August 13, 2024 by Jarred Schenke, Maddy McCarty and Ethan Rothstein
A VC-Backed Startup Turned Houses Into Stocks. Its Bets Are Failing, Leaving Its Tenants And Investors In Limbo
You can buy a share of Raven Tyrell’s townhouse for $5.40.
Located in the 8600 block of Ashley Way in Douglasville, Georgia, the home is also a deal for the tenant: The unit is $1,300 a month. While the rent has gone up 18% over the last two years, it is still a steal for Tyrell, her mother and 3-year-old son — and the thousands of investors who have flocked to a real estate investing app called Landa.
The three-bedroom, two-bathroom home’s share price on the Landa app has risen 19% in the past six months, but that isn’t because of the real estate’s quality.
The house has a roach problem, and the grass — her landlord’s responsibility, per her lease — had grown so long it was taller than her toddler, who couldn’t play in it because snakes had moved in. The phone number she was given to call doesn’t work or gets redirected to a management company. They never respond, and her emails go unanswered.
“I feel like this place is abandoned,” Tyrell said. “It could be in the movie where the world just ended because the grass is everywhere. There’s trash everywhere sometimes.”
She would move, but there aren’t many options for houses in an area where the median rent is 37% higher than what she pays.
“If I could, I would move somewhere else that costs the same thing, but in a better location that is not being neglected,” Tyrell said. “I don’t think it’s worth the money we pay.”
Photo:
Bisnow/Jarred Schenke
One of the segment of townhomes owned by Landa on Ashley Way, where one unit is boarded up.
Tyrell’s landlord, Landa, is a fractional real estate investing startup founded in 2019 by young tech entrepreneurs with no real estate experience to their name. It quietly amassed a real estate portfolio during the low-interest-rate bonanza of 2021 and 2022, raised tens of millions of dollars in venture capital and sold a lofty dream.
“Landa was formed with a simple mission, allowing everyone to build their real estate portfolio, share by share,” a March post on the company’s blog says. “Transforming properties to shares is game-changing. It creates broader access, new levels of liquidity, better price discovery, and allows more individuals to invest.”
Reality hasn’t come close to matching that vision. Many investors who bought shares in Landa’s houses have been unable to access their money. More than half of the properties Landa has sold shares in have no cash in their accounts and aren’t paying dividends. Some investors fear a total loss.
Housing advocates and developers say Landa’s struggles are indicative of what can happen when venture capital-backed startups think they can hack their way to real estate riches — and convince unwitting investors over the internet to buy into their vision.
Before launching Landa, Yishai Cohen, the company’s CEO and co-founder, had only worked at one business, an Uber-like group transport app, SmartBus, he founded as a 16-year-old in Jerusalem. He sold it two years later and leveraged the experience to get investment for Landa.
“[Landa] appears to fall into the category of ‘let’s pretend the real estate business is a video game,’” Michael Knight, executive vice president of Houston-based multifamily investment firm Better World Properties, wrote in an email.
Cohen and Landa’s attorney didn’t respond to multiple requests for comment for this story, nor did they respond when sent a detailed list of questions.
Like many of the most aggressive acquirers of residential properties in 2021 and early 2022, Landa bought properties in states with the lowest levels of tenant protections, like Georgia. It has 230 properties in the Atlanta area and another 41 scattered across New York, Florida and Alabama, according to its online portfolio.
It borrowed heavily against those purchases, banking that selling shares in the properties on the internet would provide enough equity to hold on to them.
Most of those bets haven’t paid off.
This summer, lenders moved to foreclose on dozens of Landa’s single-family rental homes, saying in public documents that Landa defaulted on four loans ranging from $341K to $9M. Investors, including one with shares in a home facing potential foreclosure, told Bisnow that this was news to them.
Landa’s lack of communication extends to both its investors and its tenants. Bisnow spoke to four people who live in Landa-owned homes, and all said the company is unresponsive to maintenance requests and doesn’t properly care for their properties.
