By Zach Bohannon
For WisBusiness.com
One of the unavoidable results of the mortgage crisis is that financial institutions wound up holding a number of properties, foreclosed or otherwise distressed. Now that the real-estate market is slowly recovering, how can potential buyers easily find those properties?
Launched about a year ago, BankMarketplace.com believes it can offer a “marketplace” for buyers and sellers of bank-owned property.
The founders of the company, Kim and Steve Machotka, believe that with the necessary funding they will be able to take their company national. For now, however, they’re starting small — and close to home.
“The first round of funding would be able to get us in the neighboring states,” Steve Machotka said.
Machotka has nearly 20 years in the banking industry in addition to a degree in economics from UW-Whitewater. He came up with the idea for BankMarketplace.com as the nation’s economy was weakening, and thousands of properties were going into foreclosure and getting taken over by banks across the country. He realized that most banks were not good at handling and selling this newly possessed property. Instead, he found that banks needed to stick to what they were best at, making loans and taking deposits, and get away from the notion of managing real estate and other property repossessed from their clients.
Market inefficiency prompted Stephen and his wife, Kim, to take action.
“People are actually looking and searching for these properties and I found people were constantly calling the banks in search of them,” he said. “Our company was founded on the idea that it would be a place for these people to search all these properties that banks owned and have it one convenient location.”
Stephen is aiming high for BankMarketplace.com . “The goal is to be the website for bank-owned property,” he said. “I almost envision it like a Craigslist-type place. Once you get a portion of the market you don’t have to do much more, it will really take on a life of its own.”
“I have projected that once our company gets just a couple hundred banks signed up, we will be in the multi-millions of dollars in revenue,” he continued.
Stephen is seeking $275,000 in capital from investors in addition to the roughly $50,000 already invested in the company by current ownership. He said money will go directly to a significant website upgrade, advertising and marketing, equipment, one new hire and working capital to be used until positive cash flow is achieved.
The company presented Nov. 14 during the Elevator Pitch Olympics during the Wisconsin Early Stage Symposium.
“I understand that investors are going to have questions. But it’s the same with any business,” he said. “Investors are hesitant to be the first one to invest in it. I believe if we can get that first one, it will be huge for our future.”
There are two other websites creating a marketplace for banks and credit unions to present their bank-owned assets to those specifically interested in buying and selling bank-owned property. One is based in Utah (Zoolender.com) and the other is in Alabama (Bankermls.com).
With limited competition, a common last question by investors is what happens when the economy improves? In other words, once banks start selling their property off as the recovery occurs, will there continue to be a market?
Stephen is highly confident the market for bank-owned property will remain solid.
“Just look at the numbers. FDIC-insured institutions held more than $41.7 billion in ‘other real estate owned’ on their balance sheets at the end of the second quarter in 2012. Although this is a high number, the 20-year average is still $16.8 billion. In short, there always will be bank-owned property. It’s a pretty consistent and viable market,” he said.
While buyers and investors are seeking bank-owned property due to the sometimes significant discounts they have offered, Steve Machotka believes getting them to the website won’t be a problem. BankMarketplace.com has 1 million hits for the first time this past month, he said.
Investors believe that the hardest part will be getting banks and financial institutions sold on the idea of paying a fee to list their products on the website. Steve Machotka doesn’t believe so. “The estimated cost of a bank holding real estate is equal to 10 percent of the asset value on an annual basis. Therefore, banks are more than motivated to organize, list and sell their bank owned property for a small fee,” he said.
“With more than 14,000 financial institutions in the United States, there is only room for growth and improvement from here,” he added.
— Bohannon is a master’s student in the Department of Life Sciences Communication and has an undergraduate degree in economics from the UW-Madison.
