Matthew Sullivan is a pioneer of the security token industry. He’s CEO of QuantmRE, a platform where homeowners can tokenize a stake in their homes in exchange for loan-free cash.
This incredible business model could revolutionize the way we think about home ownership. But it undoubtedly leaves homeowners and investors alike with lots of questions. I ask them all on today’s show, and you’ll be impressed with Matthew’s answers. This multitrillion-dollar industry is low-hanging fruit for the digital security industry [19:10].
Long-time listeners know Thanksgiving is my favorite holiday. So in an effort to keep my podcast short this week, I don’t have an educational segment. Happy Thanksgiving! Enjoy your family, food, and football—and thanks for being a listener.
- Rant: Avoid junk cryptos… invest in this digital asset instead [00:40]
- Guest: Matthew Sullivan, founder and CEO of QuantmRE [19:10]
Wall Street Unplugged | 697
How tokenization is revolutionizing home ownership
Speaker 1: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on Main Street.
Frank Curzio: How’s it going out there? It’s November 27th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines and tell you what’s really moving these markets. You know, we launched our Curzio Equity Owners token about six months ago called CEO token. Gave investors an equity stake in Curzio Research. And since we launched, because the company we used to help launch the token does a lot of the back office stuff creates the token, they’re called Securitize. They published a press release saying that we’re the tenth company to successfully launch a token on their platform. So when they sent out this, basically AP wires, it really had an amazing effect on our business and the response has been unbelievable. And Securitize actually is using our token as a case study on their website, meaning that anyone looking to launch a security token through Securitize, and basically offer an equity stake is going to see our company and exactly how we did it.
Frank Curzio: And it’s pretty cool that they chose us. And I know why they chose us because a lot of people that are launching are usually start up companies, and they’re going to take all this money and they’re going to say, okay, this is what we’re going to do. We’re doing it. Right. We have an existing company, we have a brand, we have a good management team, we generating money. So it puts us ahead of a lot of other companies that will pick whatever, whether it’s a cloud, whatever it is, this massive market that they could scale, but yet in reality it never really works out that way.
Frank Curzio: So the fact that we have an existing company where we really could have chose to raise money so many different ways, and we chose this platform, it just adds credibility to it. And it’s given us a ton of attention because Securitize is really blowing up right now with investments from Ripple, Coinbase, Bitco, they’re premier company now, they’re the premier company in this space.
Frank Curzio: And they also have partnerships with tZERO, OpenFinance, SharesPost. So it allows us to really have great contacts with these people as well. And we’re starting to see lots of companies reach out to us. Basically just launching their own security tokens, which is really cool. And even a top company in the security token industry are reaching out with us to do deals. So that was something I didn’t anticipate, launching this, which is pretty amazing. But if you’re looking at this industry and how much it’s grown, especially since I came up with the idea of launching a token about 18 months ago. When I first was thinking about it I was like, whoa, you don’t know if you’re going to be an idiot or a genius. You’re not too sure. Now they say, “Oh, you’re a pioneer.” It’s not pioneer. Just seeing an idea that I thought I really believed in. And just to see the growth in this industry, it’s incredible.
Frank Curzio: Next year security tokens are going to debut in Japan. You have their largest brokerage firms Nomura, Daiwa, Kabu. They’re taking part in a launch, which is going to focus basically on tokenizing real estate. And what does that actually mean when we say tokenize, and please stay with me here. It’s very, very important guys. I’m going to try and make you a ton of money. When you tokenize an asset, it’s basically selling off a piece of it to investors. That’s all it is. If you look at an IPO, that’s what IPO is, right? They’re selling whatever, 10%, 15%, 20% to the market and they still own all of those shares. And based on that 20% of how it trades on the New York Stock Exchange, NASDAQ determines the full value of the company. It’s the same thing here.
Frank Curzio: But why does it make sense for bond offerings? Why does it make sense for real estate? It’s because these are illiquid assets. For example, let’s say if you own a $10 million property. You’re sitting on it. Yeah, you can collect rents or whatever it is, but you really can’t unlock the value of that, right? It’s an illiquid asset unless you sell the entire property. But maybe you don’t want to sell the entire property. Maybe you just want to spin off 20%. You spin off 20% to new investors through a security token. Again, similar to a traditional IPO where companies are selling a piece of their company, and you would generate $2 million. Again, using simple numbers here, which is a good thing for you because you’re liquid now. You just got $2 million, and investors they are happy. They own a piece of, prime real estate. Well, I would get paid a dividend on that investment and the value of that real estate would be determined through the token, right? Which is going to trade on exchanges, and a ton of these exchanges are being launched now.
Frank Curzio: World Chess, which broadcast the World Chess Championships. Chess is making a massive comeback, both of my daughters and in chess classes. I mean it’s amazing how many people are playing chess these days, which is great, because I learned to play chess at a very early age. It was a good 25 years went by when I didn’t play. Now, at least in my neighborhood, kids are playing, I’m seeing TV programs all the time about chess. It’s making a massive comeback. But World Chess, they’re the ones that broadcasted the World Chess Championships on TV, and they’re announcing a hybrid IPO. So it’s going to be a security token combined with a traditional IPO later on. So the security token comes first, where credit investors can transition they’re tokens or their investment into shares when the company does IPO, or they can sell those tokens to other credit investors.
