Loadstar Capital, the first real estate crowdfunding company in Japan, completed its initial public offering (IPO) on the Tokyo Stock Exchange Mothers Market in September 2017. Loadstar Capital’s successful IPO followed the companies receipt of its Type II Financial Instruments Business License and Consulting & Business Brokerage License. Loadstar Capital combines real estate investment with IT technology. It aims to reduce information asymmetries between investors and real estate agents by improving the transparency of information in real estate investment through technologies like big data, thereby lowering the real estate investment threshold and changing the real estate investment model.
Founded in 2012, Loadstar Capital started as a real estate consulting company and then expanded its business scope from consulting, to real estate brokerage and proprietary investment, to real estate crowdfunding. By June 2017, the company had launched 64 projects in total and invested in apartments, residential properties, office buildings and commercial facilities in 23 districts in Tokyo. The total amount raised by this crowdfunding platform is 2.677 billion yen ($ 25.14 million), with cumulative investment reaching 2.1857 billion yen ($ 20.52 million).
In 2014, Loadstar Capital received a capital injection from the Chinese internet technology company Renren.com. Loadstar Capital currently has established cooperation with eight banks in Japan, including Sumitomo Mitsui Banking Corporation, Mizuho Bank, Tokyo UFJ Bank, Mitsubishi UFJ Trust Bank and Sumitomo Mitsui Trust Bank Co., Ltd, with 1.169 billion yen of total capital (2.388 billion yen of reserve capital).
Founders
Loadstar Capital is co-founded by Tatsushi Iwano, Yasushi Morita and Yukiko Nakagawa, each of whom had previously worked at Goldman Sachs Realty Japan Ltd where they had developed rich experience and professional knowledge in real estate investment. To achieve the goal of changing the real estate investment model, Loadstar Capital aims to make real estate investment information more transparent, to lower the threshold of real estate investment, and to combine real estate with IT technology and reform the technology underlying real estate transactions.
Chinese internet technology company Renren.com has injected capital and engaged in-depth cooperation with Loadstar Capital. This lead to the introduction of new real estate technology to Loadstar Capital such as the development of the Ownerbook asset management platform, an AI-Checker artificial intelligence evaluator and an SNS information exchange social platform.
Business Model
Loadstar Capital has four business segments: crowdfunding, corporate funding, brokerage and consulting, and asset management. Since the launch of Ownerbook in 2014, the company has initiated 64 investment projects with a total investment amount of 2.295 billion yen by August 1, 2017. The projects are distributed in 23 districts in Tokyo, Japan. An inefficient market with a lack of competition is the main battlefield. The annualized rate of return is 4.8% to 14.5%, and the term of the loan is from one-month to 18-months.
Loadstar Capital's investment projects are based on mezzanine loans and vanilla loans. When the projects are operated, funds are provided to real estate developers through loans instead of equity. As a form of real estate loan, a mezzanine loan is a hybrid asset between equity and guaranteed bond. In terms of quantity, the total project funds (i.e. the own funds of real estate developers and bank mortgage loans combined) equals the value of the mezzanine loans. In terms of risk, the risk of mezzanine loans is lower than equity investments and higher than mortgage loans. In terms of bankruptcy liquidation sequence, the residual claimant for mezzanine loans comes prior to those for equity investments, and the residual claimant for mortgage loans comes prior to those for mezzanine loans.
1. Crowdfunding Business
In May 2014, Loadstar Capital founded its wholly-owned subsidiary—Loadstar Funding. In September 2014, Loadstar Capital released OwnersBook, Japan's first real estate crowdfunding platform. Investors can download the “Investor Application” on the homepage of the website after registration, enter the necessary information such as ID card number and telephone number, and submit the identity certification materials. Investors registration is confirmed by email which includes questionnaires about investors’ risk appetite and historical investment status. After passing the platform review, investors can use the platform to select investment projects. The process takes about five working days.
The minimum investment amount on this platform is 10,000 yen, and the maximum is half of the total funds for project solicitation. The platform does not currently charge opening or account management fees, while the exit fee is 300 yen. The wholly-owned subsidiary Loadstar Funding conducts the fund raising and manages the investment accounts.
