Around the Block With Jefferson Nunn – Interview With Matthew Sullivan at QuantmRE

Around the Block With Jefferson Nunn – Interview With Matthew Sullivan at QuantmRE

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Podcast Transcript:

Jefferson Nunn  0:02 

Live from, global headquarters this is “Around the Block with Jefferson Nunn” and I’m here today with a special guest, Matthew Sullivan. How are you doing?

Matthew Sullivan  0:13 

Hey, Jefferson, good to meet you. Thanks for having me on.

Jefferson Nunn  0:33 

So, QuantmRE. let’s get to, you know, even more advanced tech, tell me more about QuantmRE.

Matthew Sullivan  1:15 

It’s funny. We stumbled across this concept of accessing home equity about six or seven years ago, because one of the first companies I set up when I moved to the stage, which was about eight years ago, was a real estate crowdfunding company, because back then it was hot on the heels of the Jobs Act, which was the first major change in securities laws. And, you know, there’s this enormous amount of excitement about bringing investments and transactions online. And one of the assets that we came across was this concept of being able to buy into the equity of single-family homes without actually having to own any of the properties. So, you can benefit from the increase in the equity value, but you sort of sit on the side without having to pay the taxes or the mortgage without having the responsibilities of an owner.

But one of the biggest issues with that asset class was that it was very illiquid, there was no cash pay. It was not widely available is very much in its infancy. And so, we sort of, you know, have it set in the background, but it was sort of gnawed away at me for a number of years, until, really, we had this sort of significant increase in activity in the blockchain, which was probably about five, five and a half, six years ago, when we saw the beginnings of the momentum build with the ICO marking the initial coin offerings.

I was part of a networking group based in Los Angeles that used to meet up every Saturday, one of the members and frequent guests was Brock Pierce, who, at that time was the chairman of the Bitcoin Foundation. And so, we used we got very much the sort of inside track on what was happening with ICOs and EO Eos, for example of block one. And so, it’s something was there, I knew that there was something there where we could combine these sorts of technologies and efficiencies, and trading that was beginning to emerge on a blockchain with this concept of unlocking equity in single family homes, which still is an untapped, you know, multi trillion-dollar asset class.

So really, the beginnings were a number of years ago, where were we sort of thinking, how can we merge these together? How can we unlock this asset class, create a financial instrument that is really helpful for homeowners who have lots of equity, but don’t want to go deeper into debt? And so, you know, quantum was born in December 2017. Really, with a mission of combining or rather making home equity, accessible investable and tradable. So, incredibly long answer to a very straightforward simple question.

Jefferson Nunn  4:21 

Well, no, this is fascinating. I mean, there’s so many branches, if you will, to that, but like, I know, most recently, home equity has increased by 15% for a lot of people, but I should say that not able to really tap it. So, how does how does it work? Let’s say I’ve got Oh, I don’t know, a half million-dollar house and you know, I got 100,000 of home equity that I’d like to pull out. How does the process work?

Matthew Sullivan  4:52 

Well, the most important way to describe what we do is to describe what it is so we don’t lend money. It’s not alone. It’s not a home equity line of credit, it’s not a mortgage. It’s not a reverse mortgage. It’s called a Home Equity agreement. And what it does is it enables you as a homeowner to access between 30 and 40% of the current value of your home, if you have enough equity to qualify, and it’s an investment, so what we do is we invest in the possibility that your home will increase in value. And the way that we get paid rather than charge interest is to see if your house goes up in value, when you sell your home, we’ll get back our original investment together with a share of that appreciation. And we agree all of those figures at the beginning of the contract. And because it’s an investment, where we get paid based on something that may happen in the future, there are no monthly payments, and there’s no debt.

So, it doesn’t appear on your credit report as additional debt, you don’t have any monthly payments or any payments whatsoever in the meantime. And you can use the money on whatever you want. So, it’s, it’s very flexible. And it’s very useful for people that don’t want to borrow money, or maybe they don’t have the right credit score or the right income. And maybe they’ve been turned down by banks.

But as you rightly say, over the last, you know, one or two years, we’ve seen an enormous increase in the equity in many, many people’s homes. So, you know, people are finding themselves in a strange position where on paper, you know, they’ve gained another 100 or $200,000 of wealth. But in real life, it’s actually harder than ever to, to pay the bills. So, we’re that bridge.