But the homes are among the cheapest in the area — even after Landa raised their rents by more than 10% — so while they feel ignored by the entity that owns their home, they have nowhere else to go.
“I’m not in a position to make a stink, because I need a place to live,” said one of Tyrell’s neighbors, who asked to be kept anonymous for fear of reprisal from the landlord.
Landa’s venture capital backers funded its purchases of these homes, the majority of which cost less than $300K, well below the average price of a U.S. single-family house — and the kind of for-sale housing that is in desperately short supply.
Rapid changes in technology have allowed for increased levels of corporate ownership of housing, said Natallie Keiser, the executive director of affordable housing nonprofit HouseATL. She has become increasingly concerned about fractional investment models like Landa in the housing market, especially as the regulatory environment and consumer protections haven’t kept pace.
“There’s definitely an incredible negative impact right now on the people who are on the consumer side, homebuyers and tenants,” Keiser said.
While selling shares of real estate on the internet seems like it could be an easy way to disrupt the nearly $50T U.S. housing market, running a property company is always harder than newcomers expect, Better World’s Knight said.
“The clever, ambitious young guys that come up with this stuff likely grew up in front of screens while watching others make all kinds of money with software and technology,” Knight said. “Finding a way to efficiently raise money $5 at a time in no way qualifies one to run a real estate rental business.”
Photo:
Bisnow/Jarred Schenke
Rental townhomes along Ashley Way in Douglasville, many of which were advertised for foreclosure in May.
Tech Bros Create A New Real Estate Business Model
Cohen and Amit Assaraf created the Landa app in 2019, then quietly grew and got through the regulatory process before emerging in 2022 with $33M of venture capital funding, they told TechCrunch at the time. Its lead investors were NFX, 83North and Viola.
Cohen told TechCrunch they founded the company after brainstorming ways to lower the barrier to enter the real estate market, the “biggest source of wealth generation, and it’s out of reach for most Americans.” They said in August 2022 that the investment app grew from 600 to nearly 25,000 users that year, its first as a public marketplace.
In Securities and Exchange Commission filings, Cohen, 28, is described as having “extensive experience in internet and mobile products, marketplaces and technology.” Assaraf, 27, has more than 10 years of experience as a software engineer and “is a graduate of the Elite Intelligence Unit 8200 of the Israeli Defense Forces,” the filings say.
Despite having no real estate background to speak of, Cohen and Landa accumulated a portfolio of 400 single-family homes, townhouses and apartment buildings, they told TechCrunch, the majority of which are in the Atlanta area.
Landa purchased some properties for as little as $80K, according to SEC filings, and issued a series to fundraise for each one. It collects a 5% to 10% property acquisition fee from investors in the series and keeps 5% to 10% of residents’ monthly rent as management fees.
The company paying itself up to 10% for an acquisition fee is “excessively, exceptionally high,” said Adam Gower, a consultant for sponsors raising real estate capital through crowdfunding.
“Raising from unsophisticated investors makes it far easier to get away with not knowing what you are doing,” Knight said. “Savvy investors would never allow them to get away with a 6% acquisition fee.”
A typical acquisition fee is 1% or 2%, he said.
Photo:
Bisnow/Jarred Schenke
7781 Mountain Creek Way, a single-family rental Landa owns that appears to be unoccupied.
After collecting the acquisition fee, Landa transfers the properties to its fund vehicles — after saddling them with acquisition loans it originates. In its SEC filings, it says the acquisition loans are paid off by the money it raises from investors on the app and by refinancing with a third-party lender.
Landa App LLC, the largest of Landa’s property ownership vehicles, reported in June 2023 that it took ownership of 134 properties with mortgages financed by its parent company at a 4.5% interest rate that matured between 2026 and 2028.
In that same filing, it said it refinanced 90 of the 134 loans at floating interest rates ranging from 7% to 12.5%, dramatically increasing each property’s monthly expenses. Some of these loans have much shorter terms, according to loan information on the Landa app.
