Deal To Watch: Unleashing Real Estate Capital

Key Stats:

Summary

At time of publication, October 26th, 2018, Zeehaus has raised $177,151

Summary

Real estate ownership and investment is archaic. Banks, title companies and wealthy entities, hold the power in the real estate market. Few elite parties maintaining control creates three distinct groups of deeply under-served groups in the real estate market:

1. Homeowners: Unable to easily and efficiently access home equity.

• According to CoreLogic in Q1 ‘18, the average US home value increased by about $16,000. The average US household has about $16,000 in credit card debt. 

2. New Homebuyers: Entering the real estate market traditionally requires at least 20% down payment or results in high interest rates.

• According to the US Census, US homeownership has dropped to the lowest rate since the 1960s. 

3. Investors: Investing in real estate requires significant capital, compromises liquidity, and is difficult to diversify.

• Residential real estate investing in small portions is largely non-existent. There are some funds (groups of investments) and commercial opportunities, but direct investing in residential real estate is not known.

Solution

Zeehaus, through a multiphase approach, aims to cut out the middle men and create an efficient, direct link between homeowners and real estate investors via blockchain.

1. Homeowners: Access their home equity to diversify their financial portfolio while retaining ownership and full rights of the property. 

2. New Homebuyers: Zeehaus proposes by cutting out costs associated with middlemen in traditional home financing, new homeowners can get a mortgage for as little as 5% down and pay 20% less in monthly mortgage costs than a traditional mortgage.

3. Investors: Zeehaus allows investment as low as 1% of the home value. Zeehaus’s marketplace, empowers investors with liquidity as they can trade their contract on the property. 

In addition to the above solutions, Zeehaus plans to roll out future products; Title storage on blockchain, opening a mortgage marketplace and community and advertising platform. Essentially it will be an all-in-one real estate management and investment platform.

Members of the community can opt into non-personally identifying email advertising, so they can get cash or utility tokens with emails opened, click-through, and direct responses. Zeehaus is pursuing these markets in the future due to current unfavorable legislation towards blockchain and alternatives to traditional real estate title and title transfers.

Blockchain will Disrupt Real Estate

Blockchain will Disrupt Real Estate

Blockchain technology will disrupt the real estate industry, in the future. Blockchain technology can result in an average of $3 billion annual savings in the title insurance industry according to Goldman-Sachs. Vermont is on the forefront of pushing title documents to the blockchain in the US.

Property records are stored in different formats and locations across the world. Blockchain will enable investors and property owners to bypass conventional middle men and rapidly accelerate transaction times.

Blockchain in real estate will overcome some important issues before the technology can disrupt:

1. Trust: Blockchain technology has not gone mainstream. Many skeptics remain. Blockchain skeptics express concern about blockchain technology to move money without detection, primarily for illegal activity: money laundering, drugs, etc… Analogously, usage of the internet found its foothold in pornography. Great technologies are discovered when people need to be creative. 
2. Regulations: Title registration varies in each country. In the US, title registration is at the county level. Real estate, finance and insurance industry share the top spot in spending on lobbyists. National Association of Realtors was second only to the US Chamber of Commerce in total lobbying dollars. Such a well-organized and funded group will not easily allow laws to change which will cut them out of the business.

Real Estate Blockchain Flavors

Players already exist in this market with a little different flavor, mostly in the commercial space. The core differentiation of Zeehaus’s model is the tokenization of a property. This means taking the value of a property and breaking it into smaller pieces to sell.

Currently the blockchain real estate market appears to have companies focused on either the ownership, rental or records aspect of the real estate market.

The market leaders have raised a total of $120+ million in token sale proceeds:

• Latoken         $32M
• Alt.Estate      $30M
• Propy            $28M
• Primalbase    $26M
• Real              $19M
• Atlant            $8M
• Rex               $7M

Zeehaus’s own company profile focused on non-blockchain home equity market. Zeehaus cites its biggest competitor as Point.com, which enables homeowners to unlock value from their home by selling portions of their home equity to investors.

Other innovative companies in the shared home equity space are Unison and Landed. Zeehaus also mentioned LendingHome, Realty Mogul and RealtyShares. Zeehaus purposely did not include the blockchain leaders above as competitors because they are aware the real estate blockchain market is too immature to rely on blockchain as the competitive advantage and core differentiation.

