ICO Insight featuring Property Coin

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Property Coin Transcript


 

Adam Chapnick:

Welcome to the show, you guys.

Andrew Jewett:

Thanks, Adam.

Matt Miles:

Thanks for having us.

Adam Chapnick:

Thanks for being here. It's good to have you.

So, first, let's get down to the basics. What is Aperture?

Andrew Jewett:

Well, I'm Andrew, by the way. We started Aperture in 2016 with the intent of focusing on using data and technology to, kind of, enhance the process of acquiring and rehabbing, reselling, distressed properties in the United States.

So, we do two things. We do just that. We buy distressed properties using data and technology. And, we also lend to other smaller fix and flippers. So, we spent a lot of time, a lot of money, building out this proprietary technology system. One that we're really, really proud of. But, it allows us to kind of leverage technology to make the process much more efficient.

Matt Miles:

I would just add to that, Aperture has a super experienced team. So, Andrew and I have a background in investment banking. We also have our third co-founder, has spent his career in real estate. Fix and flip space. And our team on that side has flipped over 3,000 properties in their careers.

We also have a person on the lending side who runs our lending business, who's originated over $10 billion in mortgage loans in his career. And our chief technology officer is a guy who we worked with at Royal Bank of Scotland several years ago. He has built enterprise data systems for mortgages and real estate for Royal Bank of Scotland, for Credit Suisse, and for other major investment funds.

So we're really lucky to have a super experienced team. And, that's what we're doing.

Adam Chapnick:

Yeah, that's interesting. 'Cause as you can imagine, in the world we run in, it's unusual to have someone sitting here who's got this solid, working company, that's got so many people who know what they're doing already. And are doing it. So, that's exciting to hear.

So, okay, what about the coin? Property Coin? Tell us. What is that? And how's that gonna work?

Andrew Jewett:

So, Property Coin, we view it as a growth capital raise for us. As we looked at what was going on in the ICO market back in, summer of 2017, we realized there was a lack of proper secure ties and structured asset offerings that were being brought to the market. And, as Matt mentioned, we're former investment bankers. And, we know how to issue securities. And, these are securities. A lot of noise going on from the FCC about that. And, we've take the view all along that these are securities. And, who better to bring that to market than former investment bankers with a company that needs capital to grow? You know, kind of just the perfect time to do that.

So, Property Coin is a coin that's going to own a fractionalized interest in the portfolio of loans and real estate that we acquire. And, we're going to reinvest profits for the coin holders, with the hope of creating a kind of natural stable price appreciation in the coin.

Matt Miles:

So, just to add to that, I think it's pretty interesting. Because, what we're doing is, we're taking 100% of the net proceeds we receive and we're investing those in real estate and loans that are selected by our team. And so, the coin is backed by real assets. And, a share of the profits also goes to the coin holders.

So, what that would have the effect of doing is increasing the net asset value of loans and real estate owned by the coin over time.

Adam Chapnick:

Got it. Awesome.

Okay, so let's go into, sort of, the specifics of the offering. The ICO itself. You guys have the pre-sale starting soon, right? It's coming up on-

Matt Miles:

On Monday.

Adam Chapnick:

On Monday. Okay. So, any jitters? How's that feeling?

Andrew Jewett:

It feels really good. We've been kind of talking with a bunch of institutions, and some people in the crypto, and traditional real estate space. The National Association of Realtors picked us up, was it a week ago?

Matt Miles:

Yeah.

Andrew Jewett:

Yeah, about a week ago. And, honestly the phone hasn't stopped ringing. It's been really great. So, we feel really good that there's acceptance from the traditional real estate and mortgage space. But, also the crypto space seems to be picking up as well. So-

Matt Miles:

It's pretty interesting, right? Because, you know, we have one foot in crypto, one foot in real estate. And the real estate guys ... I understand the crypto people see a new project, 50 new projects a day and it's almost harder to grab their attention. The real estate guys really understand. And the structured product securitization people really understand what we're doing, and so ... It's been a good reception. We're having a lot of interesting conversations. And, we'll see. I think we're very optimistic.

Adam Chapnick:

That's great. That's better than the opposite.

Andrew Jewett:

Yeah.

Adam Chapnick:

So, what kind of token ... how would you describe ... Whenever people are on, everyone's talking, is it a utility token? Is it a security token? You already mentioned your background lends you to fall fairly squarely on the security side. And it seems like the whole thing's set up that way. That's right?

Matt Miles:

Yes. Yeah, I mean this is, in our view, this is quite clearly a securities token and we've kind of progressed through the whole project under that assumption. We've also, working with the structured finance and securities team, and a law firm that we know really well. It happens to be the largest law firm in the world. So, we've oriented the entire project around securities token. And I think it clearly is. Because the primary purpose of this is a profit motive, right? So, we sell the coin. And we utilize the proceeds from the coin to invest in real estate assets. With the expectation provided to coin holders that they will share in the success of our investments.