“They set up a very high-risk platform by taking on debt with other people’s money,” said David Andes, the chief investment officer of commercial real estate syndicator Newburger-Andes.
Once an investor purchases shares of a property, Landa is supposed to give a portion of monthly cash flow to investors based on the number of shares they own. Investors can keep track of rent collections on their properties using the Landa app.
Once an offering is fully sold, investors are supposed to be able to trade their shares like stocks on a secondary platform. But there is no fundraising minimum for a Landa property listing, so even if a small number of shares have been sold and the property has no hope of hitting its full offering amount, Landa won’t return investors’ cash.
The company admits in its disclosure section that investors may be unable to sell their shares at all, as there is no public trading market for them and “there can be no assurance that such a market will develop in the foreseeable future.” Investors must bear the risk of loss for an indefinite period, Landa’s disclosure says.
“This basically says that they’re not guaranteeing that there’s any value to what you’re buying,” said Ted Tozer, a nonresident fellow of the Urban Institute’s Housing Finance Policy Center. “That there’s no market for it.”
Tozer, who was president of Ginnie Mae for seven years and has three decades of experience in the mortgage, banking and securities industries, said he was surprised that the SEC allowed Landa to sell shares to unsophisticated investors. An SEC spokesperson declined to comment.
The business model raises numerous questions about how it operates and generates cash flow, Tozer said. For instance, he would ask how Landa would maintain the property if a resident got behind on rent, as cheap properties are likely to need intensive maintenance.
“To me, if I was an investor, those are the kind of red flags I would see,” Tozer said. “What kind of properties are you getting for $80K to $100K?”
Cohen told TechCrunch in 2022 that the company “built our own teams in the field doing maintenance, property management and building an app for residents.” It targeted properties “in ready-to-rent condition,” he said, avoiding places where it would have to incur major expenses.
“It seems too good to be true,” Tozer said.
Inexperienced investors tend to think that raising money is the most difficult part of running a rental investment company, so Landa’s founders might have thought everything else about running a rental business would be smooth sailing, Knight said.
“They fail to understand or appreciate how hard it really is,” Knight wrote. “At some point, you have to deal with problem tenants, unpaid rent, code violations and broken toilets. All the programs and AI in the world don’t help with this.”
Photo:
Bisnow/Jarred Schenke
Raven Tyrell’s unit along Ashley Way in Douglasville
The Not-So-Fine Print
Landa’s investors are on the hook not just for management fees and interest payments but also loan servicing expenses if Landa doesn’t make mortgage payments and any outside vendors such as appraisers, accountants and attorneys that Landa hires, according to SEC filings. The filings also say investors in the series “absolutely and irrevocably waive” claims and damages against Landa if its managers breach their fiduciary duty.
Landa’s executives admit in the filings that they have inherent conflicts of interest as managers of its investment funds and Landa Holdings, their parent company. The filings say investors in the series have no power to influence how Landa manages the property.
Landa discloses to investors that it may not be able to make monthly cash dividend payments, revenues can be impacted by tenant evictions or those refusing to pay rent, the company could have difficulty with upkeep of the properties, and Landa — in the role as the manager — could make investment decisions that aren’t in the best interest of investors.
A majority of the properties Landa has acquired aren’t making money, a Bisnow analysis of SEC filings shows.
Out of the 218 properties owned by Landa’s three LLCs — Landa App, Landa App 2 and Landa App 3 — 125 had zero cash on hand and paid no distributions in June, according to SEC filings.
Some of them are easily explainable. Take 217 Glenloch Court in Stockbridge, Georgia. The offering breakdown for the property is $308K, which includes the house’s $226K contract price, $43K in improvement costs and $17K acquisition fee. The offering has raised just over $17K — 13.8% of available shares sold at a price of $12.34, according to SEC filings and Landa’s website.
But the house hasn’t seen a rent payment since January. Landa last made an interest payment for it in April. The property’s cash balance is listed as $0, and so is the August dividend. Shares for the property aren’t for sale, as “the offering circular needs updating” and “is currently under review,” the website says.
