question was…can I put the apartment up on Flip?
Comments (Archived):
Nice line-up! This calls for a real estate in tech GG portfolio summit 😉
ha!
Nestio is such an amazing story of the persistent founder and investors who believed in her. Flip is one of those concepts that is obvious in retrospect and has a shot at spreading quickly.
agree!
is ‘leasehold interest’ recognised in law throughout the US? what’s the total addressable market flip can attack?#flipchain
I believe so
Not in the market where I am … there is no such thing. And of course in practice a landlord can easily find reasons to not renew a lease even if this is the case. Credit checking or other reasons real or invented.Plus keep in mind that landlords (in NYC) only write 1 year leases I believe for easily rentable properties. So we are talking about a lease which is expiring. The landlord may have to allow a replacement tenant but they are allowed to raise the rent within certain boundaries in many buildings. My daughter took over the lease of a friend in their apartment and there was only 3 months left on the lease. The landlord raised the rent to fill out a new term I believe $100 per month or something like that. Her friend would have been a customer for flip if this was not the case. The apartment she was vacating (with another friend) would also have been a customer of flip as well but got someone else the old school way.
Yes it is recognized in all markets. This is a matter of property law. People generally just are not aware of this. Here is the definition of leasehold interest from a property law textbook:The value of a tenant’s interest in a lease.Claim or right to enjoy the exclusive possession and use of an asset or property for a stated definite period, as created by a written lease.A long-term lease interest is a valuable asset in its own right which can be traded or mortgaged as a physical asset.
Hi Susannah, Apparently not in NJ, at least as of 2010 and the way I read this document:http://www.state.nj.us/dca/…In particular this, which indicates a prohibition can be written into the lease:Note: A Tenant should check his lease for specific notice requirements and notify the landlord as soon as possible when breaking the lease. If the lease does not prohibit subletting, the tenant may be able to find a new tenant. However, if the tenant sublets he is still responsible for the apartment until the lease expires.
Yep – notice requirements are a different story. In many buildings, tenants have to let their landlord now they’re going to use Flip to find their own replacement and get approval. When we are partnered with a landlord, their leasing specialists give approval and send the tenants to us without having to do any additional work.
.As an authorized vetting entity, you are, in fact, providing a useful service but again, I am concerned whether that is a “real estate service” and requires a real estate license.JLMwww.themusingsofthebigredca…
.The Property Code is state law and while similar varies from state to state. The Property Code of any state is trumped by the terms of the lease contract.If a lease prohibits subletting, assumption, assignment, transference, or other such actions, then there is clearly some mythical value in the lease itself but there is no value which can be transported to a new leasehold estate owner.It is not a physical asset, it is a “right” to use a physical asset. Huge difference.JLMwww.themusingsofthebigredca…
I think there is so much more opportunity here than even meets the eye with flip. They could also pre-certify tenants for existing landlords (not taking over leases) and/or even provide guarantees (similar to what parents have to do now for their kids with leases) if they end up with a world class vetting system. Maybe even front run leases and arbitrage (similar to what PE did with residential housing). Also expand into commercial leases.In theory if landlords know that a tenant has occupational liquidity it should make it easier for them to rent to a wider variety of people which in theory would allow them to increase rents (because the risk would be lessened or I should say in spite of the risk being lessened).
Exactly. Now, we’re focusing on providing a useful service to people who are stuck in leases. In the future, our intention is to bring liquidity to the whole market. Lots of leases are transferred each year, and they are all transferred using outdated tools.
.Let me piss on your fire and thereby caution you to the attendant risk in the scheme you are contemplating.As a matter of law, the “equity” in leases is typically owned and controlled by the landlord. The equity is the difference between the market rent and the rent that a tenant may be paying currently because they entered into a lease in a rising market or because they have a rental rate that is 2-3 years old.This is not a new concept.Any commercial or residential lease will have subletting, assignment and transfer provisions. I wrote leases for 25 years for millions of SF of office, retail, warehouse space and tens of thousands of apartments. Not once would any lease form I used allow you to do what you are contemplating doing.Typically, a lease has to be approved by a lender because they receive an “Assignment of Leases” as part of their collateral in a loan transaction.The lease requires the tenant to consent to this provision often calling it a “Non-Disturbance and Attornment Agreement” meaning that the lender will not disturb the underlying lease if the tenant pays the rent directly to them and that the tenant will “attorn” or otherwise recognize the lender as the owner and landlord of the property.I mention this because even if you could assign/sublet/transfer a lease, you may be unable to get the lender to agree to modify a Non-Disturbance and Attornment Agreement. I have never known a lender to do this. Ever. Unless the borrower is recapturing all the increase in revenue thereby improving the collateral of the assignment of leases. This is a banking security issue.This is very simple, plain vanilla stuff. Been doing it for more than a half century. Meaning such provisions have been around for such a time period.Our leases would be reviewed each year and become more draconian and landlord friendly with the passage of time. Remember, there is also something called a landlord’s lien and a potential contractual lien on everything in the leasehold space. This creates a whole new set of problems as you cannot remove property secured by such liens without the permission of the lienholder.In highly occupied markets — the ones that would build the most tenant equity in a lease — the landlord favoring provisions are more and more favorable to the landlord.The remedy for violating the assignment, subletting, or transfer provisions of a lease are typically acceleration — immediate payment of the remaining rent under the lease — as well as any number of draconian financial penalties many of which may be personal