Now, to answer your question, if you take your example of a half million-dollar home, the way it works is it’s a simple, discounted exchange. So, if you want us to unlock 10% of the value of the home, let’s say $50,000 For round numbers, when you send your home, you pay us 16% of the value of your home, at the time that you sell it, now your house could go up in value down in value, that risk is on us. So, effectively, you’re getting value of your property today, based on an amount that your property could be worth at some point in the future, whether it’s up or down. And that cash could be very useful because as I said, there are no monthly payments, or you can use it to pay off debt or, or improve your home or whatever you want. And you can even use it to pay off your mortgage if you wanted to.

Jefferson Nunn  7:45 

Or buy Bitcoin.

Matthew Sullivan  7:47 

Or buy Bitcoin. And that’s, that’s really interesting, because, again, if you look at your property, it’s dead money to a certain extent the money that’s sitting in your equity is, and the irony is, the less mortgage you have, the less leverage you have, which means the less your house actually appreciates, in real terms, all the equity appreciates, because if you’ve paid off all of your mortgage, and you’ve got all of its equity, then your house is just going up in line with house prices, inflation, you don’t get the benefit of leverage. So, if you were to unlock chunks of your equity, and put it to work a you’re diversifying your asset. So, at the moment, all of your wealth is kind of stuck in one asset, which is your house. It’s illiquid, you can’t trade it, you can’t get access to it. It’s not a financial instrument. So, it’s not necessarily a good thing to have truly all your eggs in one basket.

But if you were to unlock some of this equity, and diversify it by putting it into other liquid instrument instruments like Bitcoin, for example, then you’re doing two things a you’re creating liquidity, you’re potentially getting a much better return than your house would give you. And also, you haven’t got that burden of if things don’t go according to plan. And you, you know, your investments, whatever they are don’t increase as you expected. You don’t have to find those extra monthly payments. If you borrow money, and you bet that your investments going to go up and it doesn’t, you still got to find those monthly payments so that this is a great way of really spreading your risk and using that increase in home equity that you’ve seen over the last, you know, year or two years, really putting that to work in something that could potentially give you a far better return.

Jefferson Nunn  9:44 

Varying, absolutely. Varying well tell me about the blockchain portion of your company, how does all of that work?

Matthew Sullivan  9:52 

And I think really comes down to the asset itself. So, because it’s an equity-based asset, it’s not alone as their name monthly payments, there’s no yield. So, the investors in this type of instrument, normally the capital comes from allocations that are longer term allocations. So, these are hedge funds, multifamily offices pension funds, it’s not accessible to small investors. So, in other words, you cannot invest in home equity agreements right now, other than going through QuantmRE, unless you are a very large institution, it’s just, you know, no one will give you access.

So, for a start, our platform has been designed to open up this type of asset class to smaller investors, in other words, non-institutional investors. And we use blockchain technologies to fractionalize home equity agreements that we originate, we use Algorand, ASi protocol, what that allows us to do is take a Home Equity agreement that we’ve written on a particular house in Newport Beach, California, let’s say, we then put that into a specific entity, a dedicated LLC. And we then issue shares in that LLC, by way of out around tokens, so that people can invest in fractions of that home equity agreement by buying shares in the company that owns that agreement, those shares are represented as tokens on the blockchain. So, you know, at any one time that you have those shares, it’s not something that is held on a on an internal document, it’s something that is publicly declared. And those shares which are securities are issued through the regulatory and compliance requirements under the US securities laws. And so, you as an investor hold shares in a company that has a home equity agreement in a specific location. So, you can build your own portfolio by buying a few shares in one property, maybe one share and another property.

The great thing is you don’t have any ownership responsibilities, the homeowner still owns the home, you just benefit from that equity upside, going forwards. When the homeowner sells the property, or if they refinance their home equity agreement, cash flows back to you as a shareholder in that company, because that home equity agreement is paid off. So, you can then reinvest that or spend it on something else, perhaps what we’re doing going forward is we are working with other regulated entities, so that once you’ve bought shares, you will then be able to sell them.

So, if you wait a few months or a couple of years, say and the value of your investment has gone up, you may decide that you want to try and sell your shares. So, our platform has been designed to enable those shares to be traded on a sort of willing seller willing buyer basis. So that’s all stuff that we’re hoping to roll out later this year. We’re hoping that during the first quarter of during quarter two so sometime in April onwards, we’ll have our first set of deals that are available to investors through the platform. And actually, right now we are accepting new investor applications so if you want to get your name on the list for when the first deals come out, that’s all set up and running now.