The house serves as collateral for a $232K bridge loan held by L Financing LLC — an entity registered to the same Tel Aviv address of one of Landa’s venture capital investors, Viola — that has a 12.4% interest rate. It matured April 27.
The three-bedroom, two-bathroom house Landa bought at 126 Wildwood Road in Stockbridge isn’t paying out dividends, but it has been collecting rent and selling shares for $6.42 each, according to Landa’s website.
The lack of returns could be because the property incurred an almost $9K air conditioner property expense in May 2023, and rent payments have been sporadic. The property saw no rental income in December and January, but it got two $1,543 payments in February, the site shows. Investors received a dividend payment in March for 4.6 cents per share, according to the website.
The property has had $1,697.85 in rent paid every month since, the latest being on July 30, along with three late fees of $169.78. It has a $3,931.48 cash balance, the website shows, but no dividends have been paid for four months. Its status on the app is listed as “Eviction.”
But it is questionable whether any of the information on the website should be taken at face value. For instance, 217 Glenloch Court is listed as both a four-bedroom, four-bathroom house and a three-bedroom, two-bathroom house on the same webpage.
Investors have taken note of this information disconnect. One investor, who lives in the D.C. suburbs and works in the energy and utilities field, told Bisnow that an Atlanta property he invested in showed a rent collection of more than $3,600 in July, yet the property has no tenant.
“I haven’t seen a dividend from it,” he said on the condition of anonymity because he was worried about the perception of his friends and family.
A Texas-based investor said his dividend payments don’t match the rent collection rates he sees on the app, leading him to speculate about Landa’s handling of funds. He declined to be identified because he’s a Realtor who doesn’t want clients to know he put thousands into Landa shares.
“I feel like there’s money moving around behind the scenes that we don’t know about,” he said.
‘I Feel That They’re Drowning’
Cracks are starting to form.
In an updated disclosure on its site, the company says its independent accountant had “substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.”
In May, two of Landa’s mortgage lenders, LendingOne and Coventus LLC, filed to foreclose on 58 Georgia properties backed by four different loans of $9M, $7.6M, $810K and $341K.
While a foreclosure sale was scheduled for June 4, Bisnow was unable to find the results of the sale, if any, which often indicates the lender and borrower came to an agreement to avoid foreclosure. Later that month, the company disclosed that 50 of its properties — a majority of which were named in the pending foreclosures — didn’t secure financing and removed their offerings, noting that none of the properties had any investors.
The company didn’t disclose information on the pending foreclosure sales in its May Landa App update on the website, and there has been no mention of foreclosure proceedings in its SEC filings.
An investor who owns shares in a Douglasville unit listed as up for foreclosure said they weren’t informed of the filings. Three investors who spoke to Bisnow — all of whom requested anonymity because they didn’t want to harm their reputation by admitting they put money in Landa — said Landa rarely communicates to investors at all.
“I 100% think they’re in over their head,” the Realtor said.
He put $6K into properties on the Landa app, none of which sold enough shares for him to be able to cash out. He doubts he will get any of it back.
“I feel that they’re drowning, and we’re just seeing their fingertips,” he said. “We don’t know what’s happening under the water there.”
Investors told Bisnow that they try to get information from the company, but Landa’s responses are often unclear and don’t always directly address concerns.
Andes, who has syndicated more than $100M from investors to purchase commercial real estate, said fund managers are typically more communicative to investors when something goes wrong.
“The idea that nobody’s answering phones and the investors don’t know who to call, it’s crazy,” Andes said. “It’s unheard of in the syndication industry.”
Landa App also hasn’t informed its investors about the issues surrounding the failed fintech bank Synapse Bank. The app held investors’ cash in a custodian account of Evolve Bank, maintained by Synapse, which wasn’t insured by the Federal Deposit Insurance Corp. Synapse abruptly shuttered and froze thousands of deposits after filing for Chapter 11 bankruptcy in April.