Adam Chapnick:

Yeah, so that's fairly, squarely right there as a security.

So, how much are you guys trying to raise? And, the obvious other question is, how many tokens are you making available? And what's the mechanics around that?

Andrew Jewett:

So, in this sale we're trying to raise $50 million. We say in our Whitepaper that we could easily put $100 million to work. But, we want to do this in a measured pace. And grow this platform responsibly. You know, we see a lot of people raising a lot of money and kind of don't know what to do with it. And then they're forced to grow. We wanna do this responsibly.

Look, if the community wants to give us $100 million, we can absolutely put that to work. But, the goal right now is to raise $50 million.

Matt Miles:

Yeah, it's kind of interesting, just to elaborate on that. This corresponds with the opportunity set that we see in the market place right now. We are looking at, our team is looking at over 1,500 properties a day. And, the kind of simple explanation I can correlate that to is, if we bought one property a day on average, we'd be spending $20 million. So, now if you just multiply that through, you can see how easy it is to spend a good amount of money.

And, we also see this as an opportunity to build a large potential ecosystem here. It's funny because, in our loan business it's easy enough for us to ... We actually prefer to retain all the loans that we write. So, if we write loans, we can either keep them until they mature, or we can sell them off to someone else. We'd rather keep everything we write-

Adam Chapnick:

That's unusual.

Matt Miles:

We believe in what we're doing. And that would require, again, quite a lot of capital. So, we almost view, from our perspective, this is an initial sale. $50 million as a target. There's more coins authorized that are not expected to be sold immediately. So, I can nerd out into the weeds-

Adam Chapnick:

You're in the right place man, for nerding out. This is your nerd zone.

Matt Miles:

Okay. So, the way that this works. We call it the Property Coin Community. What we mean by Property Coin Community is, there's a legal entity called PCX, LLC. PCX, LLC is going to own all of the loans and real estate in coins. And, so every month we're gonna tell everybody, "Here's all the assets owned by PCX, LLC. Here's some fun pictures of projects in projects. Here's how much money was made and lost." We wanna be super transparent about fees, expenses, where money goes, why? How much assets have we bought? So, the coin holders own all the assets of PCX, LLC. Including unsold coins. So, if we subsequently sell additional coins, the community has that funding available to go buy additional real estate. And it's contemplated that we will do that down the road.

Andrew Jewett:

And one more thing to add on that front. We're not retaining any coins. The management team retains absolutely zero coins. We've actually kind of passed the hat internally, and 100% of our employees have purchased coins. With their own money.

We wanted our incentives to be really aligned with the token holder. So, the only way that we make money, is if we create profitable trades and loans. So, we're not just in this to hold tokens and sell them later for a profit. We think that's the best way for our business to run. Is to align with-

Matt Miles:

Yeah, we think that's kinda more aligned with a securities token nature. Or, a corporate finance use. So, literally 100% of the net proceeds raised will be used to invest in loans and real estate.

Adam Chapnick:

Well, yeah, from a governance stand point, that's a lot cleaner. And, people definitely like that a lot more. For sure.

So, you had said the coin holders own the LLC. Is that correct? So-

Matt Miles:

They own, like, the economics of the LLC.

Adam Chapnick:

Yeah, got it.

Matt Miles:

So, the way that this works is ... You know, it's really funny. We think this is really interesting. If you contrast this versus other coins, right? So, I'm not picking on any coin, but, just to talk about Bitcoin as a contrasting example. So, the value of Bitcoin is derived based on the market demand for Bitcoin. It doesn't own any assets. There are no assets owned by the Bitcoin community that are producing profits. And, when somebody issues an ICO right now, the issuer of the ICO might have development objectives, product creation objectives. However, in most cases, they actually have the rights to utilize most of, or all of, the funds raised for primarily those purposes. But, maybe it doesn't cost that much.

So, a key difference here, versus ICO's, and versus traditional Bitcoin, kind of, as an example, is that we are going to deploy 100% of the net proceeds into an investment. And the purposes of those investments are to earn profits. A portion of which is retained by us as issuer. And a portion of which is retained by the coin holder community to buy additional assets.

Adam Chapnick:

Got it.

Okay, so let's shift to something that sounds very mysterious and exciting. And that is, Sherlock. I know it's under wraps. I know it's proprietary. I know it's very secret. So, what can you tell us about Sherlock? And, why does it matter?

