Ben Miller - Forging Technology into Real Estate Investing (Part 1) (#19)

“Fundrise will be the Amazon of real estate investing.”
Ben Miller

Bio

Ben Miller is CEO and co-founder of Fundrise, the leading online real estate investment platform. Now with over 100,000 active individual investors and more than $1 billion worth of equity under management, Fundrise has made high-tech, low-cost real estate investing available to everyone. Founded in 2012, Fundrise is on a mission to build a better financial system by empowering the individual.

With over 20 years of experience in real estate investment and development, Ben Miller’s responsibilities cover day-to-day management, real estate investment oversight, and corporate finance, as well as setting the long-term strategy and goals for the company. Prior to Fundrise, Ben was managing partner of WestMill Capital Partners and President of Western Development Corp., one of the largest mixed-use real estate development companies in the Washington, DC metro area. A graduate of the University of Pennsylvania, he sits on the board of National Center for Children and Families.

Show Notes

Current Role

• Lead long term strategy road map and oversee asset management and senior leadership team (3:40)
• Ben Miller sees himself as the person that “pushes” at the company that takes people to their limits and drag people out of their comfort zone (4:30)

COVID 19 Issues

• Human tragedy (6:20)
• Believes crisis is more like 2008 as it will be a debt crisis, but much more serious (7:55)
• Since Yesterday (book about Great Depression) (7:25)
• Demand Shock causes deflation (7:35)

Origins

• Ben Miller grew up in DC (8:35)
• Dad is Herb Miller, one of DCs greatest landmark developers- Western Development (8:50)
• Dad is in “his own head” quite a bit (9:45)
• Went to UPenn yet by Jr. year he preferred going to work (10:20)
• Interned at Lubert Adler (11:45)
  • Sharp edge view of properties (11:30)
  • Alignment of interests- Win/Win relationship (11:45)
  • “Organs in the game” (12:40)
• Economics Major (12:55)
  •  Macro understanding needs to be there to understand opportunities (13:10)
• Mother is opposite of Dad- a skeptic (14:05)

Career Arc

• Ben Miller joined Western Development
  • Early on wanted to join his Dad (15:00)
  • His Dad is absolutely relentless- indefatigable (15:20)
  • Dad recruited him after Lubert Adler (16:10)
  • Put “talented person” “over their head” and to “sink or swim” (16:45)
  • Grew into role of President (17:40)
  • Gallery Place (18:00)
  • Redevelopment of Georgetown Park (18:15)
  • Sources of money were the most distressed in 2008 (19:00)
• Left Western in 2009 to do small scale retail (19:35)
  • Buy in emerging neighborhoods in DC (20:00)
  • Looked in LA, Brooklyn, Detroit, etc. (20:15)
  • Reversion to the mean of city redevelopment (20:40)
  • New generation wanted to live in “viral” places (21:20)
  • Those neighborhoods price comparable to high end neighborhoods (21:30)
  • Maketto– 1351 H St. NE (22:05)
    • Raise money for large scale properties available (22:30)
    • Small deals needed to be from F&F and individuals (23:00)
    • Problem of how money flowed into real estate (23:25)
    • Wealthy people never heard of H St. NE (23:45)
    • Why can’t I raise money on the internet? (24:20)
    • Why go through the agony of the first raise on the internet? (25:00)
    • “Meeting with the SEC- They thought it was hilarious to raise $325,000 on the internet” (25:40)
    • Spent a year with the SEC to organize this opportunity with “Marty Dunn” former head of SEC to help (26:15)
    • Kickstarter was an online donation- not an “investment”(26:45)
  • Jobs Act of 2015 was the evolution of this drive (27:45)
    • Previous law (28:50)
      • Securities law in 1933-34 (29:00)
      • Regulations had not evolved too much and did not anticipate the internet (29:25)
      • Public offering with an Initial Public Offering or a Private Offering without any public disclosure whatsoever (29:45)
      • Accredited Investor requirement (30:30)
• New law
  • Regulation A (31:30)
  • Several exemptions that now addressed the internet (32:00)
  • Marty Dunn (Referred to him by securities experts) (32:30)
    • “Knew the answer” (33:20)
    • He was interested in helping Ben and Fundrise as a curiosity (33:40)

