Stefan Schimenes
The Opportunity Zone Expo Podcast
InvestReal Provides the Data to Transform OZ Investing
Transcription
Jack Heald: Welcome back everybody to The OZExpo Podcast. I am your host Jack Heald broadcasting once again from an empty ballroom in the Mandalay Bay hotel in beautiful Las Vegas. And sitting with me today is Stefan Schimenes, the founder and CEO of InvestReal. Stefan, welcome to the show.
Stefan: Wow Jack, it is a pleasure to be in here.
Jack: Well, we started this conversation -- because I like to just get to know my guests a little bit before we start talking – and it was so interesting that I said, “stop talking. We've got to record all this stuff.” So, we're going to get back to where we were talking about InvestReal. But first just catch us up. Who are you? Where'd you come from? How'd you get here? What brought you to this place today?
Stefan: So, I've got this very different background. I'm a Brazilian, even though I do not look like one. Even in Brazil, a lot of people considered me to be a foreigner. I'm a Brazilian who was actually born and raised speaking German to my mother and English to my father. So, if you speak, if you're hearing a little bit of a funky accent and you can't really identify where he's from, nobody can. Because it's a very unique situation, anyway.
I grew up in Brazil, traveling a lot, always passionate about other countries and international relations, graduated international relations in a very well-known university down in Brazil. But I always wanted to be an entrepreneur all my life. Very early on, I realized I wanted to build my own businesses. And I started building businesses in college from really different things.
I had no idea what I was doing. It's just like a 20-year-old trying to make anything, from importing handcrafted goods in Africa and selling them as high-end furniture in Brazil. Lots of different things. But ultimately, I got into tech through connections in a German community. There's this German investor who was investing in startups in Brazil. I worked for one of his companies. We built a company together and ultimately Airbnb was doing its international expansion and they partnered with this German investor I was working with. And he realized that Airbnb was much bigger than what we were doing. We sold our business and I moved to work for Airbnb, and I was the person in charge of the international expansion of Airbnb to Latin America. And really at the early stages of 2011, nobody knew what Airbnb was.
We couldn't recruit anybody. The other day I was talking at a conference and I asked if anybody knew Airbn. Everybody raised their hands. When I was doing that in 2011, I would see like three hands being raised and nobody could even speak the name. So that's when I joined. The company grew quite substantially during that time...
Jack: I've noticed that.
Stefan: Yeah, exactly. It's a really big company now. After being an entrepreneur, I wanted to keep on building my own businesses. I left. I built a digital media marketplace, which became the largest one in Brazil. And I was very much inspired by what Airbnb was doing and how it was disrupting real estate using technology. And I realized that real estate is the largest asset class in the world, but one of the least sophisticated in terms of utilizing technology from an investment purpose.
Jack: Boy, that's the truth.
Stefan: Yeah. So I was like, okay, this is, this is a massive opportunity. This is actually a once-in-a-lifetime opportunity. So I actually jumped into this opportunity in a different way. I actually created a technology together with my business partner that will basically allow us to identify undervalued assets in the U.S., just using algorithms. We were actually buying properties in Portland, Denver, Atlanta, Tampa, Raleigh.
Jack: This is InvestReal we're talking about?
Stefan: Yeah, exactly. This is the company. So, we were literally buying properties all across the country using a technology and I've actually never seen them. And they're actually performing very well. So, we were buying, we were renting those properties out. And so we built this first technology, which is purely looking at properties on a cap rate basis all through algorithms. And then we actually very soon in the process we realized that we actually had to look at the impact of the assets. Sorry, the impact of the neighborhoods where we were buying, how much will their impact be, our asses where we were buying.
So, for example, what is the quality of life in that area? Do we see the quality of life of people are living? So we built this technology and it was based on a metro zip code and census tract level. And last year when we heard about Opportunity Zones, we're like, oh my gosh, we have this technology, right?
Jack: Already had that.
Stefan: Yeah, exactly. So like we have this technology that looks at census tracts and we actually looked through over 88 different indicators. And the moment I realize what Opportunity Zone was and the sheer size of this opportunity, I realized that this is a $1 trillion business.
This is a multibillion-dollar opportunity. Like this is a lifetime opportunity. So, we decided to jump right into it. We are actually selling our properties just to focus on creating InvestReal as a data-driven marketplace operating in the Opportunity Zone space. And that's what brings us in here.
Jack: So, it is now a marketplace.
Stefan: Exactly. So…
Jack: Who's the target audience for the product?
Stefan: So, we are a datadriven marketplace; talking a little bit about the marketplace.
Jack: Sure.
Stefan: The marketplace, we're basically trying to leverage my experience in building marketplaces from Airbnb and the other ones I built, I saw that when the law came, we will have this very interesting case. On one side, you have a lot of developers that have projects that will qualify as Opportunity Zone investments.
Jack: Right.
Stefan: That need to connect with capital gains investors….
Jack: Yes.
Stefan:…or you know, guys like my friends at Airbnb wants Airbnb IPOs or even myself an Airbnb IPOs to Uber IPOs. And you're like, everybody has a huge amount of cap gains. And how do they connect? How does a guy from San Francisco that has $10, $20, $50 million of cap gains from holding his options in Airbnb or Uber or Lyft, how does that individual connect with a developer in Maine or Texas?
Jack: Right?
Stefan: There's no way very efficiently to connect them.
Jack: Right.
Stefan: And it really brings me back to the experience of Airbnb. So how does the host guy in Paris get connected to someone from Paraguay that wants to go and have a local experience in Paris? There was no way for them to do it efficiently. And that's what Airbnb came and saw the problem. We want to be that, we want to be the same thing in this space. We want to be the party that connects both. But the thing is Opportunity Zones, not all of them are created equal.
Jack: Right.
Stefan: And you know, there's one thing just doing a connection. The other thing is, well does the investment make sense?
Jack: Yeah.
Stefan: Because at the end of the day, we're not just in this for the tax purposes. They actually want to be in there to have financial gain. So, the data part would end this platform we've built. We basically allow an investor to go identify a project but even see the underlying data that supports that project. Meaning, okay, if I'm building a multifamily in Chattanooga, Tennessee, I know nothing about Chattanooga, Tennessee, the developer tells me that's a great region. How do I trust him? So, we have underlying data that helps bridge that gap of trust.
Jack: Is this all public data that you've aggregated?
