Q&A with Bulkestate CEO and co-founder Igors Puntuss at the office in Riga

Q&A with Bulkestate CEO and co-founder Igors Puntuss at the office in Riga

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I always wanted to learn more about Bulkestate. I never invested with them until now because of their low volume of projects. Last Thursday I visited their temporary office in Riga and had a long and very insightful talk with Igors PuntussBulkestate CEO and co-founder. Now I know why their volume is smaller than the other real estate crowdfunding platforms. I brought my own questions as well as community questions from fellow investors and I have to warn you. Igors was very thorough in his answers. This is going to be a long post. I did not want to shorten it down however, as Igors gave so much of his expert knowledge about the real estate market, and real estate investing in Riga and the Baltics states in general. You are really in for a treat! If you want to invest in real estate in the Baltics and especially in Riga, which is the best market at the moment in the Baltic states, you should really take the time to read or listen to his answers. I personally got much more out of this meeting than I expected. I used 9 hours just to transcript the interview, so I really hope someone takes the time to read or hear it. Even if I reach no one, the time has definitely not been wasted. Igors offers exceptional insight into the Riga real estate market and it is now clear to me that Igors is an expert in this area. I already transferred funds for two coming projects. 

So, funny story just to start off. One of the Danish investors asked me to look into a particular Bulkestate project at Blaumaņa Street in the center of Riga that he was invested in. I can tell you this much. It is still ongoing and on schedule. How do I know this? Well, let me enlighten you. When I arrived at the address that Bulkestate has been located on for the last 4 months, I could not find it at all! I looked around for a while before I called Igors. “I’ll come down to get you”, he said. 

Where is the Bulkestate office located? Are you kidding me?

Turns out, Bulkestate actually had their office IN the actual project! Yes, you heard me. IN the actual project on Blaumaņa Street. This is also why I cannot share the audio recording of the interview as the construction site was hammering away all the time during the meeting. It seemed like there was some cement that needed to be removed with a big hammer outside the meeting room window during the interview. Bulkestate actually put their office in the building they were renovating, to follow the renovation closely. How much closer can you get? I just loved the Bulkestate attitude right from the start! They really live their projects! I truly respect that. I also really like to see that real improvements is actually being made. The building is not just being renovated, but they are e.g. also putting in an elevator. 

So, lets start the interview

The interview at the Bulkestate office was with CEO and co-founder, Igors Puntuss, and Kaspars Peksens, Head of Digital, as I had some specific questions to the platform functionality from other investors. Let’s get on with it. 

Georg: 
How long have you been in real estate and how did you get started? 

Igors: 
The company was founded in 2016, at the end of the year. So it is a new company. I work with my partner. He started when he was 17, I started later. Mostly we have been working with the large real estate objects, so we are not working with small flats. Well, we started with flats but then we moved to larger objects and we were searching for investors, developing the projects and then selling. Afterward, we split the profits. So that is what we are doing. One day we decided to work on getting passive investors. The problem working with large investors is  that sometimes they try to influence the business, even though they are not in real estate. If they do not know the market, are not in real estate and not from Latvia, and they are trying to influence the projects, that could result in lost profits or even losing the money. So we were looking for opportunities to get rid of the active investors and get passive investors instead. Finally, we got the idea that crowdfunding would be a good option, so went to one of the biggest IT developers in the Baltics, and together with them we founded the platform, Since then it has been working quite good. 

Georg: 
How many employees do you have here at the office?

Igors: 
We are working with a real estate team as well, which is not under Bulkestate, but we are cooperating. Here at the office, we are currently 13 people. We have lawyers outsourced, we have a marketing team outsourced as well as IT, we have a real estate designer in-house. The office is pretty empty right now as everyone is out at the objects. They are searching for the real estate objects and they manage the construction work. We have lawyers, evaluation experts and customer relation specialists. Because of that, we are able to make decisions quite fast when we have a real estate proposition. We have all the resources we need right here to brainstorm and quite easily and fast we can make a decision. 

Georg: 
Basically, all of your projects are in Riga or close by. Why is that? 

