Take a look at a property that is for sale and of course, you’ll see its best attributes on display. It’s pristine and uncluttered, shiny and inviting.
Glimpse behind-the-scenes of most real estate offices, and you’ll see the total opposite.
Think Wild West rather than West Elm.
This is no secret to anyone in the industry, including Jake Marmulstein who is building a business that aims to tame the chaos for real estate companies.
Jake graduated from Cornell University in 2012 with a minor in real estate. Just a few years later, he founded GroundBreaker. It’s a white label SaaS platform that enables real estate syndicators to find, manage and verify investors; receive payments; and show off property profiles.
Five years on, they’re hiring for roles in multiple areas of the business. At the WGN Studios, Jake explained what drove him to create a solution for real estate businesses, the challenges of being a non-technical founder, and the company’s breakthrough realization.
Scott: Anyone who’s had to deal with real estate knows it is rife with problems — there are so many things that are a pain in the ass to deal with. And you guys are in the thick of it.
Jake: Yeah, we are. It’s a lot of managing investor expectations and helping people have the tools so that they can do a better job at that — because most people are managing it the traditional way, with Excel spreadsheets and email. Having three interns in your office, stuffing envelopes, using paper checks and sending them in the mail is, er, quite fun.
Scott: Right, it’s not! Walk me through how GroundBreaker solves for this.
Jake: Most of the people we’re working with are real estate syndicators. They’re working deal by deal. So they’ll have an LLC asset, they’ll take down a deal, and then they’ll say, we’re going to put this under contract, we need a certain amount of equity, and they’ll raise the equity from individual investors who might be their friends and family, they might be accredited investors.
Scott: So these are not large property management groups — these are people working with one to 10 homes, one to 10 buildings?
Jake You see a lot of variation. There could be companies that develop assets from the ground up and are doing large commercial buildings with a large capital stack, with institutional investors. But most of these groups who are raising from private investors have a lot of variety in their capital stack.
To provide an example, we recently signed up a guy who has about eight multifamily properties and manages around $15 million in equity across 40 investors. And those investors are investing in other real estate syndicators too, which means that they have even more to keep up with, so they don’t necessarily have a system to be able to manage all that.
Scott: So would GroundBreaker serve both? Would it be for the original person who’s got the $15 million under management, and all the investors individually could use it for their own investments?
Jake: Absolutely. What it does is it helps these real estate syndicators clean up their back office — take everything that they have in different forms, in email and Excel and Microsoft Office Suite, and it brings all that data into one system of record, which is the GroundBreaker platform. Then they’re able to raise capital from there, manage their database of investors. They can report to investors and give them a portal where the investors can access those investments. On an individual firm basis, those investors can see what they have in those investments with that company. We haven’t quite gotten to the point where any one investor can check their investments across multiple different companies all in one place.
Scott: Eventually you’ll get to a point where you have so much information that you’ll be able to unlock extreme value in all kinds of different areas.
Jake: The more people adopt the solution, the more data that once was fragmented and in different tools becomes actually structured data. Once it exists on the internet in a structured form, you can search through it and index it and draw insights from that data, once you have a track record and history. We’ll be able to say who is the best operator on the GroundBreaker platform, and what asset class they’re in. That’s really exciting for institutional investors, or investors that want to place capital in real estate — and at the moment they might not get access to those opportunities because it’s so unorganized nowadays, and word of mouth-based.
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Scott: What advice would you give operators who may or may not be using your platform as to how they should look at their information? How should they organize?
Jake: I think it’s very important to organize yourself in a structured way. We see the way that people manage their back office, and I’ve seen really horrible things that would make investors cringe if they knew the way that the syndicator is holding their information. The best clients are the ones that have everything organized in a spreadsheet, and it’s clean, it’s formatted. There might be data validation around the fields, so they’re reducing keystroke errors.
When sending K-1s, use a secure system like Dropbox or Google Drive where you’re able to share links privately with investors. Or redact the taxpayer identification number, the social security number, in K-1s before you send them. Those are some little things that people can do to add more security and more organization to their records. It is more work, of course, but if you’re not quite at that level where you want to get a system to manage everything, there are little things that you can do. For anyone that’s interested, they can look at our blog, which has some tips on how you can approach modern investment management in a more manual way without necessarily buying into the whole technology.
Scott: This is super niche: how did you get into it?
Jake: I studied real estate in university and I worked in the professional field for long enough to see that this workflow is just a disaster. I was doing a lot of underwriting on hotel investments during the downturn, a lot of distressed assets, and we were only in a five-person group. That was in a REIT. They had a lot of investors looking to place their capital because it was ripe time for investing, and tons of deals that floated by my desk. I was stretched really thin, managing a lot of records, doing reporting, asset management, deal underwriting. With the tools that we had, it wasn’t sustainable, so I looked in the market and surprisingly didn’t find any solutions that addressed this need. And that’s why I created GroundBreaker. So it came from that experience — seeing the business for what it was, demanding a better tool.
Scott: The really challenging part of starting a company in real estate, not being technical yourself, is that you need to understand all of the business logic of real estate — which you clearly do — but the developers that you’re working with don’t. So you need to be good at explaining to them why someone will use this and how they plan to use it.
Jake: Yeah. I think that’s a really important point, because when you look at something from only a technical angle, you might know how the computer works to solve the problem, to get the data, to crunch the numbers and spit out a solution — but if you don’t understand the actual workflow that people are running through, then you might not have a solution that ever gets used.
One of the big breakthroughs at GroundBreaker was when we were onboarding customers, we realized that we needed to become a system of record: not just a tool, but a place where you don’t just use the system to get more efficiency in your business, you actually transition all your existing data into that system. And that means that we manually take all of the data from our customers’ existing records — their subscription agreements, their K-1s, their offering memorandums and their distribution notices, all that data — and we put it into the system manually for them.
So if they’ve got a portfolio of eight assets and $30 million under management with 50 investors, we’re putting that in so that the investor who logs in on day one is going to have this portfolio that’s up to date with all of their contributions, distributions, all their tax documents and reports, in a graphical and table format where they can see it, and it’s instantly this wow factor for them.
The software isn’t just a tool. It’s a transformation in the way that they do business.