Stefan: We have a lot of public data. We scraped data, we buy some data, and the cool thing we do through our data system is we actually we clean, and we organize the data so that investors can understand what it means. So for example, if I can't…
Jack: You kind of normalize it.
Stefan: Exactly, we normalize it. By normalizing we mean we score it. So let's just say a location in a census tract has a medium household income off $45,000. That can mean, okay, it has a medium household income at $45,000. But what does it really means in terms of comparing the Opportunity Zones against the Opportunity Zones.
Jack: Right.
Stefan: Because Opportunities Zones are low income census tracts. So we actually created the system that basically scores that. So, let's just say a $46,000 medium household income and our system could be ranked something like this. This income is higher, It will rank let's say as a scoring as a 50, meaning that income is higher than 50% of all the other Opportunity Zones in the country. Or let's just say this location has a quality of life score. We'll get into that cause I think it's a really cool thing for us to address the quality of life score of a 90, meaning the quality of life of people that live in an Opportunity Zone is better than the average quality of life.
The people that live in all 90% of all the other Opportunity Zones in the country. So we created everything into quantiles so that it's really easy for investors to understand what's going on in those locations. And once again, we have 88 of those indicators from crime indexes to trends, cores, two fundamental scores for grill. We do a lot of that data. So, whenever an investor goes through our platform, not only do they see a project, our members see the data that supports that project.
Jack: Airbnb, anybody can sign up to rent a place, a destination, and anybody can sign up to make their home a destination. Airbnb takes a cut out of the middle on at least one side, if not both sides. What's the model for InvestReal?
Stefan: Absolutely. So right now, InvestReal is in the Opportunity Zone space and a new company. We've been operating for two months since we launched. It's a membership model for investors and developers. Right now we're waving the membership fee for investors and developers to connect. And also, whenever they sign a letter of intent, they hire us to provide consultancy services on due diligence services. So, it's basically providing technology services to help investors understand what's going on in the region. And we also have another model for people who just purely want to buy data.
Jack: Yeah, I bet.
Stefan: So, we have data analytics. And then we have more advanced tools and subscription models. So, this is a way in which we just purely call it investor analytics. This is a system that developers, investors, family offices can use to first of all identify locations they want to invest in. Or even use it in their offering documents to support the thesis of their investment strategies, right?
So, let's just say an investor knows the area’s very good. The developer knows the area’s very good, but the LP does not. So that's where data comes into play. That can be a third party validation. And we actually do really cool things. So, for example, we've created...
Jack: This is one of those instances where I'm sorry we're “audio only.” This would be a place where we’d look at this thing. But we don't have that.
Stefan: Anybody that wants to look at this thing is very much welcome to register at InvestReal.com. If you're a capital gains investors, you just sign up. If you're a developer or you could just be purely looking for data, we've got the offerings for all of you and we will walk... We would love to do a demo and explain the system.
Jack: Very cool.
Stefan: To everybody that is listening in more detail to you? Absolutely. But you know one of the cool things about just going from the tool’s up investment analytics, we’ve created a way for investors to very easily identify “where do you want to be” based on their investment strategy.
So, let's you say I want to invest in areas that have high-income growth rate, high population growth rate, high employment growth rate, that are close to the cities. and I want to find Opportunity Zones. Our algorithm will look at all of those indicators that were selected and we will actually rank all the 8,700 Opportunity Zones based on those investment criteria. And we’re actually telling you the census tract itself in the Opportunity Zone, not the metro area. So, it's really effective, it's almost like a sniper-level attack in terms of figuring out where your investments should be. And it lets you say, “oh, this is really cool because I'm an investor. I want to invest in more established neighborhoods,” right?
I want to invest in neighborhoods because of the data from census that was used to do the Opportunity Zones is data from 2010. So I want to invest into ones that are high income but still have growth, right? Or you're a guy that doesn't want to take a lot of risk or you're a guy who wants to be… You know, a lot of people criticize New York for having established the Brooklyn area, like Dumbo.
Jack: Uh huh.
Stefan: So, let's just say there are two investors, or you have an investor who wants to invest into Dumbo or an investor that wanted to invest in the Dumbo area 20 years ago, right? So, you can also identify that by -- instead of clicking the high income -- you can just do like the low-income and still drill. So, if you're just purely looking for a growth strategy where it's a higher risk strategy, but if the neighborhood becomes Dumbo, your returns are going to be phenomenal. So you can actually find it through our platform as well. That's really one of the cool things about what were bringing into the ecosystem is the ability to create very specific investment strategies and also provide transparency for the industry as well.
Jack: Wow. All great ideas. It's obvious in retrospect. I get it. I totally get it. Although you're here at the Opportunity Zone Expo, this is not a tool that would be limited to OZ investing.
Stefan: Yeah, absolutely not. It's a tool that actually works for not only Opportunity Zone investors, because we all have this data analytics. It works for zip codes and metro areas, and by the way, in a few weeks we'll probably have every census tract in the U.S. in there.
Jack: Ah yeah.
Stefan: Right now, we just don't have, because our team is just inundated with features. But soon we'll have every census tract in there. So, anybody -- opportunity zone investor or not -- you can build a strategy at investor analytics.
Jack: Okay. When you talked about build a strategy, man, this is a place where we really need to be able to demo it, isn't it? Okay, I won't go down that road because this is where we want to actually see the tool in action.
Let's back up a little bit. How did you make that mental shift from being a Brazilian ex-pat to an American investor? What was that like for you and, and maybe talk us through that experience?
Stefan: It's a very interesting thing, right? I did have some successes as a Brazilian entrepreneur, but if you look at the biggest companies in the world, they’re still being built in here. And I just wanted a new challenge in my life. I had a very comfortable life in Brazil. I could talk to any venture capitalists. I had all the connections. So coming here was basically going 20 steps back in my career. And I just love the challenge of starting it all over. So that's from the first thing. And I just love the challenge, I want to make it big in here. That's the get go. And then the second thing is, the reason I realized that I could do that is - going back to the data part of it - I could read the data and I can understand data very well.
So, a lot of people look at the crash in ‘08 and say, “Wow, the crash in ‘08 it affected the real estate market”, and that's of course it's true the real estate market was hit, but not every market is the same.
Jack: Oh yeah.
Stefan: You know, as we’ve seen from the data, there were locations where property values kept on appreciating during the crash and never went down.