Jefferson Nunn  13:37 

Awesome. Awesome. Well, this has been a fascinating journey for you seems like. Tell me one thing, how did you find out about Bitcoin in the first place? How did you come upon?

Matthew Sullivan  13:48 

As I said it was it was one of those moments where I you know, it’s almost like a beat myself up daily, why did I not listen? You know, people were saying to me, Look, this is Bitcoin. It’s and I’m sorry, I don’t understand what this is. This was like five or six years. It was through that meeting, through the it was called METAL, which is a meeting networking group. And as I said, Brock Pierce would regularly stand up and he would explain in very simple words, so I really should have understood what Bitcoin is and how it was growing and what the value is. But really, I didn’t actually catch on until there was a sort of big momentum. But, you know, that was still about five years ago, I think so it was still in the very early days. But looking back then I think Bitcoin was about eight or $900. When the people were banging the table, say you have to buy this stuff and I was going here, okay. If only I’d listened to.

Jefferson Nunn  14:57 

On that spot, but still I was still argued we’re still in the very early days, remember, there’s not enough Bitcoin for everybody to have one. Right? So.

Matthew Sullivan  15:07 

Exactly. That’s exactly. And what’s really interesting. Now, it’s not just It’s not just about Bitcoin, I think it’s just the whole adoption of this digital exchange. That is now. And what we’ve seen over the last four years is a significant evolution in the reliability speed scale of these blockchains, we only we use our around, because it’s very fast, it’s very cheap, it’s very efficient. And what is really, really encouraging is the fact that these types of technologies are really useful, and are beginning to sort of play a role in the development of the next generation of the web.

So, it’s not bitcoin is clearly the poster child, as it were for blockchain technologies. And has a very different sort of set of dynamics and metrics compared to other technologies themselves. And it’s actually Bitcoin as a store of value. But I think it’s established now the technology is established as being incredibly valuable and useful. And you cannot replace it with other similar technologies, because it just doesn’t work as well. It doesn’t do what you know what blockchain does. So, it has delivered on its promise, is taken a few years. But you know, what did you expect as a new technology when the internet came out, you know, everyone’s saying, this isn’t going to take off. And here we are a few years later, where our lives are inextricably mixed with it. So, I think that’s really the underlying message is that, you know, the technology is here to stay. And, you know, because of that identity Bitcoin going anywhere, but up.

Jefferson Nunn  16:57 

Yeah, I often compare the advent of technology with my first trip to Disneyland. When I was six years old, you know, there were these Kodak disposable cameras everywhere, we would take the picture, have to go home, develop it, and get the mail copies of pictures, you know, actual first-class mail, which would take a week to get to our relatives, and they’re going to get a phone call. Oh, you had a fabulous trip to Disneyland. But that was a month ago. Now, you know, I’m getting a like, one second later. Exactly. Yeah. If and that’s where we’re at. I think we’re at the early days of Algorand, even where the different technologies are being developed. And I think the next 20 years, they’re going to be fascinating. So to that in, I’d love to hear first, what was the development process? Like, I mean, was it difficult time consuming? Or?

Matthew Sullivan  17:57 

Yes, I mean, there’s a number many moving parts. For a start, you’ve got the technological development of the platform itself. And then you have all the regulatory framework from the securities perspective. So funnily enough the securities angle is, it was easier because that was a set of clear rules that had been around for decades. So, understanding and navigating the securities laws is actually relatively straightforward.

Now, over the last four years, we’ve seen I mean, we were looking at launching on a Ethereum and then you had Ethereum seven, you know, ERC 721. And then we were looking at, you know, internal blockchains, such as hyper ledger, we had NEM, that was one of the contenders. And all of these were early stage blockchains. That would work out to a point, but they failed on scalability, or they failed on gas fees, or they failed on functionality or reliability. Or, you know, in the early days, the biggest issue was, you know, what is the fundamental blockchain technology that we’re going to use to launch this because it has to be around in a few years’ time. Because if we build our entire infrastructure on something that doesn’t have taken up, or where there are no wallets, for example, or there’s no reliability.

So, we needed to wait. I think, you know, the time that we waited, before the technologies were sufficiently evolved, where we could predict, reliably to a certain extent that this technology is likely to be there in three- or five-years’ time. And again, that’s one of the key reasons why, you know, we, it’s not that we decided against Ethereum, but there are so many benefits to using the technology that we’ve chosen. And it’s great to see that over the last year or 18 months, there’s been an enormous increase in the uptake of new companies within the Algorand system. So, you know, that’s really pleasing to us because we feel we’ve made the right decision.

