CNBC news gave a nice preview to this story earlier today. Lewis’s main character Dr. Michael Burry was an early investor in PeerStreet. Since the movie opens in select cities nationwide tomorrow and four PeerStreet investors will be featured in the film, we thought it was a good time to expand on how PeerStreet was influenced by the book.
Burry was one of the few investors to identify structural problems with the U.S. housing market in the early 2000s. As a result of meticulous research, he began shorting subprime mortgages. His keen awareness led to a series of trades, which resulted in >$700 million return for his investors and a personal profit of $100 million. The book goes through his story in far greater detail, but a key takeaway was his ability to make the right call at a critical inflection point.
Transform Mortgage Finance Industry
What’s Burry been up to since then? Well, for one, he identified PeerStreet as a company with the ability to transform, and bring greater transparency to, the mortgage finance industry:
“PeerStreet’s investments have similar yields to LendingClub, but with a much better asset class. Instead of consumer credit backed by nothing but promised cash flow, PeerStreet’s notes are backed by real estate and carry very attractive loan-to-value ratios. Simply a smarter way to invest.”
The connection between The Big Short story and PeerStreet extends beyond Dr. Burry. Founder and CEO Brew Johnson also saw warning signs of the housing bubble. He turned bearish on the housing market during his time as a real estate attorney, well before the downturn. People at his law firm even called him “bubble boy.”
Brew began expressing his market concerns by shorting Fannie, Freddie and bank stocks. Later, he left the law firm to work with his brother, JR Johnson, and helped sell his company VirtualTourist to Trip Advisor/Expedia pre-Lehman in 2008. Like Burry, he had the foresight to identify major industry problems at a critical time.
Connecting Investors, Lenders and Borrowers
Brew had always thought that if the banks did implode, something like PeerStreet would need to exist, but it wasn’t until 2013 that he felt the timing was right to create a healthier ecosystem for market participants: investors, lenders and borrowers.
We work with the existing industry to create meaningful value for everyone.
Since launching in 2014, PeerStreet has created a marketplace focused 100% on real estate debt. Our platform gives investors access to a historically profitable asset class that was previously unavailable to them. They now can reap the benefits of being a lender without all the middlemen and the headaches. PeerStreet also provides private lenders a secondary market for their loans and gives borrowers the chance to obtain financing more quickly and at better rates than traditional lenders will offer.
To get the full story, we strongly suggest reading The Big Short. It is a great read and will make it easier to understand PeerStreet’s origins and structure. If you do not plan to read it anytime soon, that’s okay, the movie comes out tomorrow and the reviews are positive.
Check out the trailer:
We will post a full review of the movie, too, so keep an eye out!
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