Frank Curzio: You look at Thailand. It’s launching the first Thai cultural theme park. So the company behind is called Via East West Capital. They’re launching a security token to fund it. Europe suddenly has become the leader in security token offerings. 88 launched this year. That compares to 83 in the US. I know what you’re thinking. Frank, that’s a really small number. It’s small now. In three years these numbers are going to be in the thousands. When you see, oh three or four people, 10, 12? No, it’s getting bigger and bigger and bigger. XIN Group is using a company UPRETS, that’s U-P-R-E-T-S, the Chinese backed tokenization platform, to launch its own security token.
Frank Curzio: So here’s a company, XIN, that owns several condominiums in Brooklyn, New York, and I know exactly where these are. I mean this neighborhood, you couldn’t even walk in 15 years ago and now you’re paying $3,000, $2,500 for a one bedroom, not even a one bedroom, probably a studio. That’s how amazing and how beautiful Brooklyn has become where it used to be there was some areas that were pretty crazy there. Now it’s, hey, can’t afford Manhattan? Go to Brooklyn. And then you can go to Queens and then you’d go to Staten Island or wherever you want. But the last 15 years the valuations of Brooklyn, unbelievable how much they skyrocketed.
Frank Curzio: So basically with this, you would sign up for the token offering for this company. And what they do is they do the KYC, know your customer, AML process, which a typical brokerage firm does, right? You just don’t know that they do that behind the scenes. And then once that’s okay, you can select actually which property you want to invest in. So it’s not just a full investment. I think they own four sets of condominiums and you can look at these properties. There’s different styles, whatever you want to do, you’ll earn a dividend, you’ll receive cash dividends generated from the rental income that’s coming in, and then you could actually trade the token.
Frank Curzio: So you could trade it on the exchange platform and you’ll get a benefit if the value of that property increases going forward, just like you would do with any investment, right? Microsoft, Amazon, as they grow the stock price gets higher and you benefit. Now, these are just a few of hundreds of examples of how companies are turning to the security token market to raise cash and grow the companies. And trust me on this, it’s going to get bigger, and bigger, and bigger. Now, why am I so excited about this? Because I looked at it when I launched this token, and please stay with me. Please stay with me. Okay. And I know it’s tough, I’m going to cover this in a minute, where when you’re learning something new, people, you know they want to learn things after, right? You want to learn about marijuana when everyone’s talking about marijuana. This is a chance to learn about marijuana, yes, I’m using analogy, before it’s approved, while Colorado is just about to approve it, which is the first state. That’s where you’re investing in security token industry right now.
Frank Curzio: Because when I looked at this, and I look the investment banking industry, it’s one of the only sectors I know that’s not been disrupted by technology. And talking about the investment part, right? Not the trading part of the investment banking, right? Where algos account for 80% of volatility in the markets. And if you read my last issue, I wrote about it a couple of issues ago, my CVO issue is coming out Wednesday, I’m talking about it again. How algos are pushing these stocks all over the place, where they should be down 10% on earnings and they’re going down 20, 25% and same thing when they report positive earnings, you should go up five, 7%, they go up 20, 30%. It’s insane what all these program, tradings, computerized trading. Anyway.
Frank Curzio: But when it comes to just the traditional investment banking, it hasn’t been disrupted. And you look at our security tokens, right? A cheaper way of financing a company, where fees are much less than paying an investment bank. You can go directly from my business to the consumer without having the investment bank, which what do they do anyway, right? At this part of the stage, they’re middlemen. They know a lot of people with money who have accounts with them and they say, “Hey, here’s a company we like. Here you go. Pay us.” Imagine if you didn’t need the middleman. You just went straight to those people.
Frank Curzio: That’s what this offers. That’s why it’s a big threat. That’s why so many of these firms are dying to get into this industry and want it regulated. They need to get into this industry because it is going to get bigger and bigger. It just makes sense. Because the investment banks, what happens, they get at least a 6% fee on the money they raise, sometimes up to 10% and they often ask for free stock or percentage of the float for themselves, which they’re probably going to dump at the wrong time in the market and crush the stock. They don’t care. It’s all about fees.
Frank Curzio: Then what about the customer? What about you? I mean, allows you to invest in illiquid assets like real estate, fine art, collectibles. Like a small financial newsletter publisher, that’s on the brink of disrupting a $3 billion industry, which is Curzio Research, if you didn’t figure that out. So not only can you invest in these companies and by investment talking about getting an equity stake. I’m not talking about crowd funding. Crowd funding should be illegal. It’s a joke. Outside of raising money for an individual, a family, a cause, I get it. Someone in need, I get it. But for entrepreneurs using this platform, it’s a joke. It’s like a scam. And that’s what crowdfunding is, is basically saying, “Hey, please fund my company and in return I’m going to give you a few products and services, an early access to these products and services, once we get up and running.”
Frank Curzio: Really? How about I don’t fund you and just buy your product in the market when or should I say if, right, that’s more like it, you’re able to bring the product to the market. I mean, you look at crowd funding, it plays on the stupidity of people and I feel bad. I don’t mean… whatever. Take that how you want and send an email to email@example.com. But it’s true. And a good example of this is Oculus Rift, right? Virtual reality company, we’ve all heard of, who was bought by Facebook for $2 billion. Oculus was on Kickstarter, one of the largest crowdfunding platforms and people invest… I know people email me about this because once Facebook took them over they were like, “Holy cow, Frank, I think I just made a lot of money.” I had like three or four emails, like this is amazing.