Igors: 
That is another point where we stand out. We want to deliver high returns to our investors and that is quite hard to achieve. So it is hard to make projects in Tallinn, Rome or Berlin for high returns if you are not there and a professional in the exact market. We have everything in place here and we have been working here all of our lives, so we are able to provide those high return projects here. That is also why if 20000 investors come to us, and say that they are ready to invest hundreds of millions of euros, we will not be able to deliver high return projects to them. We can only provide a limited amount of these projects with high returns. It is somewhere in the vicinity of 10 to 15 million euros we are looking at right now. 17 or 18 percent for a project is quite hard to find. Even in the Baltics, where the market is still developing and developing fast, it is still an issue finding these projects. Only because we have the whole team in place here, we are able to achieve that. 

Georg: 
So you grew up here and know what areas of the city are popular? 

Igors: 
Exactly. Also, the evaluation expert we have has been doing this all of his life. We got him last year from one of the largest Nordic real estate companies. He does not need to look at any database to understand the valuations. He may already have done an evaluation of that same house 3 or 5 years ago, and he will know if the price is too high, or if we can get a higher price. So we do not have to spend weeks with the company to understand if the deal is ok or not. 

Georg: 
What is your average investor portfolio size at Bulkestate?

Igors: 
It depends. Last year it was around 900 euros. But it is increasing. We do have a lot of investors only with the minimum 50 euros invested and we also have investors investing 200000 euros in a single object, and that just spoils the statistics. The small portfolios are usually new investors who want to test the platform out and ones they become more comfortable with the platform, they invest more. We are still a young company but we see those investors coming back with a large sum of money after having participated in a successful project. 

Georg: 
How do you do your due diligence?

Igors: 
It is a complex process. When we look into an object that someone wants to get funded, the first thing that happens is the valuation. That is the main document. The evaluations we accept here is only from two top real estate companies. We sign agreements with them and we trust them. We are not working with any other real estate companies even though there is a large amount of them. That is the first step. The second step is the evaluation from our own in-house evaluation expert. He will evaluate how much money we will be able to sell the object for,  if something should go wrong and the project defaults. For example, if the evaluation is 1 million euros and he tells us that we will be able to sell it fast for 800000 euros, then we know what sum of money is required for the borrower. Third, we have a lawyer in place in-house who has very long experience with real estate. She is checking if there are any mortgages, who the owners are etc. Under the Estonian legislation and AML, we do have to check the borrower quite harsh. Is it a political person? What loans do they have? Do they have bankruptcy? When everything is checked, we will then go and inspect the property. Is the foundation in order? What state are the walls and the roof in? How long will the building be able to last? After that, we know if we want to take the offer or refuse it. In Riga or Jurmala it is not an issue as the market is quite hot and it is easy to sell the property if the object will default. The problem is quite often with the objects around Riga, or other places in Latvia. Here we are are not sure that we will even be able to sell it for 70 percent of the valuation. Sometimes in the smaller cities, we can only sell it for maybe 50 percent of the evaluation. We evaluate such situations and we make sure that the selling process will not be long and liquidity is high enough. We want to make sure that if a project defaults or if something happens to the market, we can sell the object fast. Even if it means doing it at a big discount. We do not want to be stuck with a property as we are not a real estate company, we are a crowdfunding platform. That is the process we use. It seems like a long process, but with the databases we have we can get all the information we need from the Latvian banks, from the government institutions, and from the valuation in a few days. 

Georg: 
I have a question from an investor: “Why do I have to create an invoice on the amount I want to add before I transfer money to the platform? On other platforms, I just transfer the funds.” 

Kaspars: 
In the beginning, we did not have the current deposit system in place where you deposit into your virtual account, so investors were investing directly into objects. Now the system has improved, so this is something that will soon be removed from the platform, when we release the change together with some other platform improvements, at the end of this summer. 

Georg: 
Are there any plans for a secondary market in the future? 

Kaspars: 
At the moment the answer is no. We are not trying to compete with platforms who have high volumes, just for the sake of functionality. 

Igors: 
Not in 2019, but maybe in the future. There is a point for a platform like EstateGuru to have functionality like that, as they can have several new objects per day. We only have a few objects per month, so it would not add a lot of value to our platform and investors. Our goal is to keep the high returns and we can do that with a turnover of 10 to 15 million per year. That is just a few large objects per month. 