Fundrise Evolution

• Fundrise began through the process of the SEC approvals (34:30)
  • CTO and General Counsel joined in 2012 (35:15)
  • Extraordinary abilities (35:30)
  • Invent new models for securities (35:45)
  • Went from “novel to invisible” (36:00)
• “Focus on the synapse. The nexus of different industries. For Fundrise it is the intersection of consumer technology, securities innovation and real estate.” (36:30)
  • Consumer technology- Product people are the people who figure out how it should work (37:00)
  • In RE it is what the developer does (37:45)
  • Putting real estate with technology is “strange” such that few real estate people go to tech conferences (39:00)
• Fundrise did not have “product market fit” initially yet Ben kept at it relentlessly (39:45)
  • Thought it was the right idea (40:25)
  • Wanting to solve a problem (40:40)
  • “Pushing the flywheel”- grinding the wheel initially and then it “breaks free” (41:15)
  • Acts as a barrier to entry (42:00)
• Scaling the business took time (42:50)
  • Create an alternative system (43:20)
  • “Don’t know how hard the world is” but didn’t know better (43:45)
  • Steward to the idea- don’t have an option but to move forward (44:15)
• Competitors (45:00)
• Fundrise first in 2012 (45:20)
  • 2014 competition arose. (46:40)
  • 2015-16- there were over 100 companies (45:30)
  • By 2023 he thinks only 3 companies will be left (45:50)
  • Didn’t evolve like they should have (46:05)
  • Fundrise evolved every 18-24 months (46:20)
• Fundrise chases consumers’ desires (46:45)
  • Raising for deals only early on
  • Moved to eREIT model in 2015 (47:10)
  • Look at Real Estate Private Equity model and emulated structure (47:30)
  • eREIT (trademarked) (48:10)
  • RE guy had a certain idea about online should work but was wrong (48:35)
  • Investor is not “deal” oriented (49:20)
  • Let reality tell answer, which was not “deals” but consumers wanted something else (50:00)
  • Believes 2020 pandemic will wipe out competition (51:10)
  • Different than any RE Equity Fund (50:30)
  • Industry bias and Structural bias
  • Ontogeny recapitulates Phylogeny (50:50)
    • Nature of something recapitulates structure of something
    • Reward middle men in fund model (51:15)
    • Players involved make money in fees and promotes (51:50)
    • Investors can lose while sponsor doesn’t lose much (other than time) (52:00)
  • 20,000 deals- sees 19,500 conflicts of interest (53:15)
• Portfolio of Investments (54:00)
  • Internet dictates how we function (54:15)
  • Low fees, low costs- Race to the bottom and scale is race to the top  (54:45)
  • RE Private equity is fee driven and the internet does not permit this structure (55:10)
  • As Fundrise gets to scale, PE funds cannot compete (55:45)
  • Disrupt PE firms (55:55)
  • Fundrise will be the Amazon of RE investment (56:30)
  • Most RE professionals focus on IRR (57:10)
    • Tech business is a different growth rate (57:50)
    • Need leverage and speed to achieve higher yield (58:25)
    • More of a trade to a PE firm (1:00:15)
    • Leverage is the key to RE yield (58:50)
    • IRR not a construct useful for investment (1:00:30)
  • Investing for 30+ years (1:01:15)
  • Vanguard strategy (1:01:30)
    • Owned by its investors (1:02:00)
    • Jack Bogle founder (1:02:20)
  • Good long term investment (1:02:35)
  • Investment buckets (1:03:30)
    • Debt or Structured Debt- Mezz and Pref. Equity (apartments mostly) (1:04:20)
    • Focus on basis of below replacement costs and the “smile” states (1:05:00)
    • Development focus- more risky but no debt- all equity (1:05:45)
  • Antifragile, Nassim Taleb (1:07:15)
    • Barbell strategy (1:07:30)
    • Grow from a shock and make you stronger (1:07:55)
    • Investment strategies to prepare for “shock” (1:08:15
    • In midst of crisis, sitting on cash for investment (1:08:40)
    • Worst at the top of the market, but ready for opportunity in crisis (1:09:15)

Postscript

• Conversation with Tom Amos (1:10:30)
  • COVID Crisis discussion (1:12:00)
  • Implications on savings accounts (1:12:30)
    • Consumer spending down (1:12:50)
    • 30-40% of checking accounts are going up
  • Fundrise offers other options for investment as an alternative to spending (1:13:30)
    • Inflation hedge
    • Real estate is a long term investment (1:15:00)
    • Reduce the entry cost of investing in real estate (1:15:30)
• Consumer economy (1:16:10)
• Recourse Lending- How it has changed (1:16:30)

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