Frank Curzio: And then all of them followed up and said, “Wow, I didn’t get anything.” Well, now you know. Well, crowdfunding, they’re not giving away equities entrepreneurs. They’re like, “Hey just keep giving me money. You like this product? Yeah. Hey, I’ll give you the first one.” I mean it’s insane. And it’s funny, because when I go to Consumer Electronics Show what’s going to happen? There’s a massive platform now for new companies. They dedicated a whole floor to it in the Sands, the whole bottom floor to new companies looking for funding and then Kickstarter’s there and all the other crowd funding platforms. I questioned them last year because I’m launching a security token, right? We’re just talking about that last year.
Frank Curzio: And I said, “Do you guys offer equity?” “No, we’re not allowed to. We were going to but…” I said, “So basically, if I want to invest in any of these companies…” Because they want all these startups to go on their platforms. It’s the best thing in the world. You don’t have to give away equity and big deal. I’ve got to give away the product… Someone’s going to be 10 grand, I got to give them a product for three grand and you have access to my products and services on the site. Are you kidding me? Come on. I mean that’s what really what the ICO market is. The ICO, you don’t get any equity, right? These are utility tokens, utilities, which you can only use for this site, which 90% of these companies don’t even have an up and running site. They’re not generating a penny of revenue. You can’t even use it for anything. And yet they can manipulate the value of their token and go higher over a short period. At least you have a, not the token, but the coin. At least you have a coin.
Frank Curzio: They could go on an exchange and buy. But a lot of this is just all… That’s why everything’s turning to the security token market. This whole industry, if you’re looking at crowdfunding, looking at ICOs, they’re all turning to the security token market. And why not offer equity? It’s going to increase the value of the company 5x, 10x. I mean, right now you’re looking at the average private company trades around four or five times earnings, and you guys know what the average public company trades for. It’s around 17 times forward earnings. So if you go public, where’s your valuation going to go? Or an average multiple? It goes a lot higher. So what’s the difference? You’re going to make more money by giving away equity because your company’s going to be valued more. But finally people are understanding this.
Frank Curzio: Anyway, with security tokens, tokenization, we raised $7 million in the summer and now investors will be able to trade this token one year later, which is around July, when we go free trading. And that’s a big deal. To me that’s the game changer. Imagine investing in a private company, which we could’ve did because, hey, there’s a private offering. You’re locked up for an average of seven to 10 years. I mean, how do you sell that which is called the liquidity period? Well, you better hope we get taken over or we do a traditional IPO, which most companies don’t do. So you can be locked up with that money forever.
Frank Curzio: Now, say if our company or a company or industry goes to shit in like three years, like 3D printing. It was the biggest thing in the world. Now, it’s not really gone to consumer level. You should have seen that at Consumer Electronics Show. They had like 50 companies there. It was like a hundred. It started out like 30, then it was like a hundred and then it was like 200 or whatever. Now it’s very small area.
Frank Curzio: They say if that happens, you’re done. You can’t get out of your investment. It’s gone. With our token, the CEO token, you could sell it after 12 months if you want. Of course, we don’t want you to, plan on growing this company forever. That’s a huge advantage to investors. That’s why I look at this industry. It’s like I see like an empty canvas where there’s millions of things I could draw. In that analogy, I mean there’s so many growth opportunities right now. I mean, we’re going to see more security token exchanges get launched, more and more companies are launching their own tokens, not just in the US but international. I mean the growth is exploding. They had mentioned early, 18 months ago. I mean you could have different services you’re providing, you could be consultants in this industry.
Frank Curzio: For us, there’s almost anywhere we can go right now. It’s like the New York Stock Exchange. Over a hundred years old, but 50 years ago, it really started taking off. The S&P 500 became 500 companies. A lot of companies have been going on New York Stock Exchange. Goldman Sachs had their shot to do anything… How do we position ourselves perfect to make the most money. That’s where I feel like Curzio Research is right now. And what’s great is the institutions on the sidelines waiting to come in. So we have a jumpstart in a lot of them. But it’s pretty incredible where there’s an industry for the first time, I shouldn’t say for the first… Maybe the first time in 15 years that you can truly invest in companies during their very early stages of growth. Something like Uber, Lyft, Dropbox, Slack, Pinterest keep going, and so many of these technology companies, they’ve come out by the time they IPO, a multibillion dollar evaluations and most of the growth has gone.
Frank Curzio: And when you’re looking at these companies, that’s the only time most of you, most investors can invest in these names is when they come out on public exchanges. Well, publicly traded, unless you’re hanging out with Peter Thiel or working at Google Ventures. But I want you to educate yourself on this market. I know some of you are not interested at all. That’s usually the case when anyone has to learn something new. I get it. I understand, it’s not easy, but don’t be stupid, because learning about this industry now, is going to put you in a great position to invest in a lot of early stage companies, which is not just how millionaires are created, this is how billionaires are created. I’m not talking about generating 7x returns on Facebook where the stock came out at $38 and it’s trading at $200, or whatever. I’m talking about being able to invest in Facebook at 50 cents, 25 cents… What Peter Thiel invested in the company, where he generated $1 billion. That’s what his return was on a $500,000 investment.
