KC entrepreneurs devise trading platform to give real estate more liquidity
A new Overland Park company will introduce an electronic trading platform that helps real estate investors buy and sell interests in projects more easily.
Realto (pronounced Ree-all-toe) will act as a secondary market, bringing more liquidity to the real estate market. The company springs from former BATS Global Markets executive Brian King’s knowledge of building trading platforms and Jeff Kinney’s expertise in alternative investing.
“There are secondary markets for private equity and venture capital funds, but nobody is in the space for real estate investments, so we really like that piece of it,” said Kinney, co-founder and COO of Realto. “We like real estate because there is a tangible physical asset and you know the book value. You also know how many tenants pay rent, so there are many more disclosures that make real estate more transparent than what you typically have in private companies.”
Realto is working through the regulatory approval process. It’s in the final stages of applying to become a registered broker dealer and an alternative trading system (ATS).
“BATS, when it originally started, was an ATS,” said King, co-founder and CEO of Realto. “We’ll also be an alternative trading system, allowing buyers and sellers to come in and make markets in these traditionally illiquid assets. The idea is that we’ll list a product and match buyers with sellers. The first products we’re going to have listed will be a lot more retail-oriented, and our buyers will largely be institutional in nature. So you have a bunch of retail investors who have been holding onto an asset for seven, eight or nine years and now they’ll have the ability to put their shares on our platform to sell.”
King has a lot of experience creating and building new markets for online trading platforms. He was one of the first people at BATS Global Markets, helping get the Lenexa-based online stock exchange going. Then he was the first person on the ground in Europe when BATS set up an exchange there — an exchange that has become the largest in Europe. He returned to the U.S. to help BATS launch its Exchange Traded Fund business. Later, he spent four years with the New York Stock Exchange, before meeting Kinney and deciding to start Realto.
Kinney has 26 years of experience in financial services, raising equity capital for mutual fund companies like Invesco and Goldman Sachs. He was in the trenches when Goldman Sachs Asset Management was created. For the past 15 years, he’s been focused on raising equity capital for the alternative investing space, primarily real estate-related products and funds. Recently, he spent three years at Cantor Fitzgerald & Co. in Kansas City, where his team started retail distribution, raising equity capital through financial advisers.
King and Kinney teamed up on Realto because they saw an opportunity to solve a liquidity problem in the $11 trillion alternative investment market. Realto will focus on real estate investing, which represents about $4 trillion of that alternative space. For phase one at Realto, they’ll target late-stage Real Estate Investment Trusts (REITs), which is an estimated $65 billion to $80 billion market.
“Developers are developing property and once that property is stabilized with a tenant, the investment changes,” Kinney said. “It becomes kind of a flat, no-growth investment of just collecting rent. Our platform would allow some of the people who invested in that development deal to sell their interest and move on to the next development deal. They’ll be replaced with investors who are fine taking a 7% income for the remaining lease term.”
Realto plans to activate its platform once it gets regulatory approval, which it hopes to have in hand within the next month or two. At that point, the company would need to start hiring more technology talent. It also will need sellers looking to market shares of their real estate funds.
Realto eventually will need to raise another round of capital, potentially within the next six months, and will look specifically for a strategic investor who could help throw gasoline on the fire and increase the platform’s volume, creating more buy- and sell-side demand.
“It’s really the same playbook we used at BATS,” King said. “Their second- and third-round investors were key institutions that could help increase the volume and generate revenue.”
Article courtesy of Kansas City Business Journal
James Dornbrook – Staff Writer, Kansas City Business Journal