Hello Realworld!
Kurt Daradics co-founded a new real estate investment company called RWA Group
Hello Realworld! We launched a fund!! I’m excited to update the world on my new business venture, Realworld Asset Group (RWA Group), a real estate investment company. In November 2022, a startup I co-founded in 2009 (CitySourced) sold to Granicus, allowing me to move on from a solid assignment as GM at Hunt Club and start something new. I share more about my “CitySourced exit” news in this life update blog post. This letter shares more context about RWA Group, our niche, my role, market dynamics, my partners, and more.
Launched a REIT!
Our vision at RWA Group is to create a world-class branded platform in the real estate market. Our first fund is a private credit REIT.
Niche
We’re 5 million homes short in America, and our mission is to rebuild communities block by block. We invest with residential real estate redevelopers (sponsors/operators) that rehab existing single-family and multifamily housing stock and improve these properties to resell to consumer residential home buyers. Our ‘business purpose loans” are real estate loans in Tier 1 cities across the US secured by first trust deeds. The loans are short-term (9-12 months) tailored for bridge loans, fix and new construction, and underwritten at conservative loan-to-value ratios (~65% LTV). We focus on lending to experienced operators with proven track records and financial strength.
Our focus on liquidity means that our loan amounts are smaller (average loan of $700k), and our collateral is workforce housing and entry-level luxury. Our borrowers (redevelopers) are turning over aged housing stock (typically built in the 50s-70s) and offering contemporary styles and amenities- quality yet affordable consumer-friendly inventory.
Also, rehabbing existing housing stock delivers positive environmental impacts by making old homes new again and more energy efficient (HVAC, windows, etc.). Plus, we’re creating more functional, livable spaces for families to spend quality time together.
My Why
I first learned about the possibility of the CitySourced exit in May 2022, and I started to imagine what I might want to do next. In episode 50 of my podcast with my mentor, Duke Stump, we unpacked the powerful “Imagine a Day” exercise, and I got clear on what I wanted to do next.
I had been in the real estate sector from 2003 to 2008, tech since 2009, and over the past ten years, I got savvy with investing and finance. So when the exit happened, and the opportunity to join forces with my business partner Justin Mitchell auspiciously presented itself, I was clear and convicted that this was my path.
Market Dynamics - Isn’t real estate in a recession right now?
Yes, the commercial real estate market is having a hard time (especially commercial offices). Still, the residential real estate market (our market) is in great shape from a collateral/value perspective. Even though rates are at a 20+ year high and sales are down, values are relatively stable.
Here are some additional reasons why I believe the residential real estate market in the US is resilient collateral:
Mortgage Rate Lockdown
We’re in a “mortgage rate lockdown.” 42% of all homes in the US are paid for (zero debt), and the other 58% have an average loan-to-value (LTV) of 50%. And most mortgage loans were refinanced during COVID at 10,000-year historic low-interest rates (most folks have a 30-year fixed mortgage in the 3% and some in the 2% range). This means most people selling homes are selling due to a “primary life event” (divorce, death, etc), and most everyone else is locked into affordable or zero payments.
Millennials at the margin
Furthermore, the Millennials are the 2nd largest demographic patch behind the Boomers, and they are well into their careers, forming families, and have saved enough to buy a house (or get help from their Boomer parents). These marginal buyers keep demand elevated.
Supply constraints - NIMBYS & New Home Builders
On the supply side, we have the NIMBYs (not in my backyard) that don’t want new development due to environmental or have low-cost housing negatively impact their property values, so they keep a lid on new supply.
Plus, the new home builders slow their building plans in this high-rate environment, and we can see that in both new housing starts and their stock prices.
Market Dynamics - The Regional Banking Crisis (A New Day for Private Credit)
Hard money loans are a subset of private credit, but hard money (often called “loan to own”) isn’t our niche. Hard money only underwrites the asset, whereas private lenders like us underwrite the asset and the borrower's creditworthiness (credit scores, financial strength, and experience). Banks like First Republic, PacWest, and more would historically compete with private lenders in our niche, but the regional banking crisis has sidelined most banks. So now, with the Regional Banks sidelined, there isn’t as much competition for the same borrowers as before, which is good for us in the context of being even more selective in the borrowers we work with.
About Our Team
Justin Mitchell - Founder & CEO
My business partner Justin Mitchell and I met through close mutual friends a few years ago.
Justin’s background as an institutional investor is world-class. His former firm that he co-founded, Quanta Finance, was a top five lender in private credit, lending to residential “redevelopers” in the US and abroad. In the 6-7 years Justin was at Quanta, he originated 4500+ loans for over $2.6 billion in loan volume without losing investors one penny. After leaving Quanta and reflecting on his experience, Justin decided to venture into the REIT space to be more strategic, have a more scalable business model, and better serve the market.
When he invited me to ride shotgun late in 2022, my response was a resounding “hell yeah,”--not only because the timing was well timed with my exit, but also because doing a real estate fund was what I had been dreaming of next. I’ve been working with Justin on RWA Group since the beginning of 2023. We’ve built a robust and flexible financial product we’re proud of. We are having fun collaborating and blending our respective skills, experience, and networks to create a unique community of investors, partners, and clients.
Elias Badin - Partner & CFO
In September 2023, we recruited our 3rd partner and CFO Elias Badin, to RWA Group. Elias is a finance executive with over 15 years of experience in accounting (CPA), auditing, and real estate investing. Elias started his career at PWC auditing and consulting for hedge funds and private equity funds.
Recently, Elias was VP of Portfolio Finance at Transom Capital. At this mid-market private equity firm, he oversaw the operation execution of each portfolio company and worked hand in glove with the CFO.
Elias’ background in real estate, structured debt, and operational know-how at this early stage creates a rock-solid foundation.
It gets better-- Elias and Justin have been close friends since 9th grade, so there is a familial feeling with Elias joining our group. He’s intelligent, thoughtful, and fun to collaborate with, so I couldn’t be happier with him in our partnership.
My role - Co-Founder & COO
I’m co-founder and COO, focusing on strategy, product development, go-to-market (heavy emphasis on fundraising), and tech enablement—our vision is to build a ‘branded platform’ that includes setting up additional funds in the future. For example, Blackstone started with one fund in the 1980s and scaled from there.
Since real estate is one of the largest and most important markets, the opportunity to innovate and create value is remarkable. Business model innovation is one dimension I’m focused on and excited about in the context of RWA Group. By and large, technology is now commoditized and plug-and-play, so being able to implement technology to leverage emergent patterns and use my skills and experience to focus on “business model innovation” (e.g., developing new patterns of capital sourcing, lowering the cost of capital, operational efficacy, and more), makes RWA Group a fantastic fit for me.
#Teamswin Culture
We’re on a mission to use this business as a mechanism for continued self-actualization--to become better humans and more intelligent investors. By building a culture that enriches and fortifies our human experience, we can ask better questions that give us superior market insights, dissolve bias, improve communication, and deliver customer delight (e.g., excellent products, exceptional customer experience, and investor returns). Thoughtfully practicing what we preach and expanding our #teamswin culture to serve our stakeholders better is what I’m most excited about for RWA Group.
Podcast Interview with Justin Mitchell
Oh, and here’s an interview I did on my podcast with my Co-founder and CEO, Justin Mitchell. This interview gives more context to this post and what’s in store for the future.
Thank you for taking the time to get to the bottom of this post and allowing me to share. Have a great day!