Interview with Igors Puntuss, CEO at Bulkestate

"Bulkestate itself is a crowdfunding platform, but I think it's more like a real estate company with crowdfunding opportunities."

Bulkestate, the real estate crowdfunding platform that also offers group buying properties.

We have been to Bulkesate's headquarters, provisionally located in the building that’s been renovated. There we had a conversation with Igors Puntuss, CEO and co-founder of Bulkestate, so he could explain how the platform works:

Igors, could you please tell us a little bit more about yourself and your professional background before founding Bulkestate?

My professional background and that of the other cofounder is real estate. We were working with large real estate investment projects like, for example, this project that we are in (the interview took place in a building that was financed on Bulkestate platform and was being refurbished at the time.) We thought that it would be a very interesting building, so we found an investor and bought it with him. And now we are renovating it to offer it on the market for an attractive price.

So that's what we were doing before establishing Bulkestate and real estate is our main expertise.

And how did you get to crowdfunding?

We were looking for ways to attract investors. There were several ideas. One of the ideas was to establish an investment fund, however it wasn’t suitable enough for investors as well as borrowers.

We got to crowdfunding because it seemed to be the best option at a time. Our aim was to get away from one large active investor and get to lots of passive investors just to share the profits. So the idea about crowdfunding was the only model that we thought was suitable for us.

Had you previously invested personally in crowdfunding?

Actually, I hadn’t.

How did Bulkestate come about? Tell us a little bit more about how was the process of starting the company.

In the very beginning it was just the process with the fund. We went to the lawyers and we were looking through the fund option. We were speaking with the Baltics regulators about how the fund could be established and so on. It was a lot of work with the lawyers and the accountants. One day after all of that, we thought: why a fund? So, the idea about the crowdfunding option was and we went to lawyers again with the idea and studied it from all angles.

Afterwards, we went to the IT Company, which is one of the biggest in the Baltics, called Cube. Their main office is in Riga. So, we went to them and said that we want to develop a crowdfunding platform. We didn't know much about similar platforms at the time because back then the industry was still undeveloped. We had heard about Mintos in Latvia, but it didn’t suit us as they were offering consumer loans and not real estate. So, we didn't really have a choice to copy any other platform and we started to build Bulkestate from scratch.

We sat down, drew the plan and started to develop the platform. It took at least half a year to just understand how the platform would look like, how we could develop it and for the lawyers to understand what would be the risks, what would be the documents for the investors from one side, for the companies that would issue the loans from the other side, so that there would be no issues with the regulator, etc.

So, it took us at least half a year or so. On the 12th of December 2016, it went live and that's how it all started and the rest is history.

What's the meaning of Bulkestate? Why did you choose that name?

The main thing for us was the group buying concept. 'Bulk' is like a bargain; you can get bulk deals cheaper than the market value at wholesale prices. As the end buyer, you can get one flat or you can buy it in group with other buyers and get a bulk deal discount. And that's why we chose 'Bulkestate', to reinforce the idea of the group buying concept where discounts are applied to the real estate sector.

And what's the value of the proposition of Bulkestate?

As I say all the time, Bulkestate itself is a crowdfunding platform, but I think it's more like a real estate company with crowdfunding opportunities.

As I previously mentioned, most of the team that we have are real estate guys: myself, my partner, besides us, there are also designers, architects, valuation and digital guys. All of us have a wide expertise in the field. And we attract funding from the crowdfunding because we know the market. And that’s sort of how it all came into place. Real estate from one side and digital from the other.

Does Bulkestate participate in the development or management of the projects it offers? or is it merely an intermediary between developers and investors?

Sometimes we participate in the development of large projects, but always with a separate company, separated from Bulkestate and from the Bulkestate funds, of course.

Bulkestate itself is just a crowdfunding platform. Hence, it's separated and secured. This is the main reason why Bulkestate is not able to develop real estate objects itself. Because if Bulkestate were developing any projects, it would be risking with the money of the investors for the entire platform. So, Bulkestate never develops. The main business for Bulkestate is just the crowdfunding and group buying.

How does Bulkestate secure the projects offered on the platform?

The main thing for us is the valuation. We have our valuation expert in place as well and we check the real valuation of the property. With every property that goes live on the platform we require a valuation from one of the 2 leading real estate companies in the Baltics. Thus, we make sure that we also have a second opinion from third party experts. To protect our investors, the main thing is the mortgage and the property itself. If something happens, we do not want to take a property from the borrower but we have the rights in case of a default. What we want to get is the money borrowed as the main goal for us is to repay the investors. That's what we're trying to do, and at least for now, successfully.

How do you structure the investment at Bulkestate?