Jefferson Nunn  20:10 

Yeah, I feel lucky, that Algorand is definitely on my list of top projects. Among many of the other good ones, there are a lot of good projects out there, Ethereum, and my think is something that Favi a little bit more longer term, and it has this uses, you know, for the market, that kind of going after, it’s sort of like, you know, cars, you know, people like for people like to use, at the end of the day, you know, it’ll get you there, but it just, you know, the features and functions of how you get there. You know, if you’re trying to drive a tank across to the wasteland, maybe a Ford tractor might be a good idea.

Matthew Sullivan  20:51 

Yes. *Neither of those.*

Jefferson Nunn  20:58 

But that’s the thing is, there’s a lot of great technology out there. And I feel that people tend to be really pushing a little bit too hard about their heart sets in the race. What do you feel? I mean, our developers sometimes locked in to one thing, or are they generally open minded?

Matthew Sullivan  21:18 

Well, I think the developers that we work with are fabulous guys are based in Los Angeles. We work with them since the very beginning. And they are the opposite of being locked in they’re very much question the technologies that are made available. So, you don’t have that. That same sort of blind religious following that you can get, I think in you know, we certainly saw in the early blockchain days. And so that allows us to look at new technologies, not just for the underlying blockchain infrastructure, but also how we built so we’ve recently rebuilt all of our front end and back end, it’s all on Angular, it’s all on AWS. So, we’re looking at latest technologies, which are scalable. We question every choice based on, you know, why are we choosing this technology? Will it be there in three to five years? Is it scalable? And so, because of that, we don’t have that issue of being wedded to something come rain or shine?

Jefferson Nunn  22:26 

Wow, fascinating. Yeah, that’s one of the things I’ve heard some times from people that want to adopt blockchain. But they’re hesitant because of some of these arguments. So, I think you put a lot of clarity to that. So, I appreciate that. Thank you. So last, but not least, you have any final thoughts for our listeners, on any topic, the future of blockchain, your company, all of that?

Matthew Sullivan  22:51  

Yeah, I think really, we’ve been in this. And it’s, I think it’s over five years, even though the company is like four and a half years old. But we’ve been actively involved doing this thing for nearly five years. And we are still as excited today, as we were when we first sketched out the idea on a piece of paper five years ago. And that’s because it is still a very exciting, compelling, interesting place to be. It’s just it’s page seven of a 1000, page novel, something like that. And what is really exciting is that it’s moving forwards, there are developments, it’s becoming more evolved more solid. And so that opens up the possibilities.

So, we’re really excited about the platform that we’ve built, because we can tokenize multiple classes of assets. So, we’re not restricted just to tokenize home equity agreements, our platform can tokenize commercial property, we can also tokenize property that doesn’t exist. So, property in the realm, for example. So, what is really exciting is seeing these virtual worlds and seeing these parallel, real estate environments emerge and get traction, because we could play a role in that as well. And so, you know, we’re here at the very beginning of this, you know, Blockchain adoption. And it’s like being back in the early days when the internet was beginning to find its feet.

But knowing that actually, this has got a long way to run yet. I think in the early days of the internet, no one really knew where this was gonna go. Having that as a foundation now and putting the blockchain on top. We’ve got some faint signals from the future, in terms of where this could lead. So, it is a very exciting place to be. And as I said, it’s it hasn’t even begun to play out. So, we think there’s a lot of growth for us in many different areas of real estate, both real and virtual.

Jefferson Nunn  24:56 

Awesome. Thank you, Matthew. People want to find out more about your company, where should they go?

Matthew Sullivan  25:04 

Everything’s on the websites, QuantmRE. So that’s And we’ve got a lot of information there. We’ve got information for investors and for homeowners, lots of FAQs and videos and podcasts and documents. And so, you know, contact numbers. There are real people behind the phone numbers too. So, in the please feel free to reach out if you have any questions on either side of the equation.

Jefferson Nunn  25:30 

Thank you so much, Matthew. I really appreciate it.

Matthew Sullivan  25:34 

Thank you, Jeff. It’s been great. Thank you for having me on.

Jefferson Nunn

Since 1999, Jefferson Nunn has been a consultant to high net worth individuals. Always an innovator, his ideas have generated millions for his clients including Ronco and GoWireless. He has been involved in the CryptoCurrency industry since mining his first Bitcoin in 2010. Since then, he has met with many of the early pioneers in the CryptoCurrency space including the founders of Ethereum and the founders of Crypto Capital in Panama, and more.