None of the investors Bisnow spoke to had been told that a Landa banking partner had collapsed.
“It’s just this perfect storm,” another investor told Bisnow, saying the lack of communication has driven them to a Reddit forum to air grievances and seek information. “If there’s no information coming from corporate or customer service, you don’t know what’s going on.”
The Landa subreddit is highly active, with daily posts claiming problems receiving dividends, glitches with the app and speculation about Landa’s chances for survival.
“I try not to be that person who wishes any ill will against anyone or anything but Landa has made me hope for the day when they fail,” a post from earlier this month reads.
Photo:
Bisnow/Jarred Schenke
An apparently abandoned Dodge Challenger and household items at 7781 Mountain Creek Way in Douglasville, one of the rental homes Landa owns.
‘They Don’t Keep Up The Place’
Landa describes 7781 Mountain Creek Way as a “cozy” three-bedroom home with a “spacious front yard.” It hasn’t collected rent since January or made a mortgage payment since February.
When a reporter visited last month, the home appeared empty, and there was a lockbox on the front door. A neighbor said the home has been abandoned for four months.
Its facade was deteriorating, and the spacious yard was overgrown. Kudzu vines were invading the cracked driveway, where clothes, boxes, Uno cards, shoes, a Super Mario lunchbox and an electric hand vacuum had been strewn about. A black Dodge Challenger sat abandoned, covered in a layer of dirt, dead leaves and pollen, its trunk left open to the elements. At the foot of the driveway, a mailbox barely hung on to its wood post.
Landa owns 16 properties on Ashley Way a few miles away, where Tyrell lives. She said besides the maintenance issues in her home, the neighborhood feels unsafe. Police have been called to the street so often because of fights breaking out that a squad car is now just stationed there all day, she said.
One of her neighbors said a window in his house has been broken for three years, and his doorbell rings without reason.
Landa hasn’t responded when he has sent them messages, he said. The app glitches, and one month he couldn’t be sure his rent payment went through, which made him anxious he’d lose his home. He asked for his name not to be used because he was worried Landa would retaliate for speaking out — he said he can’t afford other options since he has a disability and can’t work.
“It’s just the grass that’s my biggest complaint. I can live with the ghost doorbell. I can live with the broken window in the back,” he said. “You would think they’d at least cut the grass to make the place look nice.”
The conditions of these houses and the lack of communication with residents are more common when corporate landlords and technology platforms buy up properties that in previous generations would have been starter homes, HouseATL’s Keiser said.
Landa and other fractional real estate platforms like Arrived and Pacaso frequently automate processes for eviction filings and third-party managers. Tenants use technology for payments, leasing and property maintenance requests, making it rare that they interact with a person, Keiser said.
“The corporate owner has a motivation to squeeze as much profit out of the property as possible, which may mean they skinny up on maintenance or delay maintenance issues,” she said. “They’re national or regional owners, so they don’t feel the political pressure to maintain the property, to be responsive to the community for what they own.”
Despite the lack of customer service and delayed responses to maintenance issues, Landa has raised rents every year, three tenants told Bisnow.
Another Landa tenant on Ashley Way who wanted to be kept anonymous said in the four years since he moved into his townhouse, his rent has gone from $900 to $1,350 per month, a 50% increase.
Even though he also lamented how unresponsive Landa has been as a landlord, he said he can’t leave because there is nowhere else cheaper nearby to live.
“I just wish they’d get their shit together, if nothing else,” he said.
After ending his interview, as Bisnow was walking away, the resident called out, “Get somebody to buy us that will do us good.”
The Landa investor who works in energy said he owns $1K worth of shares across 20 properties. He said he was unaware of the condition of some of Landa’s houses. After Bisnow told him that renters had complained of vermin, health risks and neglect, he said he felt deceived.
“I was under the impression that these properties were being maintained,” he said. “I feel gross investing in them right now.”
Contact Jarred Schenke at jarred@bisnow.com.
