A real estate lesson for our generation

By 2050, 68% of people will live in cities. But who will own them?

When I was five years old, my father left my mother and moved across the country. For years, we barely heard from him; he never sent us money, rarely checked in. I remember my mother fretting about money all the time. Fortunately for us, my mother worked as an architect and was mostly able to provide for our tiny, two-person family.

A younger version of myself, attending one of my mother’s architectural meetings.

For most of my childhood, I watched my mother work really hard — and I watched with admiration — as she designed buildings all around the world. She often took me with her on business trips, where I would hold the tape measure as she scribbled measurements on to blueprints. She would meet with developers and speak to building owners. Although they respected her professional skill, they owned the buildings so they called all the shots. That power dynamic was obvious, even to a little girl like me.

My unique childhood taught me two very important lessons that I have kept with me forever:*

1. Never rely on another person to secure your financial future.
2. Owning buildings can give you power and financial security. It’s best to be the owner.

(*Lest you conclude that I had perfect foresight, you should probably know that I wanted to be an astronaut when I was growing up.)

Moving on Up

When I graduated from college, I moved to New York City for a job on Wall Street. Soon after I started my job, I started saving to buy my first apartment. Back then, a one-bedroom apartment in Manhattan cost about $100,000. I distinctly remember thinking that was an insane amount of money to spend on a mere 600 square feet. (In hindsight, that was a bargain — a fraction of what it would be worth today.)

Turtle Bay Towers on East 46th Street, where I bought my first apartment.

A few years later, I plunked down $255,000 for a small one-bedroom apartment with river views and high ceilings. I did a little cosmetic renovation work on it and then flipped it a year later for $386,000. At the time, that gain felt like a fortune to me, and I used the proceeds to buy a bigger, nicer apartment. (I never should have sold that first apartment, though. It recently sold for $1,250,000. More important lessons I had yet to learn.)

Jumping through Hoops

The profits I earned in Manhattan real estate weren’t atypical, attributable to any unique genius or luck on my part. I’ve watched many friends buy apartments in New York City and realize tremendous financial gains even though they never set out to be real estate investors, per se. They simply chose to pile their money into neighborhoods they saw potential in, understood, and loved. For them, the decision was simple and intuitive. Yet, for most people, real estate investing feels intimidating — characterized by spreadsheets, complicated negotiations, and lots of money.

I’ve spent 20 years working in the real estate investment industry. I’ve also owned many homes along the way. Even for me, real estate investing is not a simple business. Financing structures are complicated. Fee structures are complicated. Leases are complicated.

Real estate in fast-growing cities also comes with a high price tag. For example, today in Manhattan the average condominium costs more than $2 million. Well-priced apartments go to contract quickly and buyers need to be prepared to make offers on the spot. And, 55% of purchases here are all-cash! It’s a market that quickly humbles even the most intrepid real estate buyer.

In New York City, 65% of the population rents. In San Francisco, 56% of the population rents. Both of these percentages have been trending upward.

It shouldn’t be so hard to buy an apartment in a fast-growing city, but it is. I believe that more people should be able to own residential real estate in the cities where they live and work. Rent regulations may provide relief to a few, but ownership is what breeds true financial security.

I also remembered those men who owned the buildings my mother worked on when I was a child — their disposition, confidence, and freedom.

And then I built Compound.

Building Compound

Most people understand that apartment ownership is a worthwhile investment, but very few people have the millions of dollars required to build a diversified portfolio of urban residential real estate on their own. Compound is designed to make owning residential real estate in big cities accessible to more people.

Compound identifies condominiums that are suitable for investment, and then “slices” each property into 100,000 shares. For example, a $500,000 apartment will have 100,000 shares worth $5.00 each. Investors can purchase shares through an SEC-qualified securities offering on the Compound app. Properties are managed and leased by Compound (either to traditional 12-month tenants or as short-term rentals), and investors receive dividends and build wealth through capital appreciation.

For decades, people have pooled their money to buy investment properties. Approximately $840 million worth of condos are purchased by investors every year — and that’s just in New York City. The buyers of these investment condos are typically high-net worth individuals and corporations.

Through our mobile app, we connect individuals worldwide and aggregate their resources to buy investment properties together — because ownership need not be an “all or nothing” proposition. When people come together, they can all participate without having to bear the entire burden on their own.

The Future of Ownership

By lowering the initial capital requirement and streamlining the buying process, we can enables millions of diverse global investors from all walks of life to get onto the ownership ladder. We can enable a generation of renters to become owners without impeding their freedom or saddling them with enormous financial commitments. Most importantly, we can radically reshape the ownership fabric of the cities where millions of people live and work.

Imagine a world where millions of people from Miami, Houston and London can buy bite-sized pieces of apartments in New York City, Los Angeles and London and sell them to people in Dallas, Detroit and Tokyo— with zero stress over finding the properties, managing them, maintaining them, leasing them or eventually even selling them. That’s the future we envision with Compound.

We estimate that our technology has the potential to create over $10 billion a year in new demand in the U.S. alone.

Me, today. (Still wearing loafers.)

Together with my team, we’re building the new American dream, one in which everybody can own a meaningful piece of the cities they love.

******

Compound’s technology connects investors from diverse backgrounds and geographies — who have historically not had access to high-quality urban residential real estate — and allows them to pool their capital to buy apartments in high-growth cities. Compound is a venture-backed real estate marketplace and qualified opportunity zone business based in New York City. Compound is led by Janine Yorio (previously head of real estate at Standard Hotels) and Jesse Stein (previously COO of ETRE Financial). Visit www.getcompound.com.

Some (but not all!) of the talented members of the Compound team.

Notes:

1. Today, 55% of the world’s population lives in urban areas, a proportion that is expected to increase to 68% by 2050, according to the 2018 Revision of World Urbanization Prospects produced by the Population Division of the UN Department of Economic and Social Affairs. The urban population of the world has grown rapidly from 751 million in 1950 to 4.2 billion in 2018. Today, 82% of the population in North America lives in in urban areas. (In Europe 74%, Oceania 68%, Asia 50%, and Africa 43%.)
2. Compound estimates that $840 million in condos are sold to investors in New York City. This estimate is based upon the following assumptions 1) this Bloomberg article which pegged investor-owned condo sales at approximately 10% of all sales in 2018, 2) total co-op and condo sales in NYC of $21.3 billion in 2018, according to this CityRealty report, 3) approximately 75% of NYC apartments are co-ops, 25% are condos according to this PropertyShark report, 4) average sales price of all apartments in NYC of $625,000 (Source: Zillow) 5) co-ops are worth roughly 50% of what condos are worth, as extrapolated from the Q3 2019 Elliman Report