Georg: 
We already touched this topic earlier, but an investor is asking if you are planning to include projects in other countries in the future? 

Igors: 
We actually had some talks about Barcelona because we have some partners there that we are quite confident with. However, due diligence is quite hard. We first need to understand how easy it would be to sell in a default situation. Right now we will not introduce other countries, because if we want to include for example Tallinn, Vilnius, Stuttgart or somewhere else, we would have to have a great professional team in place which is very hard to achieve. How can we be sure that the companies we work with are real professionals? They can say to us that this is an object that is ok and if it defaults, it will hurt the reputation of Bulkestate and not them. If we will include a new country we will just have the CV of the partners and the interview with them to look at, but we will not really know them. We are working to get investors from other countries but not objects. Barcelona could be a future market but it depends on what the lawyers say we can get in terms of returns. If the lawyers say that we will have to spend a year to get the properties in a safe manner, then obviously not. We don’t want to take a higher risk of default, just to expand to other countries. With just one default we would be jeopardizing all of our other projects as well as the reputation of our platform. We want to minimize the default rates as much as possible. 

Georg: 
I guess that if you go to another country where you don’t have expert knowledge, that would eat into the profits as well? 

Igors: 
Exactly! Why should we go into another market if we can only get a profit of 3 to 4 percent? There is no point of that. Of course, if you are scaling up fast like EstateGuru and you are trying to go to other markets with several projects a week, it would make sense to have teams in place. But the quality high return projects are hard to find.  We have a few new high return objects in Riga in the pipeline and we are focusing to find investors for those projects. 

Georg: 
Are you planning to add more statistics about the projects, e.g. how much has been paid back? Are projects late? CrowdEstate, for example, has a full S.W.O.T matrix (Strengths/Weaknesses/Threat/Opportunities) as well as company ratings and risk profile comparisons on their platform. 

Igors: 
We added repayments schedules a while back and we got a lot of valuable feedback about this topic at the P2P conference last week, and we understand that some investors are interested in more statistical data and more information about the objects. We have not had a lot of requests about this before. We have not had any defaults yet and we are actually a profitable company and we also want to show this information on the website. 

Georg: 
I think that a lot of investors will ask about these statistics, but few investors will actually look at the data in details. Instead they will probably just invest a smaller amount of money in each object to diversify. But just seeing that the statistical data is available makes investors feel more at ease. 

Igors: 
I agree that it would be great with more information available. We are actually very open for suggestions for improving our functionality and what new functionality we should add from the community of investors. We will have some workshops with our IT team in the near future to change some functionality, and we have discussed statistics. As we now have a larger number of projects that have been financed, and a larger number that has been paid back, now could be a good time to add statistics. I really think we have a track record we can be proud to share statistics on. Regarding the information about the companies, we are trying to share enough information on the companies, like the name of the companies and VAT numbers. The government databases with information about the companies are actually open so it is possible to go and get a lot of information here if an investor wants to do that. You can even get tax information about the companies. If you go to the Latvian company registry database Lursoft, you can access a lot of data in English just by entering the VAT number or company name. On the website, we are not including the names of the owners or the people giving private guarantees, as we are not allowed to do this due to the GDPR rules. About the statistics for BulkEstate, we ended 2017 with a profit of 54000 euros and I think for 2018 the finances are still in process. However, there will be profits as well in the area of a few hundred thousand euros. This information is also publicly available and we are keeping all the profits in the company. With all projects, the main concern is the property itself. We always have a first-hand mortgage in place and if the developer does something stupid with the money he gets from us, we can get our money back by selling the property fast. We will get the money first because of the first hand mortgage. For example, for the last project we got 1750000 euros from investors and the valuation was 2800000 euros. So there is room to give a large discount if we need to sell the property in case of a default. We would easily be able to get 1750000 euros and all the interest rates, which are about 200000 euros, by selling the object in a few weeks time. Because the discount is enormous. In Riga right now there are more than 115 investors who are looking for the large projects all the time, so it would be easy for us to sell. 

Georg: 
Where is the Latvian real estate market right now? Is there a bobble? Is it hot? How are the prices? 