Jack: OK, you gotta tell me one of those, just give me one.
Stefan: Very few in Denver. Very few of them. But you actually had locations which did not suffer anything from the crash because they had never really appreciated that much before.
Jack: Right, okay. Fair enough.
Stefan:If you look at for example, Pittsburgh. Pittsburgh had a very mild effect. If you're just looking at data guys, I'll just give you a tip. If you want to make money in Pittsburgh, buy it in the winter and sell it in the summer.
Literally, the trade of buying properties in Pittsburgh in the winter and selling in the summer, it's almost making 8%-10%.
Jack: I live in the Phoenix area and it's pretty well known that you buy, you want to buy in the summer and if you're going to sell, you start selling around December. December, January, February. That's when. So yeah, the inverse effect there.
Stefan: Exactly.
Jack: Nobody wants to be out house shopping in July. Let me assure you that.
Stefan: So, you know, those are the things that, I'm not a specialist in Pittsburgh, but I look at the data and I was like, oh my gosh, just buy properties. If you want to flip properties, you should buy in the winter and then you try to flip it into the summer if you can. Right. There's so many interesting strategies that allow you to do that. One of the interesting things is, I do have a mentor that's a great individual that helps me a lot. So last year I connected with this individual by the name of Glenn Lowenstein. So, Glenn Lowenstein is the founder of Limestone Capital. It's a real estate private equity shop with $6 billion assets under management. He was a former chief investment officer at Heinz, so he has an amazing reputation. So, when we got connected, he has the the real estate experience in the team. Right. He became one of our business partners as well. So Glenn Lowenstein. First time we met, he basically looked at what we were doing, and he was baffled, right?
Because he actually built Limestone and his real estate private equity based on research. He's like, “Hey, we're really focused on great quality research.” And he looked up to our systems like, okay, there's a Brazilian here. He’s like a 30-year-old. You have a developer in eastern Europe. And who are these guys? I know real estate.
So, he started, “Okay, tell me about this neighborhood. Tell me what your data tells me about this neighborhood.” And bang. He was like, “Oh my gosh, this is great. It totally validates what I know about this neighborhood.” And he started just basically asking us questions and the underlying data was supporting everything and even things he didn’t really know. He was like, “I don't know about this market.” And then we just show him some data and he said, “Oh my gosh, it actually makes sense.”
And he was like, “I have to be a part of this show.” He basically joined our business. He actually sold Limestone in 2017, and he was the one that brought to us the concept of the Opportunity Zone law, so he was like, “Wow, there's this new law and Stefan, your tactic is perfect, perfectly suited for this new law. And by the way, your experience as well, why are you just doing through investments with your own money?” Why don't we create this platform? And that's why that was the constant of moving from using technology in a proprietary way to provide data for an industry. You know, we want to be the platform… I don't know how many funds are out there that are raising Opportunity Zone funds.
Jack: There's a lot.
Stefan: We want to be there.
Jack: Like 9 out of 10 people here are fund guys.
Stefan: We want to be the guys selling water in the desert. We want to be the guys that every fund needs to have our data and I hope they all become our clients. And a lot of funds have dry powder. So we have a lot of funds in our platform. They were going to invest in a project, the project went south, they have dry powder and now they're looking for projects. They have time because they have their investment requirements. They're looking for projects in our platform, family offices in our platform are looking for projects.
Jack: Yeah.
Stefan: So yeah, we want to be the guy selling water in the desert.
Jack: I'm going to ask what might be a sensitive question, but I'm going to ask it anyway. What's the ratio of finance-to-project guys on your platform?
Stefan: You’re meaning investors and developers?
Jack: Investors and developers.
Stefan: Well, we recently launched, right? So, our company is two months old. And as a marketplace, you have two things. You always have the chicken and the egg issue.
Jack: Sure.
Stefan: So, our first month-and-a-half after it was all about focusing on the supply side, getting our word out to the developers because we realized that if we didn't have a lot of developers out there, we would have no value for it all.
Jack: I was going to say the developers are really the key here. The finance guys will show up if the developers are there.
Stefan: Exactly. So right now and they're showing up, right? We've got in our platform today 15 projects, but we're in the process of underwriting, I think 30 to 40 projects. We have developers committing to go into our platform. And had roughly 60 developers in the process already. And we imagine 50% will actually go into our platform because some users just don't make sense. Looking into the marketplace, we are the company, just what we've done in the few months that we've been on the market, we are already the biggest marketplace in terms of data and projects out there. And we hope that, if you’re a cap gains investor, if you're a fund, if you're looking, if you have capital to invest, you ultimately will come to InvestReal. That's our goal.
Jack: Are you deal agnostic. That's up to the investing side.
Stefan: Yeah. We're providing information.
Jack: You're an information provider.
Stefan: Yeah, I do not advise. We're not vouching for anything. We're providing information.
Jack: Truly a platform.
Stefan: Yeah, exactly. We're a marketplace. Actually, a platform. We have all of the information laid out there for the investor. The investor is the one that makes all the decisions. We do not advise. We don't tell him, “this is a good investment,” or not. “This is a good neighborhood,” or not. The data's all there to support their decision.
Jack: Okay. Let's turn to who you are just a little bit. We were talking about this before we started recording it and I'm fascinated with this. You grew up in a home speaking three different languages. My thesis - although I've never done any work to prove it - my thesis is that people who are multilingual, especially from childhood, have a cognitive advantage over those of us who only speak one. We started talking about that. So, let's pick up that conversation from where we were. I think you've observed some advantages in yourself that you may not have attributed to being multilingual. What are your thoughts there?
Stefan So, I think definitely first of all, it's a blessing, what my parents have done with me. You know, I would have not been involved at Airbnb if it wasn't for speaking German because I connected with this German investor that lead me to Airbnb. And so, speaking German to my mom, I grew up speaking German to my mother. My father is a self-made man. He learned English by literally paying for his trip to the U.S. by cleaning a boat. He came to the US and then learned English the hard way. He could not speak any English, learned really the hard way. And then he came back, he said, “I'm teaching English to my kids as a baby.”
So, like it was a blessing.
And then I have an older brother, he was a little bit more fluent in Portuguese because he was three years older than I was. So, he was already speaking Portuguese to me. It was this very interesting case. I'm very blessed to that extent. Fortunately, I think there's also another thing. I was always, my parents always love traveling. This year in two weeks I'll go to Croatia. It is going to be the 50th country I'll be traveling to in my life.
