CapitalTech: Pioneering a New Asset Class
The emergence of new asset classes typically requires several key conditions to align. First, there must be an unmet financing challenge. The market needing capital must have sufficient customers to support underwriting risk and return. Technology is also essential, enabling the connection between risk-seeking investors and capital users. Finally, the assets created should offer distinct characteristics that provide exposure to an economic segment that is illiquid, opaque, and growing.
The Rise of Dequity
Similarly, asset-backed revenue sharing loans “Dequity” is poised to become a significant asset class. There is a clear unmet financing need, growing datasets to support risk underwriting, and CapitalTech’s debt market platform and structure. Private credit is increasingly looking for new opportunities, including asset-backed securities, to deploy capital. The last challenge is bridging these elements effectively.
Private Credit Explores New Avenues
As of May 2024, private debt capital stood at $450 billion, exceeding both venture capital and real estate. Historically focused on buyouts of operating companies, private credit is now expanding into more creative asset-backed financing areas. While banks have traditionally financed real estate, private capital is turning toward non-traditional assets like music royalties, film rights, and real estate-backed assets.
According to Bloomberg, securitizations of unconventional collateral have grown significantly, now making up 31% of the asset-backed securities (ABS) market compared to just 9% a decade ago. As demand rises, investors seek novel structures to achieve excess returns.
CapitalTech’s Solution for Real Estate Financing
CapitalTech is developing innovative financing structures for real estate assets in the residential development and commercial real estate sector. We recognize that every real estate business is ultimately an asset management business, and our approach focuses on broader real estate cash flow streams.
Our Dequity solution is unique because it offers fee streams of income independent of the underlying net income performance, creating a compelling collateral base with yields beyond conventional real estate lending. In some ways, our Dequity model resembles the growing GP stakes market, where investment firms acquire equity positions in asset managers, but we transform the cash flow from gross sales into Dequity investments for a market of accredited investors.
Data-Driven Approach
At CapitalTech, we take a technology-first approach to underwriting, building a valuable data corpus that will help institutionalize the asset class. As real estate companies grow and evolve, our financial products are designed to meet their needs at every stage, whether they are entering rent-to-own markets or developing new projects.
Our expertise in capital structures and real estate data enables us to develop and scale these products while creating the risk and return metrics necessary to accelerate institutionalization. This specialized knowledge is currently lacking between venture capital and traditional capital markets, but we are committed to bridging this gap.
Conclusion
As new financial products develop, we provide various de-risking checkpoints, similar to the draw schedules associated with the development of a real estate project. CapitalTech supports Dequity investing with innovative capital structures and KPIs at each stage of the process.
We also help issuers navigate long-term business models by maintaining a close dialogue with capital providers and leveraging our deep understanding of new asset classes, CapitalTech is positioned to be a leading resource for high-growth real estate companies as they scale and Dequity becomes institutionalized.