Igors: 
We are in a very good position right now, because the Latvian market is the most undeveloped in the Baltics at the moment. In Tallinn or Vilnius, there is a lot of construction work going on in the residential property area. They have a lot of developers and therefore the margins are lower and the prices are higher. For residential properties, the prices are at least 10 percent higher than in Riga. So you will not be able to buy for 1000 euros per square meter in Tallinn, but it is quite easy to do it in good locations in Riga. In Vilnius, the office market is very developed and in Riga it is underdeveloped. In Riga, a class A office will cost around 15 euros per square meter per month whereas is Vilnius only 9 euros per square meter per month. So there are large margins in Riga. We are quite far away from a bobble. If something will happen in the Baltics it will most likely happen first in Tallinn, second in Vilnius, and only then in Riga. Another thing is that if you go around Riga there are these areas where there is not much going on. Sleeping areas, where people basically just sleep and then go to work in the city center. There are a lot of buildings there from the Soviet Union. Maybe 60 to 70 percent of them. You have them all over, in Vilnius and Tallinn as well. They were built when Khrushchev was still the first secretary. So the idea was to build a lot of real estate quite fast. The idea was that 50 years later they would be able to rebuild it. But the Soviet Union collapsed and the buildings stayed. The problem is that for all of those buildings, the term is coming to an end. Some of the buildings are starting to collapse. The staircases and the walls are in very poor condition. Because of that, renovated buildings and new buildings are rising in price. We are usually aiming towards houses that were built before the war, renovating them and selling them. They are constructed to last hundreds of years but the proposal for them are very low in price. Therefore we are feeling quite confident in this market. We take objects that we will be able to sell afterwards, with at least a 15 % discount under the market price. For the last project, the selling price was predicted at 17 % under the market value. Because of that, we are quite sure that we will be able to sell all the flats in 9 months time. Even with some fluctuations in the market, we are quite confident that we will be able to sell the apartments. If a 2008 situation returns there will be a problem, but not for everyone. The market will just freeze. We have a maximum LTV of 70 to 75 percent, so I think we will be able to sustain the prices if something will occur. Also, we go with objects in the city center at locations that are quite popular. Mostly in these areas, the buildings are constructed before the war. We could go into a building built after the war if investigations shows, that after a full renovation we can sell the apartments under the market value. But we would not go into a building that is set to expire in for example 2020. If someone tries to go to the bank and refinance a building like that, we know in advance that it is forbidden by the banks. But the large majority of the buildings on our platform are constructed before the war. 

Georg: 
I came across an article a few days back on the EvoEstate blog called “The LTV mousetrap“, written by Audrius Visniauskas. It was about how many investors only look at the LTV when they evaluate projects they want to invest in. There has been some examples of evaluations being too high, resulting some in low LTV’s that makes the objects seem more valuable for investors than they are in reality. If you were living here in Riga, you would maybe be able to see that the evaluation was too high, but for a foreign investor that would not be that obvious. Is there anything investors can do fairly easily to investigate the valuations somewhat by themselves? 

Igors: 
As I said earlier, that is the reason that we only have an agreement with two real estate companies. Because that is an issue. Some of the other real estate companies can evaluate the price much higher that we think the building should actually cost. That is also why we have an in-house evaluation expert in place who is double checking the prices and comparing to other properties in the area. For larger investors, we do prepare some analysis of the nearby properties. There are two big websites where you can buy the properties, that you as an investor could look into. It is city24.lv, which is available in English, and ss.com that is unfortunately not available in English. What we did for one large investor is that we took the information from some of these websites and prepared some analysis of three similar projects. An investor can ask us for similar projects in the vicinity of our project and we can supply the information. It would be easier for us to find similar projects. We are not putting these analyses on the platform as we don’t want the share our business model with competitors. We are not competing with other crowdfunding  platforms. We are competing with other real estate companies. 

Kaspars: 
Another thing to look into is the area. Even if the LTV is very low, it does not matter if the object is located in an area where no one wants to buy. We would not be able to sell. 

Georg: 
Bulkestate has a 0 percent default rate until today. How is that compared to other platforms? 