Jack: Wow.
Stefan: And, I think the ability to speak different languages bridges those gaps. I go to Germany, I can speak in German, and I go to Switzerland, I can go to Austria, I can connect with people. I do speak Spanish. I learned Spanish later. So, I can go to Spain, I can go to Argentina. And first of all, the connection helps a lot. And I think also as you mentioned, the fact that I grew up speaking multiple languages helps me learn languages easier.
For example, I've been to Russia in the World Cup. I could speak a little bit of Russian, enough to say things like, “How much does it cost? How do we get to that location?” And I could barely speak enough of Russian, but it totally makes a difference to experience a culture in a completely different way. And of course, taking into the business perspective, once you start seeing different cultures and how different cultures solve problems in different ways…
Jack: That's where I'm thinking about. Yeah.
Stefan: So that's where you started seeing business opportunities. So, for example, I'm fascinated about modular homes in the U.S. I'm just saying it because I'm actually building my house as a modular home. And it's just the fact that someone builds a house in a factory and puts it on a crane and then, basically in a month, you have a house that's ready.
Jack: Right.
Stefan: It's just insane.
Jack: I've got a guy coming in for an interview later on today who's a modular home builder.
Stefan: Exactly. It's insane. And you know what? Brazil is the most inefficient place to build homes. We build all our homes in brick. Brazil is I think is the most blessed country in terms of weather. We do not have hurricanes; we do not have earthquakes. We do not have snow there. It's basically warm all year long.
Jack: It's a great place to be a builder's is what you're saying.
Stefan: But you know how much, how long it takes to build a house? It was like three or four years? You know why? It’s because a billion fricking bricks. And I asked builders in Brazil, “why do you guys build with bricks?” And it's like, “Because it's our culture. We like having houses that are really strong.” And I was like, “There’s no freaking earthquakes, you do not need such a strong home. You can just build them like in the U.S.” First of all, it's going to be three or four times cheaper to build such a home. If you look at it, there's an entire country that's building wrong.
Jack: And a big country at that.
Stefan: A big country. And the funny thing is, Brazil says, “It's not from our culture to build such things.” A lot of presenters make fun out of houses in the U.S. and say they're built like paper.
Jack: Well, and they have a point.
Stefan: They have a point, but they all are baffled by when they travel to the U.S., they see how cheap the homes are compared to the size they’re offering.
Jack: Right.
Stefan: It's a very cheap construction because it's very efficient.
Jack: Yeah.
Stefan: And I was like, Dude, you like going to Florida and buying your homes in Florida because they're so cheap and are you really telling me that the same home built in Brazil you wouldn't buy just because it's not built in brick in Brazil?” I'm not a builder. But you know, if someone wants to hear an opportunity, this is a massive opportunity, right? But it’s the same thing about Airbnb. When Airbnb went to Latin America, everybody told me, “This is not going to work, this is not going to work. This is not going to work.”
My mom was like: “Stefan, this is insane. We'll have to give you money. You're going to be out of a job in a few months. We're going to give you money. You're out of our house already.” And I was like, “No, mom.”
You know, Brazilians are very friendly. So, let's just say you would go to Brazil with one friend. And let's just say you want to go to Rio. He will probably introduce you to a friend. And you can stay at his friend's house without a problem and they will host you gladly, just because of that connection. So, what I told people is, “People already Airbnb, they just don't Airbnb online.”
Jack: They just don't get paid for it.
Stefan: Exactly. It's just basically what Airbnb is at the end of the day is a build. It's a system of trust. It's a digital system of trust and it's really one person trusting another because of the reviews. And I hope that I'm not going to be robbed, mugged or whatever. I'm going to have a nice experience because of the trust Airbnb does. That's the same thing. You will go to Rio because your a friend would vouch for you and the other friend, and he's also not going to put you in a bad location. So that's why I told everybody, “It already happens.” Technology is going to make it more efficient.
And so, I think, and the fact that I could do that is because I had the different perspective in the world by traveling to different locations and seeing how people react in different cultures. So, I could see the business opportunity and maybe a lot of people, they just couldn't see that. And we had a hard time recruiting people because people do not trust that system working in Brazil, like it was a scam. So, I had a lot of friends that I tried to recruit. They were like, “this is not going to work,” and they're missing out on a big opportunity now.
Jack: They're missing out now. Hey, these things happen. We learn a lot of lessons by those kinds of missed opportunities. Well Stefan, this has been fascinating. The product itself to me is, it's just so blindingly obvious that it's going to be a massive success. Have you got any last words for us before we wind it up?
Stefan: Well, first of all, I want to thank you for the opportunity. It's been a pleasure. I want to tell everybody now if you are interested in what we're doing please reach out. I've got this very weird German name, Stefan Schimenes. There are not two of me.
Jack: He's the only one.
Stefan: The easiest way of finding me is just go on LinkedIn. Type InvestReal. You'll find me. You can just connect with me on LinkedIn. You can also email me at my first name at investreal.com. So my first name is stefan@investreal.com. Please reach out, we'd love to get in touch with you. And final words -- the power of data not only to make good investment decisions, it's just tremendous, but also to save you from losing millions of dollars. And I'll finalize it with one, just one very brief, real true story.
I met this fund man, an Opportunity Zone fund manager who was raising a substantial fund and he was looking to buy an asset and transform into a multifamily and he looked, he’s like, “Can I look at your data?” I was like, “Yeah, you have to pay for it but you’re my friend; I'll just do one research for you for free.” Right?
So, we ran a report and all the indicators were bad. Everything. The fundamental score is bad. The quality of life score was bad, the quality of life trend score was bad, the rent prices were bad. Everything we could see was bad and I was like, “You cannot make this investment. You're going to lose your money.” So literally that conversation saved him millions of dollars. So, putting into perspective what something similar would have done if you were investing in real estate in 2005, 2006.
Jack: Right.
Stefan: That's the power of data. So final words: power of data transforming real estate.
Jack: Very good, well thank you Stefan.
Stefan: Thank you.
Jack: I do want to remind our listeners that all the information that we talked about here during the interview will be available in the written printed form on the podcast website so you can get it there. For Stefan Schimenes, I am Jack Heald of The OZExpo Podcast. Thanks for listening. Be sure to subscribe. So, you always get an update when we publish a new episode and we will talk to you next time.