obligations in the event of fraud of any type.I would be surprised if there was a business there if you consulted with a really savvy developer or real estate attorney.To make matters worse, you are arguably liable for “tortious interference with a contract” by getting between a landlord and a tenant in a manner that unlocks value to the detriment of the landlord. This is a general tort and a very easy one to litigate. Not to necessarily win but very easy to litigate.The new party and the old parties would all be liable for his tort.Most leases also have a global provision that provides that only the landlord can benefit from any bargain element in a lease. This is quite normal even in a subletting environment. You may have the right to sublet but the landlord gets the increase in rent and the old/new tenants are jointly and severally liable for the performance of the lease.One last thing — leasing is a function which requires a real estate license. Much of what you describe cannot be done except by a duly licensed broker and salespersons who have license dangling off the broker’s license.Most interstate transactions require a local real estate broker be involved. Remember the real estate lobby in any state is serving the local real estate brokerage committee.There is a case I stumble on wherein many of these co-working spaces — which rent real property — are being assailed for not having real estate licenses. This is even with a general exemption for developer who are buying/selliing/renting their own property. These cases are proceeding because the co-working space is not a developer of direct owner of real property, they are subletting real property.This is a very simple matter and I urge great caution. It is fraught with peril.JLMwww.themusingsofthebigredca…
Hey JLM. This is Susannah, the CEO of Flip. Some responses to your comments…- Re: the landlord’s equity. Flip provides landlords with free, easy access to a pool of pre qualified renters who will pay market rent for their units. When a lease is transferred on our product, the landlord can increase the rent to a market rate. – Re: provisions in the lease. Most lease terms require that an outgoing tenant get approval from the landlord in order to sublet or reassign. Flip is a company that helps them to do this by creating a report for all of our users that demonstrates how reliable they are as a renter. We do this to make lease transfers frictionless, however it’s important to note that lease terms are superseded by property law. Property law states that a landlord has an obligation to mitigate damages caused by a renter leaving his or her lease. Damages are lost rent. Mitigating damages means accepting a new renter who will pay the rent. -Re: requiring a license. Flip is simply a platform connecting an outgoing tenant with a prospective tenant. We are not a real estate brokerage just as Craigslist and Zillow are not real estate brokerages. Take a look at our TOS https://flip.lease/about/terms.More broadly, this is an industry with layers of inefficiency and at Flip we think that by removing some of these inefficiencies we can save a lot of money for property owners and property renters. It’s true that commercial leases have many more terms and complications than residential leases, and we will be working closely with our advisory team of developers, property managers and brokers to ensure that we enter that market correctly when we enter it. For now we are only operating in residential.Thanks for your comment.
.No sale.Why does a landlord need a third party to find a new tenant when there is an entire industry dedicated to doing just that?When I owned tens of thousands of apartments, I did all my own marketing and leasing with a dedicated and directly hired staff. It is the industry standard in institutional quality multi-family.Lease terms are not superseded by property law. In fact, it’s the opposite. The specific always trumps the general. The Property Code is general while a bespoke lease is specific. It is a contract and parties can contract as they wish.The Property Code comes into effect when there is no specific lease or a lease is silent on an important issue which is very unlikely to happen.The obligation to mitigate damages is a damages issue not a transference issue. The implications of it being a damages issue is that written notification of default, an opportunity to cure, a failure to timely cure have all taken place.Once the lease term ends, the landlord has no obligation to the former tenant mitigation of damages or otherwise.Most leases have a cancellation provision as one of the remedies available to a landlord upon the uncured default of a tenant.The landlord’s damages are the net present value of future rents minus the net present value of the agreed rents.The landlord also gets to add in the cost to re-let including leasing commissions and “refreshment” as well as the time period in which to re-let the space.The landlord calculates the damages, makes a demand for payment, and then cancels the lease freeing himself to seek another tenant with no obligation for further mitigation. The leasing commission, the refreshment expense, the lost rent is a huge number already.You differ from Zillow in that you suggest you provide “services” which is the exclusive purview of licensed real estate brokers. It is a fact question and nothing more. If it is as you suggest, that you provide no advisory services, then you are home free.The inefficiencies you suggest exist are not very widespread. I used to have tens of thousands of apartments in Austin, Dallas, San Antonio, Houston which routinely ran at high 90s levels of occupancy.I had a very sophisticated tenant by tenant rent roll which tracked payments in real time. I would have non-paying tenants locked out within days of a failure to pay rent.I would seize their security deposits and move on. I always gave anybody a break who had a good story. I was as soft as a marshmallow. I was risk averse as it related to litigation and never sued anyone. Their security deposits were enough to solve my problems and I could turn an apartment in a single day.It is a business and like every business, there are some folks who are very good at it.JLMwww.themusingsofthebigredca…
Ah, if only NYC housing operated that way. I managed family owned residential housing in NYC for years (wasn’t my f/t gig, btw). Good luck getting the Court’s assistance w/ deadbeat tenants. Housing laws, or how they’re interpreted by tenant friendly NYC judges, are a joke. I vividly recall bringing a non-payment proceeding against one deadbeat tenant. 3-4 months in arrears. The person was petrified going in. If you had time lapsed photography on her face it would go from despair to elation as she waited for her case to be heard, while observing judges continually giving other deadbeat tenants essentially a free pass. NYC courts and rent stabilization laws have way too much influence over landlord profitably.
