Unison is trying to upend hundreds of years of real estate financing.
The San Francisco-based firm offers to pitch in on consumers’ down payments, and to let existing homeowners pull cash out of their properties. In return, consumers turn over some of the home’s future appreciation to the company.
Thomas Sponholtz, Unison’s founder and CEO, believes these options give consumers more choice — and change a financing landscape that he says has been around literally since the Medieval Ages.
Sponholtz will be discussing these ideas, and his take on the real estate industry, next week at Inman Connect New York. He recently sat down with Inman to explain why his model is a kind of Netflix for real estate, how healthy the market is and why companies have social responsibilities. What follows is a version of that conversation that has been edited for length and clarity.
Inman: What are the main points you’re going to hit at Inman Connect and what do you hope people take away from your comments?
Sponholtz: That buying, selling and owning a house has finally stepped into the modern era. And that it has evolved in a way that’s better for the buyer and owner, and better for the ecosystem as a whole. The old way of buying, selling and owning a home has finally come to an end.
If I go one step deeper, I would say that with buying and owning a home today, the only form of financing that has existed is really the mortgage, or mortgage debt. And there hasn’t been any innovation in financing since that was introduced in, I think it was, 1193 A.D. Debt is still the only option.
But Unison is introducing co-ownership, or equity financing. Companies can finance with debt and equity. Commercial real estate can do debt and equity. And most other asset classes in the world can do debt and equity — except for residential real estate. And that’s what Unison has done now.
We draw equity financing — which we call home co-investment — to residential real estate.
Think about it the same way that Netflix revolutionized how you watch a movie at home. In the old days, you could pick a movie out from whatever was available [at your local rental shop] and bring it back when you were done. And then all of a sudden Netflix figured out a way to stream video straight into your living room. That just changed the way you watch movies, and media in general, in a much more rational way that fits the life of the consumer rather than the life of the provider.
So we’re turning the table and creating something that’s truly to the benefit of the homebuyer and the homeowner.
Let’s say you’re 30 years old, live in New York City, have a good job and you’re trying to figure out how to buy a condo. The starting price is a million bucks. That means you need to come up with $200,000 for a down payment. So we can go in and contribute up to 75 percent of that down payment.
It’s like having a rich uncle that basically invests with you. We call it democratizing the rich relative. If you’re not fortunate enough to have rich parents or rich relatives, now you can get help from an institution like ours. And we enable people to sell a piece of the equity in their home and buy equity in other types of investments that fit their lives.
Talk to me about the health of the real estate and housing market. Last year people were talking about a potential downturn, but not so much now. Is that going to continue?
Real estate follows the economy, and earnings. People are buying houses because they can afford to buy houses. It comes from wages and jobs. So the more people have jobs and money, and the more those people make, the more houses appreciate and the more houses are sold and traded.
Given today’s economy, the consumer is not overextended, and the economy is very healthy, as far as the job market. So if you really want to aggregate all markets into one comment, then I think you’d be hard pressed as an economist to say that real estate is going to do poorly. The only case you can make is if you’re really a doom and gloom type of guy who thinks the entire economy is going to collapse. That’s really hard to see from where we are.
We think there’s going to be 2 to 2.5 percent GDP growth, which is the long term average. We think the market has been hot and has been above that, but we think we’re going to go to more of a normal market with 2 to 2.5 percent GDP growth and 2 to 4 percent inflation.
I think it’s a very well-balanced economy that we have right now. It’s a balanced, rational market. It’s been a little overheated in the last five years, but now it’s moved to having a good balance.
You’re company describes itself as building a “virtuous machine.” So what social responsibility do you think real estate companies have? Should they be a force for good in the world?
Buying and owning a home is a very basic human need that goes back thousands of years. It’s both a very emotional decision, but also the largest, in many cases, financial decision that people make. It’s where you’re bringing up your family, having your life. A big part of your identity is tied up in the emotional side of the home. And then your financial well-being is also tied up in the same home.
Those things put an enormous responsibility on the providers of services that are tied to the buying, selling and owning of a home. I firmly believe that that puts an obligation on the industry to offer a product or service that asks if it’s in the best interest of the client.
So I believe what we call the ESG angle, the environmental and social good side, is extraordinarily important for this industry. It’s hard to find an industry that has a greater responsibility than we do.
Our job is to create different types of homeownership and financing that is flexible with your own personal financial situation at any given time.
There are times where you should just have debt, and there are times where it makes more sense to have a combination of debt and equity. And having a combination of debt and equity creates much more stable and secure homeownership both on the financial and the emotional side. Because if you have the right financial package, you’re emotionally not as concerned about over stretching yourself and being that much at risk.
As it relates to other providers, clearly if you talk to loan officers, their job is to listen carefully to the consumer and figure out again what their life and financial goals are — and then match the right combination of financing to that. And if you are a real estate agent, it’s really digging deep in trying to understand what the consumer needs and where they want to live.
Are you ready for what the industry holds in 2020? Inman Connect New York is your key to unlocking opportunity in a changing market. At Connect you will gain insight into the future, discover new strategies and network with real estate’s best and brightest to accelerate your business. Create your 2020 success story at Inman Connect New York, January 28-31, 2020.
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