Announcer: This podcast is for informational purposes only and does not constitute legal tax or investment advice. For specific recommendations, please consult with your financial, legal, or tax professional.
Stefan: Wow Jack, it is a pleasure to be in here.
Jack: Well, we started this conversation -- because I like to just get to know my guests a little bit before we start talking – and it was so interesting that I said, “stop talking. We've got to record all this stuff.” So, we're going to get back to where we were talking about InvestReal. But first just catch us up. Who are you? Where'd you come from? How'd you get here? What brought you to this place today?
Stefan: So, I've got this very different background. I'm a Brazilian, even though I do not look like one. Even in Brazil, a lot of people considered me to be a foreigner. I'm a Brazilian who was actually born and raised speaking German to my mother and English to my father. So, if you speak, if you're hearing a little bit of a funky accent and you can't really identify where he's from, nobody can. Because it's a very unique situation, anyway.
I grew up in Brazil, traveling a lot, always passionate about other countries and international relations, graduated international relations in a very well-known university down in Brazil. But I always wanted to be an entrepreneur all my life. Very early on, I realized I wanted to build my own businesses. And I started building businesses in college from really different things.
I had no idea what I was doing. It's just like a 20-year-old trying to make anything, from importing handcrafted goods in Africa and selling them as high-end furniture in Brazil. Lots of different things. But ultimately, I got into tech through connections in a German community. There's this German investor who was investing in startups in Brazil. I worked for one of his companies. We built a company together and ultimately Airbnb was doing its international expansion and they partnered with this German investor I was working with. And he realized that Airbnb was much bigger than what we were doing. We sold our business and I moved to work for Airbnb, and I was the person in charge of the international expansion of Airbnb to Latin America. And really at the early stages of 2011, nobody knew what Airbnb was.
We couldn't recruit anybody. The other day I was talking at a conference and I asked if anybody knew Airbn. Everybody raised their hands. When I was doing that in 2011, I would see like three hands being raised and nobody could even speak the name. So that's when I joined. The company grew quite substantially during that time...
Jack: I've noticed that.
Stefan: Yeah, exactly. It's a really big company now. After being an entrepreneur, I wanted to keep on building my own businesses. I left. I built a digital media marketplace, which became the largest one in Brazil. And I was very much inspired by what Airbnb was doing and how it was disrupting real estate using technology. And I realized that real estate is the largest asset class in the world, but one of the least sophisticated in terms of utilizing technology from an investment purpose.
Jack: Boy, that's the truth.
Stefan: Yeah. So I was like, okay, this is, this is a massive opportunity. This is actually a once-in-a-lifetime opportunity. So I actually jumped into this opportunity in a different way. I actually created a technology together with my business partner that will basically allow us to identify undervalued assets in the U.S., just using algorithms. We were actually buying properties in Portland, Denver, Atlanta, Tampa, Raleigh.
Jack: This is InvestReal we're talking about?
Stefan: Yeah, exactly. This is the company. So, we were literally buying properties all across the country using a technology and I've actually never seen them. And they're actually performing very well. So, we were buying, we were renting those properties out. And so we built this first technology, which is purely looking at properties on a cap rate basis all through algorithms. And then we actually very soon in the process we realized that we actually had to look at the impact of the assets. Sorry, the impact of the neighborhoods where we were buying, how much will their impact be, our asses where we were buying.
So, for example, what is the quality of life in that area? Do we see the quality of life of people are living? So we built this technology and it was based on a metro zip code and census tract level. And last year when we heard about Opportunity Zones, we're like, oh my gosh, we have this technology, right?
Jack: Already had that.
Stefan: Yeah, exactly. So like we have this technology that looks at census tracts and we actually looked through over 88 different indicators. And the moment I realize what Opportunity Zone was and the sheer size of this opportunity, I realized that this is a $1 trillion business.
This is a multibillion-dollar opportunity. Like this is a lifetime opportunity. So, we decided to jump right into it. We are actually selling our properties just to focus on creating InvestReal as a data-driven marketplace operating in the Opportunity Zone space. And that's what brings us in here.
Jack: So, it is now a marketplace.
Stefan: Exactly. So…
Jack: Who's the target audience for the product?
Stefan: So, we are a datadriven marketplace; talking a little bit about the marketplace.
Jack: Sure.
Stefan: The marketplace, we're basically trying to leverage my experience in building marketplaces from Airbnb and the other ones I built, I saw that when the law came, we will have this very interesting case. On one side, you have a lot of developers that have projects that will qualify as Opportunity Zone investments.
Jack: Right.
Stefan: That need to connect with capital gains investors….
Jack: Yes.
Stefan:…or you know, guys like my friends at Airbnb wants Airbnb IPOs or even myself an Airbnb IPOs to Uber IPOs. And you're like, everybody has a huge amount of cap gains. And how do they connect? How does a guy from San Francisco that has $10, $20, $50 million of cap gains from holding his options in Airbnb or Uber or Lyft, how does that individual connect with a developer in Maine or Texas?
Jack: Right?
Stefan: There's no way very efficiently to connect them.
Jack: Right.
Stefan: And it really brings me back to the experience of Airbnb. So how does the host guy in Paris get connected to someone from Paraguay that wants to go and have a local experience in Paris? There was no way for them to do it efficiently. And that's what Airbnb came and saw the problem. We want to be that, we want to be the same thing in this space. We want to be the party that connects both. But the thing is Opportunity Zones, not all of them are created equal.
Jack: Right.
Stefan: And you know, there's one thing just doing a connection. The other thing is, well does the investment make sense?
Jack: Yeah.
Stefan: Because at the end of the day, we're not just in this for the tax purposes. They actually want to be in there to have financial gain. So, the data part would end this platform we've built. We basically allow an investor to go identify a project but even see the underlying data that supports that project. Meaning, okay, if I'm building a multifamily in Chattanooga, Tennessee, I know nothing about Chattanooga, Tennessee, the developer tells me that's a great region. How do I trust him? So, we have underlying data that helps bridge that gap of trust.
Jack: Is this all public data that you've aggregated?
Stefan: We have a lot of public data. We scraped data, we buy some data, and the cool thing we do through our data system is we actually we clean, and we organize the data so that investors can understand what it means. So for example, if I can't…
Jack: You kind of normalize it.