Frank Curzio: I think Peter Thiel might be kicking himself since he sold his stock very shortly after the IPO. If he’d kept his full position today, it would be worth around $7 billion. He’d probably need just to sell half and have a $3.5 billion stake in the company. I don’t know if he’s happy or upset at that because most billionaires want to get richer and richer and richer, so he’s probably kicking himself. He’s not looking at, wow, look at every turn I generated a billion. Let’s go out. He’s probably like, “Holy shit, I can’t believe I sold this stock immediately.”
Frank Curzio: Anyway, so I know security tokens, this sector is relatively new to a lot of people. However, if you own a home and have a considerable amount of equity in it, if you ever refinanced or took out a home equity loan, I want you to pay attention to this interview coming up. It’s with Matthew Sullivan. He was on my podcast about eight months ago talking about this great idea. His company. He’s the CEO of QuantmRE, which is using tokenization to take stakes in your home. So in short, it’s a real estate investment platform that solves a real big problem for homeowners, that’s helping them access a portion of their home equity without using a bank. And listen to this. Without taking on more debt. So QuantmRE, it’s not crazy financing tool. I’m not getting paid by this guy at all. It’s just a great idea in the security token market. it’s not a HELOC platform. It’s not a subprime reverse merger type of thing. Homeowners can get cash for their equity with zero interest and no monthly payments.
Frank Curzio: This is disruptive technology. Considering the residential home market in the US is valued at what? I mean you look at estimates around $30 trillion. So you know what? Let’s bring in Matthew Sullivan to explain his company and this amazing platform, which is currently up and running. They’re actually doing business now and taking equity stakes in homes. And here’s that interview right now.
Frank Curzio: Matthew Sullivan, thanks so much for joining us again on Wall Street Unplugged.
Matthew Sullivan: Frank, good morning. Thank you very much for having me on.
Frank Curzio: Now a lot has happened since the last time you’ve been on, whether it was around seven, eight months ago. I forget. You know what, let’s bring everyone in here and why don’t you give us a quick bio, because you are an entrepreneur, you’ve launched a new company. But why don’t we get everyone on the same page for us, because a lot of exciting things I want to get to. Why don’t we start there, Matthew?
Matthew Sullivan: Yeah, sure. Thanks. I’ve been an entrepreneur for most of my life. So most of my working life, estimating at 25, 30 years. Spent a number of years working with Richard Branson and the Virgin Group in London, which was a fabulous experience. And I came to the US five years ago and set up a real estate crowdfunding company and really evolved that business into QuantmRE, which today is a business that is focused on helping homeowners access the capital that’s locked up in the equity in their homes. And the best part is that we can do that without taking on more debt.
Frank Curzio: So a lot of things there, right? So, you have come up with a way, and I want to bring my example in here, because I actually bought a home for my mom. It was my second home that I bought and the banks didn’t even care how much money I had in the bank. We had just started the company, so my salary was low, starting my new company. We were doing great now, three years of it, but they didn’t even care. They were just like, “Sorry, we’re not going to give you a loan for your second home.” And even though I could pay for it cash outright, whatever time’s over. And I had to do that. So now I’m sitting there with a home that I paid full amount of cash, which I wanted to finance, because interest rates are near record lows. Talk about what you’re doing to solve this problem. Let’s start from there.
Matthew Sullivan: Well, it is a common problem. The problem is people are house rich and cash poor. And the issue is that many of those people, if they’re retired or if they don’t have an income that they can demonstrate, they cannot borrow money. So they’re in a position very similar to you, where they’re sitting on an asset that is worth potentially hundreds of thousands of dollars, that they cannot use to pay for their everyday bills. They cannot use to pay for those remodelings, those improvements, college fees, or to pay off some existing credits. It is a real problem.
Matthew Sullivan: There’s over $15 trillion worth of home equity in the US today and there’s over 14.5 million homes where the owners have more than 50% equity in their homes. So it’s a very widespread situation. It is a problem, particularly if you cannot or don’t want to borrow more money. So the way that we solve that problem is that we have investors who are typically institutions, endowment funds and family offices, who want to buy into the equity portion of your home, and in exchange for that, they’re willing to provide you with cash today that has no interest and no monthly payments.
Frank Curzio: Okay, so no interest, no monthly payments. Now, people listening to this going, okay. Say if you have more than 50% equity, even if you have your whole house paid off, now I’m going to call some stranger to take an equity stake. Does that mean that, are you going to be involved with the process of say if I wanted to sell this home? Or are you going to a process to make sure I maintain this home? Let’s go into that process because that’s what you’re going to skeptics come in and I know that you have good answers for those. So go ahead.
Matthew Sullivan: Thank you. The good news is that this type of home equity contract, as it’s called, has been around for almost a decade. It’s been developing and evolving over the last 10 years, and approximately $1 billion worth of capital is invested by institutions and family offices into these types of home equity contracts every year. So it’s not new. It’s evolving and the momentum and the adoption is really beginning to grow as more and more people understand what this is. The good news is that we’re not going to move into your spare bedroom. So we don’t take an equity, we don’t take ownership in your home. There’s no transfer of ownership, there’s no transfer of title, we don’t have any rights over your home. You as the owner have all of the rights of enjoyment and all of the rights that you had before you took out the home equity contract.
Matthew Sullivan: The way it works is like an option agreement. So, what you say to the provider of the home equity contract is in exchange for some capital today, when I sell my home, which can be as far as 30 years in the future, a percentage of the value of the home and a percentage of the appreciation from today, goes to you, the investor. So what the investor gets is a share in the current value and share of the potential appreciation of the home. So the investor gets to participate in the upside of your home alongside you as a partner, not as a co-owner and not as a lender.