We sign a loan agreement as a notary act with a borrower and sell claim rights to investors, who lend their money to the borrower. It is a standard crowdfunding model. Most of the time it's secured with a first rank mortgage, but sometimes it's an equity and if so, of course, we inform the investors that there is no first rank mortgage, although in return they get a much higher interest rate. For example, we had such project in June this year. It was an acquisition of a property but it wasn’t secured with a mortgage. It was 18% per annum, but to secure the deal for investors, there were some personal guarantees of all board members and from several companies. We also requested their financials to make sure that they knew their liabilities and also to know what liabilities they had to the other creditors.

Bulkestate is not regulated by the Estonian Financial Supervisors, as you don't need a license for business loans in the Baltics. This can be somewhat odd for many investors, since in many countries a license is required to operate crowdfunding platforms that offers equity or lending. So, could you please explain to us, what is the legal situation of Bulkestate?

First of all, it is true that under the Estonia legislation and most of the European countries, we do not have to have a license from the Financial Supervisor. But to issue loans to legal entities we do have to have a license as a financial institution from the Police and Border Guard Board, which we do have.  (link to BulkEstate's licence).  

Even though we're not supervised, we voluntarily informed and provided them with information about our business model. We sent them all the cession agreements and all the terms and conditions of the business model. They provided some recommendations and we made the necessary amendments. The business model was approved after the necessary changes were implemented.

It is expected that next year a European regulation will come into force with which it will be necessary to obtain a license to operate a crowdfunding platform. Are you ready to obtain the license and what do you think of this European passport for crowdfunding platforms like yours?

Yes, we are ready for the regulation. And also, we want to be regulated because it's quite hard right now to understand legislation for each country. If you go to Italy, if you go to Spain, if you go to Lithuania, the rules are all different. So, it's quite an expensive thing at all the times to get the lawyers to understand how we can work in each country. So, I think that's one of the issues.

The other issue is that there are some platforms, so called scams, which we're afraid of because the market is not regulated and I think those platforms are abusing the market and the legislation right now. I believe that those players that are playing without any rules will disappear after the regulation comes into force.

You are a proud member of two associations: The German-Baltic Chamber of Commerce and the European Crowdfunding Network. But you are not a member of the Finance Estonia, the association that voluntarily regulates Estonian fintech. Is Bulkestate audited or supervised in any way?

Even though we’re currently not a member, we are still following the best practices for crowdfunding issued by Finance Estonia.

Let’s go with some figures. What is the average yield you are offering? How many investors do you have? How many projects have you financed so far and how much capital have you raised? And how is your loan repayment track record?

The average annual yield is above 15%. We never had any defaults and we never had any delayed repayments. At least for now, hopefully, we'll keep it that way. It's quite easy for us to keep this track record because we're trying to get projects with higher returns and our main focus is on quality not quantity because of that we have so few projects. So far, we have raised almost 10 million EUR for 58 projects out of which 28 have been already paid back to investors in time with all the accrued interests.

What commissions does Bulkestate charge?

There are no commission for the investors and there are also no management fees for investors. Nothing at all. The only commissions are for the developers that, depending on the loan, are from 2% to 5%.

How’s your Due Diligence process with the developers? What’s the average rate of projects accepted at Bulkestate?

If the developer comes with a valuation made by one of those two companies I said before, that are the main players in real estate in the Baltics and the project is located in the capital and the LTV (Loan To Value) doesn’t exceed 70%, most of the times we will accept it. Of course, it also depends on what the lawyers and valuation experts say, because they check if there are any legal issues with the property or the borrower itself.

But if the project is outside capital or developed cities, in most cases we do not accept LTV higher than 50%. Developers most of the time are asking for more funding, so it's quite often that we reject them. We don't have funds to take additional risk because, you never know what will happen in the market in a year or two. We just want to be sure and do not want to have additional risk with defaults because we want to keep our default rate zero.

Bulkestate is not going to for the moment to be international or to grow to other countries, but do you accept foreign investors?

We're accepting European resident investors. If there's an investor who's coming outside of Europe, then we're consulting with our lawyers to know which documents we have to have from them and if it's possible to accept them. If it's okay with our lawyers and with the bank, which is LHV, then we can accept it. We do not want to stay with a frozen account because of one client. So, it's mainly European residents.

What type of real estate assets are you focused on: residential, commercial, offices?

It depends on the value. Bulkestate is most of the times trying to keep with residential because the liquidity at residential is much higher. But it also depends on the volume. If some developer will come to us and will say that they need some money for an office building and the LTV is only 60%, then of course we will accept it. But if it's 70% we will have to double check to understand how easily we will be able to liquidate the property. Or, for example, if there is a street, for example, and the developers say to us, 'Guys, we would want to develop this as some several shops in this street,” and we do understand that this street is not working fine right now and neither in five years’ time, no new people will be walking through the street, of course, we'll reject it. Because the commercial premises depend on the population and the GDP and a set of parameters. Therefore, Bulkestate is focused mostly on residential projects.