Stefan: Exactly, we normalize it. By normalizing we mean we score it. So let's just say a location in a census tract has a medium household income off $45,000. That can mean, okay, it has a medium household income at $45,000. But what does it really means in terms of comparing the Opportunity Zones against the Opportunity Zones.
Jack: Right.
Stefan: Because Opportunities Zones are low income census tracts. So we actually created the system that basically scores that. So, let's just say a $46,000 medium household income and our system could be ranked something like this. This income is higher, It will rank let's say as a scoring as a 50, meaning that income is higher than 50% of all the other Opportunity Zones in the country. Or let's just say this location has a quality of life score. We'll get into that cause I think it's a really cool thing for us to address the quality of life score of a 90, meaning the quality of life of people that live in an Opportunity Zone is better than the average quality of life.
The people that live in all 90% of all the other Opportunity Zones in the country. So we created everything into quantiles so that it's really easy for investors to understand what's going on in those locations. And once again, we have 88 of those indicators from crime indexes to trends, cores, two fundamental scores for grill. We do a lot of that data. So, whenever an investor goes through our platform, not only do they see a project, our members see the data that supports that project.
Jack: Airbnb, anybody can sign up to rent a place, a destination, and anybody can sign up to make their home a destination. Airbnb takes a cut out of the middle on at least one side, if not both sides. What's the model for InvestReal?
Stefan: Absolutely. So right now, InvestReal is in the Opportunity Zone space and a new company. We've been operating for two months since we launched. It's a membership model for investors and developers. Right now we're waving the membership fee for investors and developers to connect. And also, whenever they sign a letter of intent, they hire us to provide consultancy services on due diligence services. So, it's basically providing technology services to help investors understand what's going on in the region. And we also have another model for people who just purely want to buy data.
Jack: Yeah, I bet.
Stefan: So, we have data analytics. And then we have more advanced tools and subscription models. So, this is a way in which we just purely call it investor analytics. This is a system that developers, investors, family offices can use to first of all identify locations they want to invest in. Or even use it in their offering documents to support the thesis of their investment strategies, right?
So, let's just say an investor knows the area’s very good. The developer knows the area’s very good, but the LP does not. So that's where data comes into play. That can be a third party validation. And we actually do really cool things. So, for example, we've created...
Jack: This is one of those instances where I'm sorry we're “audio only.” This would be a place where we’d look at this thing. But we don't have that.
Stefan: Anybody that wants to look at this thing is very much welcome to register at InvestReal.com. If you're a capital gains investors, you just sign up. If you're a developer or you could just be purely looking for data, we've got the offerings for all of you and we will walk... We would love to do a demo and explain the system.
Jack: Very cool.
Stefan: To everybody that is listening in more detail to you? Absolutely. But you know one of the cool things about just going from the tool’s up investment analytics, we’ve created a way for investors to very easily identify “where do you want to be” based on their investment strategy.
So, let's you say I want to invest in areas that have high-income growth rate, high population growth rate, high employment growth rate, that are close to the cities. and I want to find Opportunity Zones. Our algorithm will look at all of those indicators that were selected and we will actually rank all the 8,700 Opportunity Zones based on those investment criteria. And we’re actually telling you the census tract itself in the Opportunity Zone, not the metro area. So, it's really effective, it's almost like a sniper-level attack in terms of figuring out where your investments should be. And it lets you say, “oh, this is really cool because I'm an investor. I want to invest in more established neighborhoods,” right?
I want to invest in neighborhoods because of the data from census that was used to do the Opportunity Zones is data from 2010. So I want to invest into ones that are high income but still have growth, right? Or you're a guy that doesn't want to take a lot of risk or you're a guy who wants to be… You know, a lot of people criticize New York for having established the Brooklyn area, like Dumbo.
Jack: Uh huh.
Stefan: So, let's just say there are two investors, or you have an investor who wants to invest into Dumbo or an investor that wanted to invest in the Dumbo area 20 years ago, right? So, you can also identify that by -- instead of clicking the high income -- you can just do like the low-income and still drill. So, if you're just purely looking for a growth strategy where it's a higher risk strategy, but if the neighborhood becomes Dumbo, your returns are going to be phenomenal. So you can actually find it through our platform as well. That's really one of the cool things about what were bringing into the ecosystem is the ability to create very specific investment strategies and also provide transparency for the industry as well.
Jack: Wow. All great ideas. It's obvious in retrospect. I get it. I totally get it. Although you're here at the Opportunity Zone Expo, this is not a tool that would be limited to OZ investing.
Stefan: Yeah, absolutely not. It's a tool that actually works for not only Opportunity Zone investors, because we all have this data analytics. It works for zip codes and metro areas, and by the way, in a few weeks we'll probably have every census tract in the U.S. in there.
Jack: Ah yeah.
Stefan: Right now, we just don't have, because our team is just inundated with features. But soon we'll have every census tract in there. So, anybody -- opportunity zone investor or not -- you can build a strategy at investor analytics.
Jack: Okay. When you talked about build a strategy, man, this is a place where we really need to be able to demo it, isn't it? Okay, I won't go down that road because this is where we want to actually see the tool in action.
Let's back up a little bit. How did you make that mental shift from being a Brazilian ex-pat to an American investor? What was that like for you and, and maybe talk us through that experience?
Stefan: It's a very interesting thing, right? I did have some successes as a Brazilian entrepreneur, but if you look at the biggest companies in the world, they’re still being built in here. And I just wanted a new challenge in my life. I had a very comfortable life in Brazil. I could talk to any venture capitalists. I had all the connections. So coming here was basically going 20 steps back in my career. And I just love the challenge of starting it all over. So that's from the first thing. And I just love the challenge, I want to make it big in here. That's the get go. And then the second thing is, the reason I realized that I could do that is - going back to the data part of it - I could read the data and I can understand data very well.
So, a lot of people look at the crash in ‘08 and say, “Wow, the crash in ‘08 it affected the real estate market”, and that's of course it's true the real estate market was hit, but not every market is the same.
Jack: Oh yeah.
Stefan: You know, as we’ve seen from the data, there were locations where property values kept on appreciating during the crash and never went down.
Jack: OK, you gotta tell me one of those, just give me one.
Stefan: Very few in Denver. Very few of them. But you actually had locations which did not suffer anything from the crash because they had never really appreciated that much before.
