8 minute read
November 2, 2020
Building a Consumer CRE Marketplace with Drew Sterret of Lex
This article originally appeared on www.buildingproptech.com, a retired blog where I interviewed proptech founders on how they were building and growing their businesses.
Lex is building a capital market that helps retail investors invest in commercial real estate projects with as little as $100.
Hey Drew! How did you end up working in PropTech?
My background is colorful. I began my career in real estate at Tungsten Partners, a real estate private equity firm, where I sourced, evaluated, structured, and facilitated real estate investments.
Prior to that, I worked on Capitol Hill as a Congressional Intern. During those years I was also Co-Owner of a company called Bluegrass Belts, a lifestyle apparel company sold in 2018.
The idea behind LEX emerged one late night when my brother and LEX Co-Founder, Dean, called me at the office and we shared our frustration over the limited options available to unaccredited investors wanting to own real estate assets.
We started LEX in 2017 with the goal of making real estate investing available to everyone. Investors can buy and sell shares of individual commercial properties, giving them the flexibility to create customized and diversified real estate portfolios.
What problem are you working to solve with Lex?
LEX offers a unique solution to a two-sided capital markets problem that has vexed both retail investors and real estate owners for decades. Retail investors have had limited access to commercial real estate.
The best opportunities have been reserved for real estate private equity funds and high net worth investors. REITs enable public investment in pooled holding companies, but are not customizable and do not pass through many of the tax benefits of real estate ownership to shareholders.
Other direct investment platforms are restricted to accredited investors and only offer securities that are not freely tradable.
On the other side, property owners have had limited ability to realize liquidity on the equity they own. They typically must sell their entire property to liquidate their investments, incurring high transaction costs, and losing control of properties they care about. LEX solves both of these problems.
How is Lex financed?
To date, we’ve officially raised our seed investment from Greycroft and Thor Equities. We announced last year that we raised $4M in venture capital.
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What is Lex's growth strategy?
Part of what makes LEX unique is that our pool of eligible investors spans across non-accredited (retail), high-net-worth, and institutional investors. This means that for the first time, all of these groups will invest in single-property commercial real estate side-by-side. Due to the differing nature of each of these investor groups, a segmented growth strategy is necessary.
Our retail strategy closely follows a B2C model, focused largely on value-add content marketing and digital advertisements. On the high-net-worth and institutional side, building a personal relationship with our investors is critical; thus, our sales and business development teams are constantly in touch and listening to our investors’ needs.
What tactics have you tested for growing your user base and revenue? What has been most effective?
We believe that creating value for our potential users is the best way to attract them to our platform, to build trust, and to incentivize them to invest with us. With that in mind, producing and distributing quality educational content is the foundational pillar of our retail growth strategy.
Being that LEX is not the issuer of our offerings (the property owners are), our role is to be the trusted infrastructure upon which properties are securitized and distributed. As a result, the more informed our investors, the better off our entire investing ecosystem will be.
What has been the hardest part of building, growing or monetizing Lex?
LEX is the first and only commercial real estate securities marketplace that enables accredited and unaccredited investors to invest in individual properties. Given we’re a novel product trying to democratize an age-old industry, some of the hardest parts about scaling have been showcasing our product and mission and explaining why we believe our approach represents the future of the commercial real estate asset class. Investing in single assets has been challenging for two key reasons:
There is no centralized market for non-insiders to find single-property real estate investment opportunities and to participate side-by-side with the institutional insiders.
Accreditation allows only certain wealthy individuals to invest in the majority of direct commercial real estate transactions. The accreditation requirement serves an important purpose in preventing less affluent investors from taking losses in private investments that lack the disclosure and registration requirements of public securities. In practice, however, the requirement also serves as a legal barrier that limits individuals seeking to capitalize on the economic benefits of commercial real estate ownership.
At LEX, we’ve worked hard to build a marketplace that opens access to the asset class. To make sure the right folks are listening, we’ve selected a board that will help us grow our vision and pay off our vision. We recently announced that former NYC Housing Czar and Deputy Mayor, Alicia Glen, and Paul Hastings Partner, Marty Edelman, joined the LEX board to support our mission to bring commercial real estate investing to the masses.
Craig Hatkoff, who is one of the earliest pioneers of commercial real estate and mortgage securitization and currently serves on the Boards of Colony Capital and SL Green, two of the country’s largest REITs, is Chairman of our board.
What insights about real estate and technology have you came to realize whilst building Lex?
We’ve brought technology front and center at LEX since day one. To pay off our mission to democratize the asset class, we knew that we had to make the experience of investing in these assets intuitive, easy-to-use, and reliable for investors. In fact, earlier this year we announced a technological partnership with Nasdaq.
By harnessing the power of Nasdaq’s multi-asset trading capabilities and experience scaling global markets, we can scale with the sophistication of a global market. This helps us achieve our mission of opening access to the asset class. Real Estate has historically traded hands over the course of years, now we have the technology to make it happen in under a second.