Igors: 
I have seen, if I am correct, default rates of 8 % last year. There are a lot of defaults right now. For EstateGuru I think it will rise, because of the number of projects they have. If you finance two projects per day there will be a default at some point. So we will try to keep it as near to 0 percent as possible. We also try to help the borrower if he runs into trouble. We don’t just hurry up to go to court so we can get the property like some banks do. That is not our business model. 

Georg: 
Everybody is talking about regulations. Are you being regulated and if so, how will that affect investors in the future? 

Igors: 
Everybody is talking about regulations and we are part of the European Crowdfunding Network. So we spoke to the chairman and he told us that right now Germany, France, Italy, and Spain they are not able to get a consensus and he said that everybody is talking about these regulations, but they think it will not be in place for at least a few years.  That is regarding the main regulations. There are regulations that is coming into place right now in Latvia,  that everyone is talking about, but we are officially an Estonian platform and right now we are not regulated in Latvia. We are not getting investors and we are not marketing ourselves in Latvia, so when the regulations will come into effect it will not affect Bulkestate at all as we are not regulated under Latvian law. We do have a license under Estonian law which is a financial institution license, but that does not mean that we are regulated under the Estonian regulators. We do have to inform them about our business model and we had to make some changes in 2017 to fit the Estonia legislation. We also have to send them information about AML ones a year. We cannot market ourselves in Latvia, but that does not matter as most of our investors are mainly from Germany, Estonia and we are also seeing a lot of new investors from Denmark, Holland, Spain and Portugal. 

Georg: 
How big a part of someone’s total investment portfolio do you think should be in crowdlending? What do you think is the maximum percentage? I know this is very individual as everybody has a different risk profile. 

Igors: 
Personally, I think that risk is very individual. So it is hard to say. However, if you are invested in real estate crowdfunding platforms your money is more secure. If there is a default, and there will be, you will get at least most of your money eventually. There is always a hard asset that can be sold, even though it may take a while. With consumer loans, no one knows what will happen. Of course, there are some buyback guarantees, but if a large loan originator defaults then I am not sure what will happen. With real estate, everything is quite simple. If there is a default, then there is the court and then an auction. It could be 3 months to 2 years, but eventually, you will get at least most of your money back. 

Georg: 
One last question. Are you an investor yourself? 

Igors: 
I am invested with small amounts in some of the other real estate crowdfunding platforms, but I am more like a tourist on those platforms. It is mostly to follow what kinds of issues they have and how we can improve our own platform. I invest mainly in Bulkestate itself and we still want to keep developing the platform. So we keep the returns in the company to improve and develop the platform. 

Visiting the latest fully funded Bulkestate project at Marijas Street

After the interview Igors was so kind to take me to their newest project at Marijas Street, just fully funded during the P2P conference. What can I say – Bulkestate really knows how to pick their locations. The building is located on a busy street very close to one of the newest Crowdestor renovation projects I invested in recently. The small gray part of the building is already reserved for the Finnish version of Mcdonalds. There is a beautiful and quiet little area with restaurants and shops on the back side of the building and on the busy street there are shops and eateries everywhere. You can easily walk to the old city center in a short time. Behind the building is an old garage that will be torn down and parking spaces, that they plan to sell off, will be established instead. 

Later I went back to have another look at the object and made i Youtube video about it. It gives a really good idea of the objects size, state and location. Check it out and don’t forget to give it a like if you want me to make more videos like this of past and future objects from real estate investment projects. 

Two new projects will be available very soon for investing at Bulkestate!

Tomorrow I will be visiting Bulkestate again to view two new projects that will be introduced on the platform in the near future. I promise to take pictures and videos for potential investors! 

The first object are two flats in one of the most beautiful buildings in Latvia. The target amount will be around 600000 € with 14 % interest rate and with a 1% cashback. I made two Youtube video with Igors at the object

The second object is a refinance object of an existing loan. It will be an equity object, without the mortgage. The interest rate will be 18 % with a target sum of 135000 €. This object will be open for investors Wednesday this week at noon. I made a great Youtube video with Igors at the object

Stay tuned for more information on those two new opportunities. Sign up for the newsletter on my blog or on my facebook page, if you want to see the pictures a little ahead of time! Share this post in your network with other investors who may be interested. Then they can read this interview and learn something about Bulkestate before the projects are available for investing. 

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