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May 31, 2021 | Property for the People

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Imagine if, for a lousy hundred bucks, you could become a real estate investor. Own a piece of a property. Collect income. Be a rentier capitalist landed-gentry dude. And stop watching the endless parade of housing profits pass you by. It’s a Millennial-Gen Z dream come true.

Enter Willow.

“Property for the People,” says the butter-slick site.

We believe everyone deserves the opportunity to invest in real estate and have access to sustainable wealth creation. We enable this through PropSharing. PropSharing allows you to purchase fractions of real estate for as little as $100, and create a custom portfolio of properties to buy and sell as you please. PropSharing elevates the real estate investing for everyone; no middlemen, no costly barriers – and you don’t have to be a landlord.

Willow is largely the creation of Logan Yergens, is headquartered in Toronto, and has recently launched after securing initial capital through crowdfunding. The appeal is obvious. This is a country where two-thirds of citizens cannot afford to buy residential real estate, based on current incomes. House prices have gone nuts. Windfall, unearned gains have been showered upon owners. It takes decades to save down payments and younger buyers have been largely locked out. FOMO is raging along with the hormones of nesting families. Willow may not give you a backyard, but it does hold out hope.

The pitch:

PropSharing allows investors to buy and sell shares in property the same way they do the stock market. Properties are split into shares and offered for sale on the platform. Legal ownership is standardized and properties are managed by professional property managers. Participants can build a custom portfolio and trade ownership anytime on the exchange.

PropSharing is the barrier buster which allows everyone to enter the real estate market. It empowers the individual, not the middleman. It grows wealth in real estate whether an investor owns their home or not. Willow created PropSharing by building a platform that solves the complexities of real estate. Now the asset that makes so much sense on paper, makes sense in real life.

Is this a good idea? Does it fill in the missing gap in an investment portfolio – residential property – while giving jilted prospective house buyers a slice of equity? Is this new form of ownership the legitimate, inevitable future of real estate? Are the founders – Yergens, Michael Hibberd and Ray Johannsson – geniuses? Or is this just another way to separate house-horny kids from their savings, which would be better stuck in a TFSA?

Full disclosure: in researching this post I reached out to Willow for more information, background and context. The company did not respond. (Update, May 31, 4 pm ET – a company official contacted me by telephone to offer information now incorporated into this post. Willow’s subsequent statement is published below.)

Since nothing happens in the world of publicly-offered securities without being recorded, the Offering Document filed with the Ontario Securities Commission offers some interesting information. It indicates Willow’s initial funding ($1.3 million) came from crowdsourcing. Those who bought in were not, according to the document, offered common stock (only preferred shares) and $569,000 (43%)  of the offering amount went to administration costs and salaries for executives and developers. There is no indication in the document of the amount the principals invested personally. Maybe that’s smart. Perhaps it’s telling.

By the way, Yergens’ background includes being a researcher for mutual-fund selling Assante Financial and also a financial service rep for fund company CI. He appears to have learned a few things along the way, since Willow will earn money by collecting a fund-type MER of 1% from all investors, as well as a transaction fee and a real estate commission on properties.

Speaking of properties, this lies at the heart of Willow’s plan – to offer investors exposure to actual real estate. So, are there any addresses? At the moment there’s no public indication of assets held, but there is this explanation of how Willow intends to acquire them – using 100% financing and OPM (other people’s money):

We negotiate property purchase agreements which are conditional on a successful crowdfunding campaign, eliminating the need for Willow to use our capital to acquire properties. 50% of the capital is raised through equity and 50% is obtained via a mortgage. The equity portion is raised through crowdfunding on our platform. A total of 10,000 limited partnership units are sold, equating to 100% ownership of the property. All 10,000 units must be sold within an agreed upon timeframe in order for the acquisition to go through.

Also of interest is that Willow received a $30,000 payment through the Canada Emergency Business Account (Covid funds), of which it gets to keep 25%. Most of the additional million in seed money came from nine investors. They appear to be motivated in part by the founder’s suggestion that Willow can launch an IPO (initial public offering) and be worth a gazillion in 2024-5.

Maybe that will happen. Possibly not. People investing in a start-up like this, even with a modest initial amount, know the risk and weigh it against the potential return. Fair enough. The Willow guys did well to crowdfund their needs.

But whether this is a legitimate asset for unsophisticated investors is another question. Willow units will not be publicly traded and therefore be illiquid outside of the platform. Currently there’s no indication of what hard assets, exactly, any investor would own with their one 10,000th LP share. Meanwhile anyone can purchase units in a real estate investment trust (REIT) which are 100% liquid, trade on the open market, pay established returns and own iconic office towers, malls, apartment complexes and industrial plazas with huge income streams.

Maybe you should start there.

About the picture: “My husband and I are both huge fans of your posts, appreciate the wisdom you give, and love the dog pics that lead them,” writes Mel. “Here is our Choc Lab Stella. Currently 8 years old,  living in North Vancouver. She’s a true goofball.”

Statement from Willow:

As referenced above, Willow did not respond to a request for information prior to this post being written. As a result many facts were taken from its Offering Document, filed with regulatory authorities. After this post was published, co-founder Mike Hibberd was in contact by telephone, and subsequently by email. Below are his comments. – Garth

  1. Statements that Willow uses blockchain.
    • Willow does NOT use blockchain technology whatsoever.
  2. The company is the creation of Logan Yergens.
    • Willow has 3 co-founders, Logan Yergens, Ray Johannsson, and myself.
  3. Willow did not initially respond to a request for comment.
    • We would appreciate you remove that statement as well now that we have been in contact.
  4. The statement that $1.3M was raised through crowdfunding.
    • The majority of our $1.33M round was raised from high net worth, sophisticated investors like our lead investors the Hardens. These investors did extensive due diligence, including reviews by third-party counsel, and negotiated the terms of the round. The crowdfunding investors got the benefit of extensive third party due diligence as a result. Less than $300,000 was raised through crowdfunding.
  5. The statement that no equity was offer
    • This has no basis. All investors in that round received equity. As per the above, not only did investors get equity, but they got equity on some of the best terms offered to crowdfunding investors in Canadian history. The Hardens as our lead investor sit on our board and have oversight and protections put in place for all shareholders. These terms include, for example, protections against future “down-rounds” whereby if we raise money at a lower valuation shareholders in that round get additional shares as if they invested at the lower valuation. The shares are Preferred Shares which are consistent with North American Venture Capital Association industry best practices.
  6. The statement that half of the money went to administration costs and salaries for founders.
    • This has no basis. As per the offering document you referenced, administrative fees consist of less than 4% of our use of funds, and our executive salaries consist of approximately 15%
  7. The suggestion that founders have not invested themselves
    • Also included in the offering document you reference is the disclosure of my investment in the company prior to our Seed round. Beyond that, I can advise that the founders have put virtually everything they can into this project. Investments from founders and their immediate families total approximately $250,000 to date. Investments from friends and non-immediate family bring that number much higher.

Additionally, regarding fees and the competitiveness of our investment vehicle, Willow is drastically undercutting the competition. We reduce transaction fees for owning an investment property by over 80% and allow investors to build a custom real estate portfolio for less than the cost of the average mutual fund in Canada.

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May 31st, 2021

Posted In: The Greater Fool

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