.Evictions are always a touchy matter. Even when you change a lock you still have to provide a key for the tenant to retrieve their belongings. They have to appear in person to get a key. Even in Texas you have to give them a key.Rent stabilization and other regulatory schemes changes the mix dramatically and my comments are generally not intended to apply to such specialized situations.JLMwww.themusingsofthebigredca…
There is a case I stumble on wherein many of these co-working spacesI managed to pull up the “lease” for some shared space (traditional like REGUS) because I was researching what a tenant would pay me for some space (a single office). I was surprised that the way the “agreement” reads it’s not really a lease but an agreement to let someone use the office and the services at the office. I would obviously assume whatever they are doing is well vetted. I ended up writing a traditional lease but if I had more time and in the future I will study this and do it the way Regus does.And viola, here it is I re-found it:http://www.sec.gov/Archives…
.I used to have several executive suite operations like HQ which sold to Regus.They, executive suites, are a lot different than co-working spaces for a number of reasons, the first being that they entail the use of a specific office.When I sold my exec suite operations to HQ, they all had real estate licenses because they tried to get a sales commission on the transaction.JLMwww.themusingsofthebigredca…
Thank you @JLM:disqus and @susannah_vila:disqus – I’m learning a lot from your discussion.That “co-working spaces — which rent real property — are being assailed for not having real estate licenses” is yet another example of how regulations can choke innovation and stifle ambition.Regulations are like salt – just enough makes things better, too much makes things worse.Some of the best startups (Airbnb, Uber, etc,) are pushing back against regulations that mainly exist to protect lobbyists’ clients, at the expense of consumers. Real estate is long overdue for similar push back and maybe Flip and others will be the ones to do it.
.The real estate license requirement is not really a burdensome requirement. In many states (Texas being one) a lawyer can function as a real estate broker.The real estate industry — at the commercial level — has done a very good job of disciplining itself.The prospect of losing a brokerage license is a more stringent element of consumer protection than hauling someone to court and suing for damages on a single tort.I would complain to the real estate commission before I would file a lawsuit against a broker.The loss of a real estate license is the loss of a livelihood and therefore the power for righting wrongs is quite good.The requirements for continuing education ensure that brokers are up to speed on the latest developments in the business.I have seen a lot of real estate based startups and, with some exceptions, they are long on the “disruption” and short on basic industry knowledge thereby creating as many problems as they seemingly solve.Folks like Uber have to make sure they disrupt without trying to create a similar advantage for themselves as they decry in others. In Austin, Texas, as an example, they want to absolve their drivers from criminal background fingerprint investigations.Taxi drivers have to submit fingerprints as part of their criminal background investigation. Some meaningful percentage of background investigations come up “clean” until they run the fingerprints.I love Uber but I cannot embrace the notion that their drivers should not submit to the same background investigation as a taxi driver.In ATX, Uber promised no surge pricing as part of the original agreement with the City Council. They bifurcated their application and the City Council approved their right to operate but Uber then withdrew the agreement not to forego surge pricing.I supported them initially but would not have if I knew they were going to be so tricky. This was all done by lobbyists.Meet the new boss, ……….JLMwww.themusingsofthebigredca…
“I have seen a lot of real estate based startups and, with some exceptions, they are long on the “disruption” and short on basic industry knowledge thereby creating as many problems as they seemingly solve.”You might enjoy this read: http://geekestateblog.com/t…
you could say that about a lot of start ups. *long on the “disruption” and short on basic industry knowledge*
Would value that here. We have roomates that switch in and out regularly. The process takes forever to get everyone aligned.
As an admitted millennial with 8yrs of experience in NYC real estate a background in Urban Planning, and currently run a startup, I can speak to both sides of the table and their vested interests in this space: flip is onto something huge here. There’s an enormous innovation void in the residential real estate rental ecosystem (though nestio has made big moves there). Data, value, trust and efficiency are bled out, endlessly, all day every day, to the detriment of quite literally everyone. Flip – from what I can see – is giving structure to the retention of value for all sides. Providing the space within which ones clout and reputation tied to financial commitments to be stored, contextualized and evaluated is arguably what all other aspects of finance basis is based upon vis a vis credit.As a New Yorker who’s paid $175k+ in rent over the past 12 years over 15+ apartments, with nothing to show for it – reimagining the archaic lease is the *only* thing that makes sense. And I can attest to the fact that property owners at least the ones who value their upside, will get on board.
I totally agree with you. They are onto something..