ArborCrowd’s Adam Kaufman Talks Crowdfunding Caution During COVID-19

Adam Kaufman: Obviously we are in unprecedented times. For some time now I’ve been saying that we would be approaching a recession at some point, although nobody expected it to look like this, or for a health pandemic to kick it off. Now it’s happened everyone is having to shift their focus. I think first and foremost you have to look at what you have in your current portfolio and what’s performing. A lot of the timing regarding the virus is so unknown that it’s hard to look forward and see the light at the end of the tunnel, what the impact could look like and — at a property level — what rent collections will look like. So I think taking a pause, monitoring what you have in your portfolio, communicating with investors and being transparent is very important; you don’t want to be overly optimistic or overly confident. It’s your responsibility to be transparent. It’s a pandemic and everybody’s affected.

How’s your portfolio looking, thus far? 

It’s still a little bit soon to tell. The month of March is expected not to be as bad as April or May so there’s still a great amount that’s unknown, but with that said, we’re monitoring our situation very closely. We go back to our underwriting, and what we do on every property is to underwrite on the more conservative side. We were anticipating a hit to the market — not like this because we couldn’t have expected this — and being responsible in your underwriting and knowing how a market can turn is really important. We’ve approached underwriting that way since day one, and hopefully, that will put us in a better position.

Compared with other crowdfunding platforms, how do you think ArborCrowd is positioned to weather this pandemic?

An interesting thing is happening in the market place right now. This industry was founded in an upcycle and a lot of the people in this industry identify as technology companies. We are a real estate company first and foremost. We underwrite our transactions, we front the capital for our transactions and we write the check on day one, taking on that risk. We move on a deal-by-deal level and focus on where we’d like to invest our money and how — so because of that we are not a facilitator and we are not a technology company. What’s striking to me right now is that the market is on pause because there’s a great deal of uncertainty and a lot of people are waiting to see where the dust settles, but in the crowdfunding space there are a lot of people putting deals out in this climate. We have taken a pause on all new deals; because of our model, we’re able to warehouse our deals and not launch them and we’ve pushed back launching because that’s the responsible thing to do for our investors. Presenting them with a deal in this climate with so much uncertainty is irresponsible, but we’re seeing competitors continue to push deals and trying to gain confidence on the investor side [with the message that] it’s okay to invest and that’s not the case. Nobody knows what’s going to happen.

How are you planning for the future during a pandemic with no timeline? 

Again, we’re able to warehouse our deals and not launch them. There’s so much uncertainty around the timeline of this pandemic so we’re actively monitoring our current portfolio, talking with sponsors, doing our due diligence and communicating that with investors. We don’t really have issues with our properties just yet and we aren’t anticipating any major problems but who knows? This is affecting everybody and those who are more experienced and responsible are continuing that communication and taking things day by day.

What’s the most common question you’re receiving from investors? 

Are people paying rent?

Are they? 

I think for the most part on our properties yes. I think it’s a little bit unclear how forbearance will match up — in terms of the time period — with the moratorium on evictions, and what the relief will be like for both property owners and borrowers.

What advice would you give investors contemplating a CRE crowdfunded investment in the near-term?

Now more than ever it’s important to see that there’s real estate experience behind the platform, and that interests are aligned. Sponsorship is key — what their experience is in certain markets, and how long they’ve been in business so you can see how they can adapt [to downturns]. I also think now more than ever you need to look for detailed information, so what do deal terms look like. Look at the people you’re partnering with and look in detail at the investment.

Can we underwrite a black swan event or future unpredictable crisis in the future? 

I think people will look at the way they take on debt differently. Hopefully this is something that won’t happen again but fundamentally I think there will be some caution around how leveraged you are on the debt side in a worst-case scenario. In putting your investors first, [the market should be] underwriting all possible outcomes and doing the stress analysis for the models to see how they perform.

How are you staying connected with your colleagues during this time?

We use Microsoft Teams and one thing I require in all of our meetings is that people use the video feature. That’s because human connection is so important. Some employees are alone in their apartment and it’s important for them to interact with colleagues and have that routine, and it’s important for all of us to have structure.