The OwnerBook platform provides individual investors with real estate investment opportunities through crowdfunding. At present, the projects on the platform are mainly small and medium-sized real estate investment transactions based on fund-raise via mezzanine loans and vanilla loans. Loadstar Capital hopes that individual investors can invest in real estate projects via its platform just like institutional investors.
Investment projects are usually multi-purpose buildings or apartment buildings with low occupancy rate and under-occupied space utilization. Loadstar Capital usually acquires the first to fifth floors of the building and seeks to improve the occupancy rate and realize gains by improving the public space. During the process, OwnerBook sells the project to an investment fund and assigns an investment manager to operate the project.
Investors: Due to restrictions on the amount that individual investors can invest and the large scale of real estate investment, individual investors often can’t participate in real estate larger investment transactions. However, the OwnerBook platform has changed this situation through Internet technology. Loadstar Funding will review the information of relevant project investors on financial products, investment objectives, trading experience, property status, and seek appropriate investors based on the details of investment projects. Loadstar Funding also enables investors to understand the financial products issued by fully disclosing the risks of investment projects, so that investors can make appropriate decisions.
Cash Flow: Loadstar Funding raising funds from loan-type investment projects on the Ownerbook platform. Cash flows from investors to Loadstar Funding, and then Loadstar Funding lends funds to project sponsors, who may be Loadstar Capital or external real estate developers. The project sponsors use funds for renovation, construction of new buildings and related work. Loadstar capital pays interest to investors each quarter until the project finishes. When the loan expires, the project sponsors repay the capital with interest. When the project sponsors are external real estate firms, Loadstar Funding collects a commission from the firms. When the project sponsor is Loadstar Capital, Loadstar Funding repays the capital with interest to investors through the project proceeds.
Collateral: The rental income of the mortgage is not treated as investment income. When a default occurs, Loadstar Capital repays the investor’s principal with its assessed value.
2. Corporate Funding Business
Investment projects of Loadstar Capital are mainly medium-sized office buildings, multi-purpose buildings, apartment buildings, etc. in 23 districts of Tokyo, Japan. Loadstar Capital acquires medium-sized office buildings with below potential cash flow and adds value and obtains income through improved management including transforming and improving the occupancy rate.
Determination of investment projects: First, the company’s internal staff conducts an audit to determine the value of property to be acquired in investment projects. Second, the company hires external auditors to evaluate the project pricing. When the investment target has a below market potential value, the company will invest.
After the acquisition of the property, Loadstar Capital renovates the property, attracts tenants, improves the occupancy, reduces management costs and sells the value added properties based on the best market timing.
3. Brokerage and Consulting Business
The company provides customers with sophisticated market analysis and promotes real estate transactions through its brokerage business. The company also offers consulting services based on its employees’ expertise across real estate businesses, transactions, management and management consulting to help customers realize profit.
4. Asset Management Business
Loadstar Capital manages and operates real estate investments on behalf of clients, provides long-term support for clients in formulating real estate investment strategies and property acquisitions, and from revenue and expense management during the period from acquisition to the sale of property.
Profit Model
The sources of income for Loadstar Capital include consulting and brokerage fees and asset management fees. At present, the Ownerbook platform does not charge investors for account opening fees and account management fees—it obtains investment spreads through investment projects. The company invests in real estate projects using its own capital to obtain rental income. The company’s main revenue comes from real estate investment and rental.
Future Development
In the real estate finance industry, the occupancy rate in the 23 districts of Tokyo is stable, with office rents continuing to rise. The property purchased by Loadstar Capital is suitable for issuing real estate investment projects. Loadstar Capital expands its assets by investing in medium-sized properties in downtown Tokyo. The company will expand its investment in crowdfunding assets, using real estate as collateral to reduce the risk of investment projects, and to increase the number of investors and accumulated investment volume. This goal can’t be achieved through crowdfunding loan services only. Therefore, the company has also developing equity-based crowdfunding business. Loadstar Capital has established a marketing and operating system, to strengthen the market recognition of OwnersBook and the crowdfunding market, and to strengthen people's confidence in real estate equity crowdfunding investment through media exposure.