Why We Like it

1. Next Wave of Innovation: Blockchain is a robust technology which has tremendous potential. Blockchain will disrupt the real estate industry due to blockchain’s decentralized ledger. Much of the transaction costs of real estate are due to archaic, labor intensive systems. In this era of transparency and eliminating the middleman, real estate transactions have many inefficiencies a company like Zeehaus can eliminate. 
2. Market Demands: Home values are rising, and homeowners are staying longer in their homes. Homeowners have few options to extract equity from their homes and investors are limited in investment options. Unlike the non-blockchain equity marketplaces, homeowners can extract cash out of their home more quickly via the blockchain platform. Investors can easily diversify investments in real estate, trade assets and liquidate more efficiently utilizing blockchain technology. 
3. Investment Explosion: Due to the conservative, low tech aspects of the real estate market, venture capitalists are pouring money into ventures like Zeehaus at an astonishing rate. In 2016, VC’s invested $4.6B and if you remove Softbank’s WeWork investment, investment dollars rose almost 50% to $6.5B. While you might be scared off from the dollars pouring into the market, there is clearly no leadership among the startups despite so much startup capital. 
4. Product Robustness: Zeehaus’s executive team has strong experience on the business and technical side. The website and platform demonstrate the quality of the product, the current executive team understands how to build a platform. The team and advisors have the experience to create a sound blockchain platform. The website and platform are slick and professional with strong capabilities already built.

The Founder and Executive Team

Justin Lee, founder and CEO, is a veteran of data and systems. Mr. Lee spent almost 13 years as a manager with Accenture as an architect and designer in the BI, Data Analytics and ERP integration space. He has experience in real estate through personal flipping of properties in which he holds a real estate license in California. Mr. Lee holds a Bachelor of Science degree in Electrical Engineering from Cornell University.

Rounding out Zeehaus’s lean staff is Chris Garrett, COO and Hila Eyal-Shpigelman, CMO. Mr. Garrett joins Zeehaus, most recently from ICO Masters a blockchain consulting firm. Ms. Eyal-Shpigelman brings experience in rewards marketing and social media. The two board members are well versed in operations, finance and networking.

Zeehaus’s obvious gap is real estate experience. According to Mr. Lee, he is actively recruiting a resource from a leading fractional ownership company. The funds being raised will be used to augment the gap in real estate experience at Zeehaus.

Rating

The Recommendation: Deal To Watch

Zeehaus has a strong technical foundation in the immature real estate blockchain market. Zeehaus has built, to the non-technical eye, a robust, dynamic, user-friendly website and platform. Based on the skills and experience of the skeletal staff and two-person advisory board, Zeehaus has done an admirable job of building a platform.

The areas of concern are:

1. Blockchain Legislation: Mr. Lee acknowledges the ability to fully utilize the tremendous power of blockchain is currently limited by the regulations and laws which exist today. While Zeehaus has an impressive grasp on the need for legislative acceptance of blockchain, I did not see any plan to impact such legislation. I would guess, Zeehaus is expecting someone to push legislative change and the platform will be ready once that change occurs.
2. Blockchain Technology: Mr. Lee appreciates the technical ability of blockchain at a deep level, consistent with his college training as an electrical engineer. Mr. Lee’s respect for the potential power of utilizing blockchain may make it difficult for him to pursue imperfect uses of blockchain to achieve Zeehaus’s mission.
3. Product Market Fit: While Zeehaus’s product has significant potential to disrupt the residential real estate financing market, there is no evidence yet of market demand. Bitcoin’s meteoric rise (and fall) in the Fall of 2017 brought blockchain to the mass media conversation. While blockchain technology is starting to mature and find real world application, it has yet to become mainstream and may take time to gain consumer traction, especially in the real estate market where consumers are hesitant to embrace change as it relates to their largest asset.
4. Real Estate Experience: As mentioned in the previous section, Zeehaus is lacking experience in the real estate sector. Mr. Lee acknowledged the gap and informed me he is actively recruiting what sounded like an excellent candidate. Assuming Mr. Lee is successful, it will be interesting to observe if there is any noticeable change, real estate is driven by sales and marketing, one of the weaknesses in Zeehaus’s current strategy.

Mr. Lee understands the current limitations of a pure blockchain position, missteps in marketing and staffing. Hopefully for Zeehaus’s survival the company learns from mistakes.

 Assuming Mr. Lee successfully adds a real estate expert and focuses on marketing, the company’s current $5M valuation would make investing at such an early stage a good deal and one we feel think is a Deal To Watch.