Jack: Right, okay. Fair enough.
Stefan:If you look at for example, Pittsburgh. Pittsburgh had a very mild effect. If you're just looking at data guys, I'll just give you a tip. If you want to make money in Pittsburgh, buy it in the winter and sell it in the summer.
Literally, the trade of buying properties in Pittsburgh in the winter and selling in the summer, it's almost making 8%-10%.
Jack: I live in the Phoenix area and it's pretty well known that you buy, you want to buy in the summer and if you're going to sell, you start selling around December. December, January, February. That's when. So yeah, the inverse effect there.
Stefan: Exactly.
Jack: Nobody wants to be out house shopping in July. Let me assure you that.
Stefan: So, you know, those are the things that, I'm not a specialist in Pittsburgh, but I look at the data and I was like, oh my gosh, just buy properties. If you want to flip properties, you should buy in the winter and then you try to flip it into the summer if you can. Right. There's so many interesting strategies that allow you to do that. One of the interesting things is, I do have a mentor that's a great individual that helps me a lot. So last year I connected with this individual by the name of Glenn Lowenstein. So, Glenn Lowenstein is the founder of Limestone Capital. It's a real estate private equity shop with $6 billion assets under management. He was a former chief investment officer at Heinz, so he has an amazing reputation. So, when we got connected, he has the the real estate experience in the team. Right. He became one of our business partners as well. So Glenn Lowenstein. First time we met, he basically looked at what we were doing, and he was baffled, right?
Because he actually built Limestone and his real estate private equity based on research. He's like, “Hey, we're really focused on great quality research.” And he looked up to our systems like, okay, there's a Brazilian here. He’s like a 30-year-old. You have a developer in eastern Europe. And who are these guys? I know real estate.
So, he started, “Okay, tell me about this neighborhood. Tell me what your data tells me about this neighborhood.” And bang. He was like, “Oh my gosh, this is great. It totally validates what I know about this neighborhood.” And he started just basically asking us questions and the underlying data was supporting everything and even things he didn’t really know. He was like, “I don't know about this market.” And then we just show him some data and he said, “Oh my gosh, it actually makes sense.”
And he was like, “I have to be a part of this show.” He basically joined our business. He actually sold Limestone in 2017, and he was the one that brought to us the concept of the Opportunity Zone law, so he was like, “Wow, there's this new law and Stefan, your tactic is perfect, perfectly suited for this new law. And by the way, your experience as well, why are you just doing through investments with your own money?” Why don't we create this platform? And that's why that was the constant of moving from using technology in a proprietary way to provide data for an industry. You know, we want to be the platform… I don't know how many funds are out there that are raising Opportunity Zone funds.
Jack: There's a lot.
Stefan: We want to be there.
Jack: Like 9 out of 10 people here are fund guys.
Stefan: We want to be the guys selling water in the desert. We want to be the guys that every fund needs to have our data and I hope they all become our clients. And a lot of funds have dry powder. So we have a lot of funds in our platform. They were going to invest in a project, the project went south, they have dry powder and now they're looking for projects. They have time because they have their investment requirements. They're looking for projects in our platform, family offices in our platform are looking for projects.
Jack: Yeah.
Stefan: So yeah, we want to be the guy selling water in the desert.
Jack: I'm going to ask what might be a sensitive question, but I'm going to ask it anyway. What's the ratio of finance-to-project guys on your platform?
Stefan: You’re meaning investors and developers?
Jack: Investors and developers.
Stefan: Well, we recently launched, right? So, our company is two months old. And as a marketplace, you have two things. You always have the chicken and the egg issue.
Jack: Sure.
Stefan: So, our first month-and-a-half after it was all about focusing on the supply side, getting our word out to the developers because we realized that if we didn't have a lot of developers out there, we would have no value for it all.
Jack: I was going to say the developers are really the key here. The finance guys will show up if the developers are there.
Stefan: Exactly. So right now and they're showing up, right? We've got in our platform today 15 projects, but we're in the process of underwriting, I think 30 to 40 projects. We have developers committing to go into our platform. And had roughly 60 developers in the process already. And we imagine 50% will actually go into our platform because some users just don't make sense. Looking into the marketplace, we are the company, just what we've done in the few months that we've been on the market, we are already the biggest marketplace in terms of data and projects out there. And we hope that, if you’re a cap gains investor, if you're a fund, if you're looking, if you have capital to invest, you ultimately will come to InvestReal. That's our goal.
Jack: Are you deal agnostic. That's up to the investing side.
Stefan: Yeah. We're providing information.
Jack: You're an information provider.
Stefan: Yeah, I do not advise. We're not vouching for anything. We're providing information.
Jack: Truly a platform.
Stefan: Yeah, exactly. We're a marketplace. Actually, a platform. We have all of the information laid out there for the investor. The investor is the one that makes all the decisions. We do not advise. We don't tell him, “this is a good investment,” or not. “This is a good neighborhood,” or not. The data's all there to support their decision.
Jack: Okay. Let's turn to who you are just a little bit. We were talking about this before we started recording it and I'm fascinated with this. You grew up in a home speaking three different languages. My thesis - although I've never done any work to prove it - my thesis is that people who are multilingual, especially from childhood, have a cognitive advantage over those of us who only speak one. We started talking about that. So, let's pick up that conversation from where we were. I think you've observed some advantages in yourself that you may not have attributed to being multilingual. What are your thoughts there?
Stefan So, I think definitely first of all, it's a blessing, what my parents have done with me. You know, I would have not been involved at Airbnb if it wasn't for speaking German because I connected with this German investor that lead me to Airbnb. And so, speaking German to my mom, I grew up speaking German to my mother. My father is a self-made man. He learned English by literally paying for his trip to the U.S. by cleaning a boat. He came to the US and then learned English the hard way. He could not speak any English, learned really the hard way. And then he came back, he said, “I'm teaching English to my kids as a baby.”
So, like it was a blessing.
And then I have an older brother, he was a little bit more fluent in Portuguese because he was three years older than I was. So, he was already speaking Portuguese to me. It was this very interesting case. I'm very blessed to that extent. Fortunately, I think there's also another thing. I was always, my parents always love traveling. This year in two weeks I'll go to Croatia. It is going to be the 50th country I'll be traveling to in my life.
Jack: Wow.