Frank Curzio: So it seems like your company… I see the benefit obviously for the consumers. So how do you benefit where… Banks benefit because if they were going to do a home equity loan, they’re going to charge you 5-6% around an average about now. Around that. Whether they’re going to generate that money off the loan and include it, whatever, in your mortgage and… Whatever it is. So how do you benefit? Is it really focusing on areas that you believe are going to increase in value? Is there specific areas you’re looking at? Do you, and even on a regulatory front, which might be another question after this, I don’t if you want to address it here, is there some states that you could do this and some states you can’t?
Matthew Sullivan: The answer is, yes. So, home equity contracts are available across 31 states currently. There are some states where we can’t offer those services. Typically states like Texas, where there are homestead regulations, which prevent us from exercising any rights that we have from the contract. So, the contract does provide us with certain rights, so if you do breach the contract, for example, if you take out additional debt, if you destroy the home, if you don’t pay your taxes, if you don’t pay your mortgage, we do have the right to step in and do certain things to recover the position. We can’t do that in certain states. So, to answer your question in reverse, there are some states where it doesn’t operate, but currently we’re in 31 states or we are able to offer programs in 31 states and I think that’s going to grow over the next few years.
Frank Curzio: So with the investors, whatever… Say if it’s $1 million home, just say, to use easy numbers, and you’re taking a 20% stake in it for $200,000. If the value of the home goes up, they’re still going to benefit because they own most of the home, but you’re also going to benefit as well. But on that 200,000, do they benefit as much as you or, because this sounds like streaming to me, in terms of the idea, where streaming is the greatest idea for consumers because we get to watch so many different platforms, yet there’s not a company in the world that I think is going to be able to make money on this. Even Disney, because the amount of money you have to spend for new content to keep people on these sites, there’s no company that has made money off it. So what’s the plan for… How do you make money off this? Because I know there’s a huge benefit to the consumer. Where is it the appreciation potential on that? Are you going to pay dividend for the equity… Like, how does that portion work?
Matthew Sullivan: Well, let’s look at it from the investor’s perspective. So remember that homeowner is house rich and cash poor. The investor wants to get a foothold in a $15 trillion untapped real estate investment sector, which is the equity portion of your home. Currently they are not able to participate in the equity in single family homes. They can participate in the debt by buying tapes of mortgage debt, but they can’t buy into the equity portion. So it’s a very attractive investment. So the trade is, the homeowner’s house rich and cash poor. The investor is cash rich and house poor. So there’s the beginnings of a trade. As you said, the homeowner sees the value because they get cash today that they can spend on whatever they wish. There’s no interest and there’s no monthly payments and they’ve got a very long period to be able to sell the home, which can be up to 30 years.
Matthew Sullivan: From an investor’s perspective, they get a share of the current value of the home, but they get an accelerated or an augmented percentage of the increase in value. So, if the house goes up in value by 5%, they don’t just get a 5% increase of their share of the home. They might get 15 or 20% of the share of the increase in value. So what they get when the homeowner sells their home at the end of the contract period, is they’ll get back their original investment plus a magnified share of the increase in value. So, that’s how they get a better return than they would get if they were just buying into the home.
Matthew Sullivan: So, it works for the investor, but remember, the homeowner still owns their equity and it’s not like a reverse mortgage where it can eat into the equity that the homeowner already has. The most important point here is that it’s a fixed percentage of the value of the home. So the homeowner always keeps the equity that they had after they took out the contract. And if the house goes down in value, there’s a risk that the investor could potentially lose money. So it’s very much a partnership where both sides win.
Frank Curzio: Yeah. So that makes it… So what happens if a company decides to… Not a company, say if an investor decides it to sell their house and you have just say a 20% equity stake in it. Do you have any influence in that, because as you know, some homes, I mean people might lose their job and not fix up their homes. Sometimes people let their homes go. And I know you mentioned this I think last time, which is awesome because real estate is the most transparent industry. You can find so much information, you can see how much your neighbors sold the house for. Yeah, you can go there and see the property yourself if you want. I mean it’s really transparent. You know what you’re getting, kind of.
Frank Curzio: But if someone wants to sell the house or sell it at a lower value than you think it’s worth, are you involved in that process or anything? Or how does that work, where obviously with the bank, if the bank still owns a percentage, there’s a lien on it, and it just takes a couple of extra steps? Now that you’re an equity owner, is it difficult or is it easy process to basically sell a home? And can they sell it without having to go to you, where maybe you think you can get even more for the home.
Matthew Sullivan: Well the important thing is that we have an interest. We have protection, because as an investor we have a lien on the property. So there’s a cloud on title. So the homeowner, when they go through the sales process and they go through the escrow process, we’re on title so we know what’s going on. As part of the agreement, you have to keep up payments of taxes and mortgage, and you have to maintain the home. So if you allow your home to go into disrepair, then we have the rights to be repaid for that, as is right. The other thing is, if we believe that you are selling your home at a significant discount to market, you might be selling it to your brother-in-law, for example, then there are clauses in the contract which prevent that, or which allow us to prevent that, or allow us to be compensated for that.
