QuietStream a New-Age Voice for CRE Investors

BOSTON–Robert J. Finlay is an innovator. And as is the case with most successful innovators, the ability to create a product or service that meets the needs of consumers or an entire industry usually springs from the thought, “There’s got to be a better way to do this.”

That thought has occurred to Finlay numerous times during his 30-plus years in the commercial real estate business, most recently in 2013 when he formed QuietStream Financial Services (QSF), a portfolio of businesses that leverages the latest in “disruptive” technologies to offer investor management, online investor portals, crowdfunding platforms, CMBS underwriting, defeasance, marketing and other alternative asset management services to commercial real estate owners and investors.

“I’ve seen a lot of forms of disruption during my life in commercial real estate, from CMBS to tax code changes” says Finlay. “And I really do believe that the utilization of technology is going to be so impactful over the next five to ten years for commercial real estate operators that it will probably be one of the most dynamic shifts that we’ve ever seen in the industry.”

Finlay’s firm is on the cutting edge of that technology with their software platforms, but the technological expertise is grounded in the New Hampshire native’s commercial real estate pedigree. Finlay has been involved in the industry since the age of 16, when he would drive around in an old pickup truck hanging signs for his father’s real estate business, Finlay Properties. He progressed to cleaning those buildings, then managing them, and went on to run the gamut of CRE position, from leasing broker to owner/developer to finance. In the late 90’s, he tried to walk away from real estate, interviewing for positions at investment banks, but because he had such a specialized skill set, Finlay ended up in the CRE department of firms like Credit Suisse First Boston and Deutsche Bank, working with CMBS.

Finlay remained in the business for a few years, relocating to Charlotte, NC, and in 2000, a property owner for whom Finlay had arranged a CMBS loan approached him to ask how he could sell his property and pay his off the debt. The loan contained a defeasance provision, meaning it could not be paid off early, so Finlay came up with a defeasance strategy that substituted collateral (in the form of a portfolio of government securities) that would make the remaining payments in return for a release of the mortgage on the property. Finlay had essentially created the process, and discovered that there was a wider market for the service, so he founded a company, Defease With Ease (now Commercial Defeasance). The company thrived for years, and he sold the business to Boston-based Summit Partners in 2006.

Finlay then “retired” and founded his private investment firm, R.J. Finlay & Co., which owns multiple CRE-related businesses and is also a full-service real estate, construction and building materials firm based in Nashua, NH. The company’s investment division began buying multifamily and office assets in the Northeast, south to Florida and west to Texas during the downturn in 2008-2010, purchasing assets in secondary and tertiary markets such as Reading, MA (where he developed the mixed-use 30 Haven with Oaktree Development), Manchester, NH and Greeneville, SC.

By 2011, competition for assets was becoming increasingly intense, with the number of bidders for an asset ballooning from two or three in 2009 to 30-40. Finlay reasoned that since there were great operators with extensive local experience pursuing the same deals that he was, he decided it was wiser to invest with them rather than compete. But he soon noticed that the downside to being in a joint venture or a limited partnership with those operators was that he no longer had real time access to data relevant his investments. “When you own real estate outright and you’re used to the kind of reporting and information that you receive, it’s very different when you’re an investor,” says Finlay. “I’m not really getting very good reporting, and I’m not getting the information that I want when I want it, so it was becoming a hassle for our investment arm being able to invest.”

Also in 2011, Finlay was given an “offer I couldn’t refuse” to buy back into Commercial Defeasance. But by 2013, he and his partners realized “that the defeasance market had changed forever…and the business metrics of defeasance weren’t there,” so they retained their staff and devised a diversification strategy that led to the formation of QuietStream. One of the companies to emerge from that diversification was Investor Management Services (IMS), which addresses the frustrations that Finlay had encountered as a property investor.

IMS provides deal sponsors/owners with an online platform that not only allows their investors to log in and see detailed investment information (similar to a Charles Schwab dashboard), but it also serves as a “very robust, back office operations efficiency tool (for the owners),” says Finlay. “For instance, our system has an integrated waterfall distribution system, so that as a sponsor, you can put in your gross distribution amounts, and it will calculate the waterfall amounts and then create a distribution batch that you can send out through an ACH (Automated Clearing House). So distributions are now taking 90 seconds (to process) instead of days.”

The platform also provides a secure online investor portal where sponsors can post investment offerings, and potential investors can verify their accreditation status, review investment opportunities and place investments. “It really helps with a lot of back office efficiency that helps (sponsors) get money in from investors, and money and reporting out to those investors, so it’s a great return on investment” says Finlay.

IMS currently has over 100 customers nationwide, primarily in the Southeast and West Coast markets and in Chicago, and recently opened a Boston office with the intent of building a client base in the Northeast. Clients range from “very large, just right under institutional – we don’t do REITS – and under,” says Finlay, and include office, industrial, multifamily and hospitality owners.

“This is the change and the disruption (that had to happen),” asserts Finlay. “Commercial real estate is fairly slow to adopt, but when real estate groups start to realize that one of their most important assets – their investors – could go away because they want the experience of something like IMS, (they’ll adapt). Once Charles Schwab had an online platform that allowed you to buy and sell stocks, everyone else (developed one) because if they didn’t, they would have been out of business in no time. The bottom line is that real estate services need to realize that things are changing and they’re changing very quickly.”