Matt Miles:

So, this is our proprietary software that you're asking about. So, what we can tell you is ... Look, we have super experienced people who have been thinking about the real estate space for a long time. And, where do you find an edge? And, we think we have a few. And, we have a super talented chief technology officer who helped us build out a really, really interesting piece of software. And, what this does for us is ... it's a full integration. All the way from our interactions with the customers on our website. Every piece of data that you collect in an interaction with a real estate broker, a potential buyer of a house, a potential customer on the loan side, comes into our system. All the work flows are managed within the system. Our employees log in to perform their tasks there. Every piece of data touching any of those actions is captured and retained for analysis. All the way through disposition of the loans and homes. Anything you do-

Andrew Jewett:

Yeah, unfortunately that's kind of our secret sauce. So, we can't share too much about it, but-

Adam Chapnick:

What does it help you be better at?

Andrew Jewett:

So, two things. On the processing of any asset, it allows us to be much more efficient. It allows us to have fewer bodies that can manage more properties. Or, more loans. And originate those loans, and acquire those loans faster.

Adam Chapnick:

That's great.

Andrew Jewett:

And, it also kind of gives us an edge in the acquisition. Running analysis, finding the properties that we like to invest. This where we're getting into a little bit of the place where we need to kind of keep it a little bit secret, but-

Adam Chapnick:

Oh, don't tell us how. Just tell us-

Matt Miles:

But, I'd like to mention ... you know it's kind of funny. As we were setting up this business, and you have, sourcing of assets, management of assets, writing loans, managing loans, accounting, data analysis. And if you're buying things off the shelf, you're gonna end up with five or six different systems. Then many of these vendors you have to pay monthly large amounts to. None of the systems talk to one another. Nothing's proprietary. And so, as we kinda sat down in the design of our business, and we decided to make the investment, to integrate everything all in one, singular system, which is ours from a proprietary stand point.

Adam Chapnick:

It's exciting. I'm sure that took no small amount of energy and time.

Matt Miles:

Yeah, exactly.

Adam Chapnick:

So, why is blockchain even a reasonable thing to get into in the real estate industry? What gets better when you use it?

Andrew Jewett:

Well, I think the real estate industry has long lagged behind the advances of the technology industry.

Adam Chapnick:

In every way.

Andrew Jewett:

In literally every way. And, so I think where we see blockchain as being really powerful, is in two fashions, right? Literally the distributed ledger of ownership of assets. And I think that's applicable to real estate in a huge way. Public records. Who owns a property? Who owns a loan? That, in and of itself is a huge market.

Where we're trying to focus our efforts on is, who owns a security? And what implications is this gonna have on the securities market? Like I said before, we saw a huge gap in what was being offered in the ICO world, versus what was being offered in traditional structured finance world. And, we want to bring those two together. And, kinda create the next generation of structured finance, corporate finance, asset finance, to the blockchain.

Matt Miles:

And, I'll just say as well ... You hear, there's a lot of discussion points around tokenization of assets, right? And distributed ownership of assets. And, we thought, wait a second. We have an application for that. We have an application, which just happens to be in the largest asset class in the world. And, happens to also coincide with what our business does. And, isn't that a cool thing to pull together?

And so, what Property Coin allows people to do, is have a percentage interest in a professionally managed pool of real estate assets on the blockchain. And so, we're super excited about how that comes together.

Adam Chapnick:

Is that different, in meaningful ways from the other ICO's that are floating around from the real estate market?

Matt Miles:

I can take a first stab at that.

Andrew Jewett:

You got it.

Matt Miles:

So, a lot of the real estate projects that we've seen ... I'll say they fall into a handful of categories. One is, titling. Who owns the property? Who owns the loan? I think that has a really good use case. Some of it happens to be in terms of, easing friction across cross border transactions. We've also seen others that also say, "Buy into our ICO and give us a whole lot of money, and then we're gonna go pick some properties that you can invest in part of those properties yourself." Not to pick on those strategies. Some of them are more useful than others, in our view. I don't see a lot of teams that have a proper operating business, or background of expertise in those things that they're doing.

So, the titling, the cross border transactions, all that stuff? That's fun. And that's different from what we're doing.

Adam Chapnick:

Yeah. Super niche.

Matt Miles:

Yeah. as far as investments in real estate, I think I prefer our method. We have a team that's dedicated. And spends our entire day selecting investments. And managing investments. And it takes a real skill set. It's not easy to do. It's easy to do wrong, actually. And, so that's one key differentiator.

The second thing is, we are managing the portfolio of assets. So, if somebody just sends us their funds, we do everything else. You just look at the statements telling you about our activity. And, looking at the pretty before and after pictures. And then you sell your coin one day.

Adam Chapnick:

Yeah, I get it.

Well, Aperture definitely has the bragging rights of an established track record. So, that sort of speaks for itself. That's terrific.

Andrew Jewett:

Yeah. Thank you.

Adam Chapnick:

Well, Matt Miles and Andrew Jewett, thank you so much for being here today. The co-CEO's of Aperture. We loved having you. Thanks for taking your time with us.

Andrew Jewett:

Thank you.

Matt Miles:

Thank you. Appreciate it.

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