Matthew Sullivan: So there are clauses, because remember these contracts have evolved over the last decade. And the sort of things that you would never imagine people would do, we figured out, because we’ve seen people do it. So it’s not an onerous contract. It’s a very commonsense contract that says we’re now partners in your home. So look after it, pay the taxes, pay the mortgage, and when you sell it, we’re happy if you sell it, at a bonafide price. But if we think you’re selling it off-market to someone who is buying it at a deep discount to market price, then we’ll want to get involved in that.
Frank Curzio: Okay, so when I go to your platform, QuantumRE, it gives me two options. It says, I own a home. Release the equity in your home without additional debt. And it says get started. And underneath it shows how you’ve been featured on CNBC and Forbes. Then a section where it says, I want to invest. It says coming soon. Talk about that part. How could investors… Is it going to be a security token type deal? How could people who invest in your idea without investing in it through their home, where you’re going to take an equity stake?
Matthew Sullivan: Well, there’s two parts to the equation, remember? There’s the trade. So the trade is you have investors that want to buy into the equity. So currently we’re working with institutions and family offices. Our plans, early next year, is to launch a fund that enables retail investors to buy into home equity contracts. So what that means is that retail investors, non-accredited investors, will be able to buy shares in a fund that’s managed by a professional fund manager who has decades of experience, and experience running billions of dollars of institutional capital. And the asset that they’re buying is these equity shares, or these home equity contracts in people’s homes. So it’s going to be the first fund that’s going to be available in the US to retail investors, to buy into this asset class. And then we have plans, later on in the year, to be able to fractionalize those contracts, and make them tradable. So that’s our ultimate ambition, is to create liquidity and tradeability for home equity contracts. So our tagline, if you like, is we’re making home equity, accessible, investible, and tradable.
Frank Curzio: Now this sounds amazing. And could you talk about, which I know you’ve told me a little bit about, but how was demand in this? Because I know there’s a lot of real estate funds. I know you’re going on lots of podcasts. What have others have said in this industry to you? Because I know when you disrupt the big industry, which seems like you’re doing, especially when it comes to banks, there’s laws involved. I mean Tesla’s tried to do it and they said, nope, you can’t sell cars just like Ford, and everybody else does. You have to sell to… I mean even with Uber, there’s just certain cities that are like, nope, we don’t care, we’re not using you. I guess talk about that part. Are you seeing demand for this? For institutions? Were they’re excited about it, and are you seeing any pushback by maybe the banks who you’re going to be competing with?
Matthew Sullivan: Well we’re seeing excitement on both sides. So in other words, from a homeowner’s perspective, with solving a real problem and once they begin to understand how the contract works and the fact that they don’t, in reality, have to make monthly payments and there is no interest, they do have 30 years to sell their home. The conversation with the homeowner starts by saying, why would I do this? And it always ends, why wouldn’t I do this? And so for us that the challenge is education. From an investor’s perspective, there’re becoming more and more aware because, as the years go by, home equity contracts are establishing a performance track record. So we’re beginning to see patterns and we’re beginning to see some very decent returns, which are not correlated to stocks and bonds. They’re low volatility and they’re a solid inflation hedge in a very well understood asset class, as you said earlier.
Matthew Sullivan: So from an investor’s perspective, they’re really beginning to see more interest, and we’re seeing around 400% a year, year on year growth, from institutional investors in this space. Now, from a bank perspective, we don’t compete with banks, because if someone wants to take out a home equity line of credit or a second mortgage, they will. But if they can’t, and therefore they’re not going to be a customer of the bank, we can help them. We can provide them with capital, and they may decide to go back to the bank with that capital and use the bank to invest it in some of the banks investment instruments. So what we’re doing is we’re providing a service to the banks because we’re enabling their customer to lock into capital that the bank couldn’t actually help them with.
Matthew Sullivan: And then you have another group of people who simply don’t want to borrow money. They paid off their mortgage. They like the fact that they own their home outright, and they really don’t want to go back into debt. And so those are customers that would never be customers for banks anyway. So what we’re doing I think is we’re enlarging the industry, we’re enlarging the ability for people to unlock cash, and that’s going to add more capital back to investment advisors, and back into the economy as a whole.
Frank Curzio: So when you say when it comes to the banks… Because you said we never really compete with them because when the banks say no, then they come to you. But, say if I’m in a position where the banks say yes, I would still come to you, right?
Matthew Sullivan: You can.
Frank Curzio: Because I would want to go to you, since I can get money without having to pay interest. So, for me, I do see what you were saying. You’re not really competing with the banks now. But if this thing really grows, I would think this is a much better option than actually going to a bank. Which means banks may want to partner with you, or they could be big competitors to you.
Frank Curzio: But it’s going to be interesting to see how this folds, because if this is as big as I think it is, and you think it is, I could see the banks either wanting to get involved. And I don’t know if you’d had those conversations or not, because I could see this threatening that part of their business going forward. Because again, for me, if I had the option, and say the banks do say yes, I would go to you because why would I want to take a loan out from them and get cash when I have to pay interest on it, when I could do for free from you, right?
Matthew Sullivan: You’re right. And I think what will happen over time, and that time could be the next five years, is it will be a mainstream banking product. When the banks understand more how it works and when consumer education has reached a point where most people understand that this is an option, then absolutely the banks will provide it as an option. But in the same way that debt is very different to equity, and in commercial real estate transactions, the way that debt is structured is always very different to equities, but both are always there. In any commercial real estate transaction there is the equity piece, there might be a mezzanine piece, there’s probably always a debt piece.