Stefan: And, I think the ability to speak different languages bridges those gaps. I go to Germany, I can speak in German, and I go to Switzerland, I can go to Austria, I can connect with people. I do speak Spanish. I learned Spanish later. So, I can go to Spain, I can go to Argentina. And first of all, the connection helps a lot. And I think also as you mentioned, the fact that I grew up speaking multiple languages helps me learn languages easier.
For example, I've been to Russia in the World Cup. I could speak a little bit of Russian, enough to say things like, “How much does it cost? How do we get to that location?” And I could barely speak enough of Russian, but it totally makes a difference to experience a culture in a completely different way. And of course, taking into the business perspective, once you start seeing different cultures and how different cultures solve problems in different ways…
Jack: That's where I'm thinking about. Yeah.
Stefan: So that's where you started seeing business opportunities. So, for example, I'm fascinated about modular homes in the U.S. I'm just saying it because I'm actually building my house as a modular home. And it's just the fact that someone builds a house in a factory and puts it on a crane and then, basically in a month, you have a house that's ready.
Jack: Right.
Stefan: It's just insane.
Jack: I've got a guy coming in for an interview later on today who's a modular home builder.
Stefan: Exactly. It's insane. And you know what? Brazil is the most inefficient place to build homes. We build all our homes in brick. Brazil is I think is the most blessed country in terms of weather. We do not have hurricanes; we do not have earthquakes. We do not have snow there. It's basically warm all year long.
Jack: It's a great place to be a builder's is what you're saying.
Stefan: But you know how much, how long it takes to build a house? It was like three or four years? You know why? It’s because a billion fricking bricks. And I asked builders in Brazil, “why do you guys build with bricks?” And it's like, “Because it's our culture. We like having houses that are really strong.” And I was like, “There’s no freaking earthquakes, you do not need such a strong home. You can just build them like in the U.S.” First of all, it's going to be three or four times cheaper to build such a home. If you look at it, there's an entire country that's building wrong.
Jack: And a big country at that.
Stefan: A big country. And the funny thing is, Brazil says, “It's not from our culture to build such things.” A lot of presenters make fun out of houses in the U.S. and say they're built like paper.
Jack: Well, and they have a point.
Stefan: They have a point, but they all are baffled by when they travel to the U.S., they see how cheap the homes are compared to the size they’re offering.
Jack: Right.
Stefan: It's a very cheap construction because it's very efficient.
Jack: Yeah.
Stefan: And I was like, Dude, you like going to Florida and buying your homes in Florida because they're so cheap and are you really telling me that the same home built in Brazil you wouldn't buy just because it's not built in brick in Brazil?” I'm not a builder. But you know, if someone wants to hear an opportunity, this is a massive opportunity, right? But it’s the same thing about Airbnb. When Airbnb went to Latin America, everybody told me, “This is not going to work, this is not going to work. This is not going to work.”
My mom was like: “Stefan, this is insane. We'll have to give you money. You're going to be out of a job in a few months. We're going to give you money. You're out of our house already.” And I was like, “No, mom.”
You know, Brazilians are very friendly. So, let's just say you would go to Brazil with one friend. And let's just say you want to go to Rio. He will probably introduce you to a friend. And you can stay at his friend's house without a problem and they will host you gladly, just because of that connection. So, what I told people is, “People already Airbnb, they just don't Airbnb online.”
Jack: They just don't get paid for it.
Stefan: Exactly. It's just basically what Airbnb is at the end of the day is a build. It's a system of trust. It's a digital system of trust and it's really one person trusting another because of the reviews. And I hope that I'm not going to be robbed, mugged or whatever. I'm going to have a nice experience because of the trust Airbnb does. That's the same thing. You will go to Rio because your a friend would vouch for you and the other friend, and he's also not going to put you in a bad location. So that's why I told everybody, “It already happens.” Technology is going to make it more efficient.
And so, I think, and the fact that I could do that is because I had the different perspective in the world by traveling to different locations and seeing how people react in different cultures. So, I could see the business opportunity and maybe a lot of people, they just couldn't see that. And we had a hard time recruiting people because people do not trust that system working in Brazil, like it was a scam. So, I had a lot of friends that I tried to recruit. They were like, “this is not going to work,” and they're missing out on a big opportunity now.
Jack: They're missing out now. Hey, these things happen. We learn a lot of lessons by those kinds of missed opportunities. Well Stefan, this has been fascinating. The product itself to me is, it's just so blindingly obvious that it's going to be a massive success. Have you got any last words for us before we wind it up?
Stefan: Well, first of all, I want to thank you for the opportunity. It's been a pleasure. I want to tell everybody now if you are interested in what we're doing please reach out. I've got this very weird German name, Stefan Schimenes. There are not two of me.
Jack: He's the only one.
Stefan: The easiest way of finding me is just go on LinkedIn. Type InvestReal. You'll find me. You can just connect with me on LinkedIn. You can also email me at my first name at investreal.com. So my first name is stefan@investreal.com. Please reach out, we'd love to get in touch with you. And final words -- the power of data not only to make good investment decisions, it's just tremendous, but also to save you from losing millions of dollars. And I'll finalize it with one, just one very brief, real true story.
I met this fund man, an Opportunity Zone fund manager who was raising a substantial fund and he was looking to buy an asset and transform into a multifamily and he looked, he’s like, “Can I look at your data?” I was like, “Yeah, you have to pay for it but you’re my friend; I'll just do one research for you for free.” Right?
So, we ran a report and all the indicators were bad. Everything. The fundamental score is bad. The quality of life score was bad, the quality of life trend score was bad, the rent prices were bad. Everything we could see was bad and I was like, “You cannot make this investment. You're going to lose your money.” So literally that conversation saved him millions of dollars. So, putting into perspective what something similar would have done if you were investing in real estate in 2005, 2006.
Jack: Right.
Stefan: That's the power of data. So final words: power of data transforming real estate.
Jack: Very good, well thank you Stefan.
Stefan: Thank you.
Jack: I do want to remind our listeners that all the information that we talked about here during the interview will be available in the written printed form on the podcast website so you can get it there. For Stefan Schimenes, I am Jack Heald of The OZExpo Podcast. Thanks for listening. Be sure to subscribe. So, you always get an update when we publish a new episode and we will talk to you next time.
Announcer: This podcast is for informational purposes only and does not constitute legal tax or investment advice. For specific recommendations, please consult with your financial, legal, or tax professional.
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