How is your business model?

Bulkestate consists of two business models. One is the crowdfunding and the other is group buying. With group buying, the idea is that there are lots of buildings that belong to banks or just to one or two investors. And for lots of reasons, they do not want to sell this property by flats and they just want to sell the property as a whole. But just because they're selling it as a whole, there are not very large amounts of buyers. So, what we do is, we talk to this type of owners and tell them 'Guys, we're able to sell your property. Just give us three months to sell.' Then we send the valuation expert and we make the valuation of every flat and we put it all on our platform and sell the whole building by flats. Once we have a 100% buyers, then we're going to the owner and saying that we'll sign the agreement with you as a whole. There will be hundreds of buyers, but there will be one agreement with lots of buyers. So, you are selling it as a whole and not flat by flat. It's a Bulk Real Estate Deal and it's not crowdfunding.

For example, the building on Nometnu Street that we had on our platform, belonged to the Latvian University. They've been selling it for two years now but they cannot sell it as by flats just for being a property of the University. For legal and administrative reasons, they were obliged to sell it as a whole and no one wanted to buy. So, what we did was we found buyers for every flat separately, we participated in an auction and funded the project via crowdfunding as a bridge loan. We bought this house as a whole from the Latvian University and we instantly sold it to buyers. So, the buyers got their discount because it was sold as a whole. But to sell it by the flats, the price would have been much higher.

So, we have two models that we have combined: crowdfunding and group buying. Buyers will get a flat with a large discount and investors will get the money from buyers deal with a high interest rate. So that's the idea.

And the buyers get the flat refurbished?

It depends on the price. For example, at this project on Blaumaņa Street, what we do is we renovate the façade, the staircase and the roof and that's it. So buyers will receive the flats as is. The valuation for a renovated flat here is 2,200 euros per square meter. So, we deduct the discount, for example, of 10-15% and then we deduct the renovation price of the flat. For example, we’re selling the flats here for 1,500, 1,600 euros. So again, buyers will be able to buy a flat for a price that is cheaper than the market price. So, buyers will be able to renovate the flats by themselves the way they want it.

And what plans does Bulkestate have for the next year?

The main thing that we want to keep on is to get our portfolio profitable. With, let’s say, 15 million a year in funding, with high returns and six to nine of those group buying projects. We want to maintain the high returns for investors in the crowdfunding section and to stay with our group buying proposition which is unique in the market.

Of course, in the future we do want to scale up this group buying project to other countries because it's very easy to use the platform and the concept has proved itself to be successful. In this scenario we would like to work with real estate companies because we are not selling properties by ourselves. We would like to offer Bulkestate group buying as a tool to set all the agreements and all the legal stuff in place for real estate owners. If you are a large real estate owner, with our platform you can stay carefree and can sell your property in bulk.' I.e. in London there are lots of properties, even the detached houses, which are sold only as a whole. And Bulkestate is a great tool because you are able to sell the whole property by the house, but the deal will come in place only when there are 100% of reservations collected.

What would you say is the great face value of Bulkestate and why should investors choose your platform to invest in?

First of all, it's not only regarding Bulkestate, it's about all the real estate crowdfunding platforms. Because this type of the crowdfunding is the most secure as the investment is backed by a real estate asset and a mortgage. If something should happen, if the project will default or Bulkestate will default, you will get your money back anyway because there's a property in place. It's not the consumer loan which can default and you can get zero at the end. You will get your money back eventually. That's one thing.

The other thing with Bulkestate, in my opinion, is the real estate expertise. I don't know what's happening with other platforms but I do know that the real estate side of Bulkestate is very strong and we have the best professionals. We work with the leading valuation companies in the Baltics in real estate. My partner is a real estate professional who has been working in real estate from the age of 17 and he's 40 right now and I think he’s one of the best professionals in the market. I also have a wide experience in the real estate sector. We do have a lawyer in place with large experience who is a real estate lawyer and has worked with real estate and non-banking creditors for many years. So, our expertise and knowledge of the real estate sector is one of our main strengths and one of the things that we have which differs us from other crowdfunding platforms.

And of course, in addition, the digital guys. The IT team is one of the best teams here. We have decided to work with one of the leading developers in the Baltics. It's a very large and professional company. Even though it's very expensive, we manage funds of our investors and for us it is very important to be able to trust them and sleep well.

And, last but not least, we have an internal slogan that is “We focus on quality, not quantity.” And that's also represented on our website. We don't have that many projects so that once we post them, they're checked a couple of times with other experts, with third party experts and our internal experts. These are some of the greatest things about Bulkestate. That's why we have these returns. It's like finding a diamond somewhere out there in the market and that's what we're trying to do. That's why the interest rates are also so high.