Matthew Sullivan: In a home transaction, there’s always debt piece, but there’s never an equity piece. So really this is just an evolution of the housing market by providing the same capital structuring capabilities that you see in commercial real estate. We’re just bringing that to residential. So the banks are definitely going to get involved. What we’re doing is we’re priming the markets for them. We are the head of the arrow as it were. And I think the banks as the cavalry are going to come behind us. And I think that’s going to benefit everybody, because then homeowners have a choice. Is it debt or is it equity? When at the moment they have no choice.
Frank Curzio: Yeah, it is a really cool idea. And I love it. And I’m asking you questions from my point of view for, because if I’m investing in this, and again I have homes. It might sound like I’m grilling you, I’m not. I’m just curious because it sounds such great idea.
Matthew Sullivan: Thank you. No, these are all great questions. I mean one question that you haven’t asked is really what does it cost the homeowner? And there is a charge to the homeowner, which is between three and 4%, and that’s the average sort of charge, of the amount of capital that they release. That’s a once off charge. And so if you released $100,000 then there will be a fee of between three and $4,000 that would come out of the $100,000 dollars that you would get. And there’s also some initial charges, and that’s the fee. And there might be some other charges of around a thousand to a thousand and a half dollars, which would be for things like the appraisal, once the deal is completed. So typically you’re looking at 4-5% as the maximum that you would pay as a homeowner to access that capital. And that’s a once off fee.
Frank Curzio: Yeah, and that’s a once off fee, compared to paying 5-6% annually on that money for probably 15 to 30 years, which is still an amazing deal.
Matthew Sullivan: Exactly.
Frank Curzio: I want to touch base with you on one other thing here, because we talked about your company, but I want to talk more about these industry here. Because as you know, we launch our own security token as well. It’s going to go free trading in July. We became the 10th token on Securitized platform to launch. And we’ve been getting a lot of amazing feedback now. Now that that was released publicly. What do you see as someone who’s been an entrepreneur for over 20 years, 25 years? You’re using tokenization, selling off pieces of assets, illiquid assets. Where do you see this industry say in five, 10 years from now as a whole?
Matthew Sullivan: Well, I think if you look at the logic behind using tokenization for trading, it is entirely logical. If you were to rebuild the share settlement process today, most likely you would use blockchain technologies as the cornerstone technology to do that. Because distributed ledger technologies are ideally suited to share trading and settlement, because it’s the transfer of ownership and it’s the record of ownership. So tokenization is a good thing. We’ve suffered over the last couple of years with this boom bust cycle in cryptocurrencies that’s cast a shadow on what is fundamentally a very solid and very exciting technology. So I think the logic and the reason and the problem that tokenization and distributed ledger technologies is sold, is solid. So therefore it should and it will grow, in terms of adoption.
Matthew Sullivan: What we need to look at though is the pace of regulatory approval, because none of this can operate in a regulatory vacuum. Even though the technology might be superb, might be far better, far faster than existing settlements and existing distribution mechanisms, if we don’t have regulatory approval then we’re dead in the water. So I think over the next five years we’ll see a lot more regulatory understanding of the use and the value of this technology. We will also see far larger players, typically the settling brokers. We’ll see the other market participants that currently are so critical in settlement of shares. We’ll see those come in.
Matthew Sullivan: And so because of that, it will become mainstream. And I believe that there will be a number of ATS platforms, or alternative trading systems, that will be regulated and that will allow more shares to be traded. So effectively you’ll have a multiple number of regulated trading platforms that will create much more liquidity for shares. So I think the outlook has always been very positive. We anticipated that this would take time, but I think in five years time will be a quantum difference, excuse the pun, from where we are today.
Frank Curzio: No, that’s great stuff. I really think this is a disruptive idea. It’s incredible. I’d like to see where it goes. You know, I’m glad you’re sharing this with my listeners on this podcast. And I guess I’ll end with this question, since we covered a lot. It sounds like you dealt directly with Sir Richard Branson. I want to see how it was working with them. What type of guy he is, and if you have signed up to his next flight into space. Because it seems like there’s a rush with Elon Musk’s SpaceX, Jeff Bezos’ Blue Origin. These guys are signing up so many people that go into flights. I’m wondering if you’re one of those people who are actually going to be on one those flights?
Matthew Sullivan: Well, I worked for Richard for about three or four years closely. We worked out of his house in Holland Park. And he’s an amazing guy to work with because he really has this incredible energy that makes you feel you can do anything. In fact, you feel rather embarrassed if for one second you thought you couldn’t. He surrounds himself with some of the smartest, and also some of the scariest people on the planet. And as I worked with some people, that just the level of experience and capabilities was literally awe inspiring.
Matthew Sullivan: So it was a fabulous experience and we met some wonderful people and we did some really good things. It was a great time. Now, I’m a helicopter pilot that suffers from vertigo. So when you asked me about going up into space, the answer is probably no, because space I understand is quite a long way up. So, even though I like flying things that are large collections of moving parts in search of an oil leak, I think my ceiling is probably about 1,500 feet. Anything above that I think it was a complete waste of gasoline. So, I think I will watch from a vantage point, I will wave furiously, and then watch the news. And then cheer on from there. So as they probably a no, to your last question.
