Conversations with Innovators - Q&A with Kendall Davis of Fundrise
The Conversations with Innovators blog discusses new innovations, big ideas, disruptive technologies, and the thought leaders, innovators, rebels, entrepreneurs and trailblazers that make all of this possible.
This week we are talking with Kendall Davis, Vice-President of Investments at Fundrise, the first service that makes the benefits of private market real estate investing available to everyone in the US, no matter their net worth. Fundrise offers an easy to use, low-cost platform makes investing simple. You can get started with just $500.
Kendall Davis has led the Fundrise investments team since June 2014. Previously Kendall worked at Citigroup, initially in Structured Credit and Interest Rate Derivative Sales, then subsequently as part of the Hedge Fund & Alternatives Initiative group within the Citi Private Bank. Kendall is a graduate of the University of Virginia.
What was the big idea behind Fundrise?
After spending years working as a real estate developer, our CEO and Co-Founder Ben Miller was tired with how broken the investment system was and wanted to do something to change it. Our mission since the beginning has been to give individuals the ability to own real estate without needing to invest millions of dollars. As the first company to implement a real estate crowdfunding platform online, Fundrise saw an opportunity to give the average retail investor access to high quality, private real estate investments that have been previously only available to the ultra-wealthy.
The first real estate crowdfunding in the United States was our mixed use retail and restaurant space, Maketto, on H Street in Washington, D.C. We raised $325,000 from 175 investors, many investing as little as $100. Now that Maketto is developed, investors can visit a thriving business that they own. Since that first project, we have expanded nationwide to investors across the U.S. We have always been focused on making real estate investing available to everyone in an easy, cost effective manner.
Fundrise offers investors an opportunity to access private real estate investments. Why is that a valuable opportunity?
Our research suggests that public markets charge investors a 2030% liquidity premium when they purchase shares. Because public markets have been the only option for most investors, few tend to recognize the cost of the liquidity provided. If you are a short-term investor you probably don’t mind paying for the liquidity. But if you are a long-term investor, why pay a premium for liquidity you aren’t going to use?
We believe that there is an enormous opportunity for passive investors to capitalize on this public/private market disparity by diversifying a portion of their portfolio into private real estate as an alternative to the stock market. Institutional investors such as the Yale Endowment have been doing this for years. Thanks to a combination of regulatory advances and technology, we have only recently been able to open the private real estate market to non-accredited investors. Through this democratization of private real estate investing, we intend to provide our investors with more stability, higher current income, greater tax efficiencies, and potentially higher overall returns than they would receive from traditional investment portfolios.
What’s Modern Portfolio Theory 2.0? How is Fundrise innovating Modern Portfolio theory?
Traditional Modern Portfolio Theory states that standard investment portfolios should consist of a mix of stocks and bonds, with a proportion dedicated to each depending on your age, in order to maximize returns for a given level of risk. While this has remained the model of choice for your average retail investor who has only had access to stocks and bonds, high net worth individuals and institutions have been earning consistently higher returns by including private market alternatives such as real estate in their portfolios. Essentially, they have been following a more advanced form of Modern Portfolio theory, Modern Portfolio Theory 2.0, all along.
We think that every investor, wealthy or not, should have the opportunity to include private alternatives in their portfolio in order to achieve true diversification. Moreover, we believe that no portfolio can be truly diversified without some exposure to alternative investments (like real estate). That’s why we’re making Modern Portfolio Theory 2.0 available to everyone.
Fundrise offers eREITs as well as goal-based investing in real estate. What has been the response to goal-based investing? Why offer that as opposed to direct investing in single real estate deals like your competitors?
The response to our goal-based investing has been very strong. Ultimately, as platforms such as Vanguard have found, most investors tend to prefer a passive investment approach, entrusting us to deliver results so that they can focus on other things. There are only so many hours in the day! In our opinion, direct investment in single deals puts an unnecessary burden on investors to underwrite the deals themselves — a large responsibility that is best left to real estate professionals with years of experience. Moreover, concentrated exposure to too few investments leaves investors vulnerable to idiosyncratic risk that could have been diversified away if their funds had instead been spread over an array of assets. We see individual REIT and goal-based investing as the best way to leverage the power of technology to deliver attractive risk-adjusted returns through diversification.
Does Fundrise have any new innovations on the horizon?
We are always innovating in order to move the company forward and constantly improve our investor experience. We’re really excited about some new developments in the pipeline, but I can’t tell you about them yet...
How would you describe an ideal work environment?
Collaborative, transparent, and open. We put a very high value on open communication at our company, both internally and externally. To encourage this, we have an open office layout empowering formal and informal communication across all teams. We find that this setup encourages voluntary individual participation and spontaneous idea generation, as well as collaboration.
What is unique about Fundrise’s values and culture?
We focus a lot on digging ditches — doing unglamorous but important work. That is something we really value at Fundrise. Every team member participates in ditchdigging of some kind, no matter their title. We think it’s important to stay humble and hungry as we grow, and that means taking pride in small wins that help build a longstanding foundation for our company, and rewarding those who aren’t afraid to get their hands dirty to go the extra mile.
What piece of advice would you give to an entrepreneur starting their first business?
Have a long-term mindset. Growing a business is a marathon, not a sprint. Behind every overnight success are 10+ years of hard work and preparation. I used to be really hung up on short-term wins and rushing to the finish line, but I’ve learned that that kind of thinking can be very harmful and limiting. It’s important to keep the big picture in mind.
What’s your “one thing” that most drives your professional success?
Intellectual curiosity. If you don’t have an inherent drive to constantly learn and grow, I think it’s hard to be professionally successful. The most successful new hires we bring into our organization have an inherent drive to learn constantly, read voraciously, and know how to think critically.
What are you reading right now?
"Peak: Secrets from the New Science of Expertise." It’s an interesting study on the science of learning new things and mastering new subjects, which is constantly important in the business world. At Fundrise we believe it is important to be a little bit uncomfortable in order to continue to grow. I’m always trying to push myself out of my comfort zone to learn new things, be a better teammate, employee and leader, and further my impact.
About the Firm:
Klemchuk LLP is a litigation, intellectual property, transactional, and international business law firm dedicated to protecting innovation. The firm provides tailored legal solutions to industries including software, technology, retail, real estate, consumer goods, ecommerce, telecommunications, restaurant, energy, media, and professional services. The firm focuses on serving mid-market companies seeking long-term, value-added relationships with a law firm. Learn more about experiencing law practiced differently and our local counsel practice.
The firm publishes Intellectual Property Trends (latest developments in IP law), Conversations with Innovators (interviews with thought leaders), Leaders in Law (insights from law leaders), Culture Counts (thoughts on law firm culture and business), and Legal Insights (in-depth analysis of IP, litigation, transactional, and international law).