Frank Curzio: It might be a good idea. I mean, there’s a lot of billionaires and rich people signing up for these trips, but I’d like to see like 20 or 30 work first before I would ever sign up for one of these things.
Matthew Sullivan: You can’t use it as a networking opportunity. You can’t sit in an aircraft where even if it’s got 30 billionaires, if everyone’s throwing up at the same time, you can’t have a conversation with them.
Frank Curzio: Yeah, that makes a lot of sense. That does. And I’m glad you talked about Sir Richard Branson. I love hearing the back story of some of these people because I’m a big fan of his. So Matthew, listen, we’re in the same industry together. If you need anything on my end, please feel free to reach out.
Matthew Sullivan: Thank you.
Frank Curzio: It’s just amazing to see your success so far and I think is just the tip of the iceberg for you and this industry, and I know we’re going to be talking a lot more in the future. I really appreciate you talking about your company and your idea here on my podcast. Thanks a lot.
Matthew Sullivan: Frank, thanks for having me on and congratulations on all your success with your security token as well, because I know how much work is involved in that, and I know how many no’s you get from every direction. But to get that through, that’s a real achievement. So the kudos is yours.
Frank Curzio: Oh, thanks very much. Thanks very much. And we’ll definitely talk soon.
Matthew Sullivan: Thanks a lot, Frank.
Frank Curzio: Great stuff from Matthew. I love the idea. I think I asked the questions that concerned me. I think he answered them. Yeah, how do you make money? And yes, I’m going to charge a fee, 3-4% fee, which is nothing compared to how much you would pay annually for these loans, which again people don’t even realize, right. Because people are just paying it. People don’t realize when you take out a 30 year mortgage, the first 15 years goes totally to the interest, goes totally to the bank. Very, very, very little goes to equity. The bank makes sure that they get paid their money back. But this is just one of thousands and thousands of ideas. And that’s why, when you look at tokenization, I know that they’re probably going to launch a security token off of this, and you’d really want to get into details of that.
Frank Curzio: But when you’re looking at tokenization of these assets, it’s something that’s in the best interest of everybody. Wouldn’t you want to own real estate in New York City, maybe in Chicago, where you could be an investor in that. Well you can. And then the people who are owning these properties are just sitting there, where they could leverage themselves and take loans off of that, but it would be nice to cash in on some of that and maybe offer the equity stake through tokenization and through security tokens to these people. But I can’t tell you how big this industry has become, especially when it comes to the fixed income side. When it comes to the real estate. These are trillions, hundreds of trillions of dollars of markets globally. And that’s why you’re seeing such a rush to get into this market right now.
Frank Curzio: But we’re just in a pretty cool position, which is nice, which I didn’t really anticipate, where we could see massive growth and it’s going to be a big part of our business. Yes, we’ll publish as well, we’ll always remain publishers. But this is a big part of the business, where even Matthew, it was like, “Hey, you know, you’ve been through this process. It’s very amazing that you’ve done this.” And the fact that we did, and how hard it is, just opens it up where so many people are contacting us. And it is going to provide an opportunity for you to get into ideas like this, which is really cool. Something that you really don’t have access to unless through here. So that’s why for us, one of the things I got to do is we’re launching a new podcast just for the security token industry, not sure what we’re going to call it, where I’ll interview the top names in the space every single month.
Frank Curzio: It’s going to be totally separate from what we’re doing. But I want you to familiarize yourself with this industry, because my job or the reason why you listen to this, you get new ideas, you want to get the real story out there and not listen to the bullshit that you hear on TV all the time. There’s an industry that I’m not just hyping up or saying, Oh, Matthew doesn’t pay me a dime and making a dime or anything off of that, but I put my money where my mouth is. I base my reputation and my company on this idea. So, that’s how much I believe in it. And I think it’s going to be a great opportunity for you guys to make a lot of money on it going forward.
Frank Curzio: So more details to follow about the podcast. I just wanted to tease that a little bit. But guys, I want to keep this short and sweet, no educational segment. Tomorrow is Thanksgiving! If you’re a longtime listener, you know this is my favorite holiday. And you probably have family coming over, and many of you are going to be traveling. It’s going to be stressful. I get it. I understand. But don’t forget to put things in perspective. And I’m not saying this to be corny. There is people around the world that are starving, they don’t have access to food. We’re complaining about our flight being… We’re on a plane to go to see your family. And people complain about little things sometimes, and I know family can be a pain in the ass. But you look at your grandparents, you’re looking at your parents. Look, they get older as you get older, so appreciate that time.
Frank Curzio: And again, I don’t mean to sound corny about this, but every year my mom makes a great Turkey dinner, or at least helps cook at my sister’s house in Midtown, New York. This year she’s in the hospital, she’s spending Thanksgiving at the hospital, where I’m going to be most of the day, which is cool. But just put things in perspective instead of complaining all the time. I think we’re programmed, and we live in a world, especially with social media, you just complain about everything all the time. Let me just take a step back for a minute. I’m sure most of you are going to realize that that things are pretty good. Or they could probably be a lot worse.
Frank Curzio: So make sure you enjoy the holiday. Make sure you drink a lot of your favorite alcoholic beverage. Make sure you eat a lot. And definitely, most important, be sure to watch some football.
Frank Curzio: I’ll see you guys in seven days. Take care.
Speaker 1: The information presented on Wall Street Unplugged is the opinion of its hosts and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.