Beyond the Box – Season 1 – Episode 8 – Rob Richards, CEO/Co-founder, Key

Beyond the Box – Season 1 – Episode 8 – Rob Richards, CEO/Co-founder, Key Living.

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Hard to believe but here we are with Episode 8 of Beyond the Box!! 

Today we highlight and celebrate Rob Richards, Co-founder and CEO of KeyLiving which introduces a new model of homeownership that provides the freedoms of renting, with all the benefits of owning your own property. “Homeownership as a service”. 

“Homeownership is still a culturally ingrained value and we want that low-risk investment. We want to be able to invest in where we live. Owners think differently than renters. They’re more located to their property. They feel the pride, and the comfort and security than tenancy that goes with ownership, and they want that.”

Full Transcript of Conversation between Mike McAra and Rob Richards

Mike McAra – Beyond the Box Host: We are on! So, I have Rob Richards on our show here today. Rob is the co-founder and CEO with Key Living, which is a very cool, very innovative take on a kind of ownership, which we’ll get to later. You can correct me on that as well, I’m sure there’s some nuances there. But, he’s also a general partner with Plaza Ventures. So, Rob has this unique lens to be able to see things form the venture capital side and an entrepreneurial side which is really, really cool. But more importantly to that, Rob has a really cool story that I want to get off the start to here. Because one of the things I’ve read about you Rob is that you’re one of the first companies to do SaaS in Canada. So, I would love to hear the story of what that was, and how it came to be. Because you guys went all the way to IPO. So, let’s hear the Rob Richard story as the first SaaS, one of the first SaaS companies in Canada.

Rob Richards – Co-founder and CEO of Key: Thanks Mike, I’m very pleased to talk to you today. I’ve spent my whole career digitizing stuff. If I had to sum it up into two words. You know, physics degree at Waterloo where I majored in Digital Signal Processing. I spent the next dozen years in and around Nortel building digital telecom. And then the transport layer of the internet. Dozen years after that, working in the application layer of the internet using software and web to transform businesses. And the last one during that run of my career was called We were in the .com era, one of many companies looking to transfer both industries. In our case, recruiting. When we emerged from being the first job board in Canada to really focus in on the back-end application, you know, the processing software we had created. So, we became what we were called back then, an “application service provider,” there was no SaaS. We were first to market selling concurrent licenses to rental software outside the company firewall. So, everywhere I went, heads were exploding. It was just so much fun! But we got traction, we developed good revenues with a lot of great organizations and took it public on the NASDQ in December ’99.  We were like the second last company to get out before the “you know what” hit the fan with the telecom induced meltdown of 2000 to 2001. So, timing accounts for a lot in life and we were fortunate to get our money and we were then able to consolidate a number of companies that weren’t as fortunate and we sort of moved all of the operations out into our data center in Kaneda in Ottawa. And it was a really good, fun run. I left that to become an angel investor, kind of 2001. I did that for several years and moved back to Toronto and met up with the folks at Plaza Corp. And Plaza Corp is one of the more larger, more successful condominium developers out here in Toronto. But they also sort of have a knack for technology investment side to what they did and will probably on 50 or 60 cap tables. Nobody knew about the Plaza principle of being angel investors and they kept it quiet. So, we kind of formalized angel investing an investment club back in 2007-2008. Then evolved that to what Plaza venture sis now today, back in 2012, 2013 we recognized the tremendous gap in growth stage capital in Canada. You could get seed financing and by then the seed eco-system bubbled up and there were accelerators and incubators and university-based program everywhere, and you know, two kids with fifty grand could start a software company out of university, right? So, there were thousands of those happening every year. So, we said, “Okay, let’s leave that ecosystem to itself because it’s doing really well.” And be kind of a farm team for us to find companies that break out of the pack and start to develop revenue traction. And so, in 2013 we brought on our third partner, Matt **** (4:22), who would have a lot of experience in funding companies with cash flow in the venture debt industry. We moved our practice into series A, series B, investments. So, companies with really good traction, recurring revenue had proven product market fit, but now needed money to hire more humans to scale and to contract opportunity. So, it’s all about scaling, and we need a much bigger scale of eco-system in Canada. Everybody was recognizing that at the time, and even more so now. Back then you can count the number of series A, B, funding on probably three fingers. Now there’s maybe 15 or 20 of us in Canada and it’s still 1/20th or 30th on a per-capita basis that you have down in the United States. So, we have a long way to go, but we’re getting there. Now there’s more local money accessible to our growing community and Canadian companies and we really want to get more founders to the level where they can think about going public and becoming a billion-dollar pillar company, like Shopify. And we hope to see many more of those happen, or at least develop to the point where if you’re going to sell or do it at a 200 or 300-million-dollar level, not an aqua hire at 30, 40 or 50 million. So, it’s really just creating this environment for communities and entrepreneurs to scale up, to have more confidence, and then we’re starting to produce repeat entrepreneurs, who had exits and are coming back with that knowledge and that capital back into the eco-system. So, we’re finally starting to get there, and we see that in Toronto, and Waterloo, out in Montreal, and Ottawa, Vancouver, even Calgary. It’s just really starting to bubble up where we’re getting some critical mass so that’s really, really exciting. So, here I was a co-founder and managing partner of a thriving venture capital company, and I loved that lifestyle where you have to think of three of four different things a day, you’re always intellectually challenged, your time is your own. I mean, you’re busy as heck, but basically your time is your own. And I had no intention of leaving that lifestyle, but something started to happen within me being a tech guy inside a condo development shop over the last decade or more, I started to observe some things that became deeply troubling to the point where I pulled out my cheque book and decided to do something about it, and formed Key. The first area of concern was the lack of alignment between developers and the eventual owner or operators of our multi-family infrastructure. We’re developing to build and sell, and you’re invested and you’re off to the next one. So, you’re not acting economically incentived to make the capital investments into technology that would improve the energy stack or the water stack, or the waste management stack. You know, really strive toward creating that zero-build industry or even energy positive builds. Those investments are expensive, they take a long time to pay back. But they do payback and you know the operator of this infrastructure benefits from that stack and they’ve taken their energy bill to zero, or at least with today’s technology they can easily get 50-60% reductions. That lack of alignment was disturbing to me, because we’re not developing sustainably. We’re not building buildings to last, even good quality developers like Plaza Corp who want to build great product, can’t make the investments. So, it took up until a couple years ago for LED lighting to make sense in a new build, and I’m on the board of Canada’s largest LED retrofitting company. We’ve done 3000 condos coast to coast. But it only makes sense in the year after when the condo board gets control of the building. It didn’t make sense for developers when they’re operating the lights for the last year and a half construction and there was a 6- or 7-year payback, and the purchaser wasn’t going to get you to price per square foot increase because you had LED lights. It just doesn’t work that way.

Mike McAra – Beyond the Box Host: Totally.

Rob Richards – Co-founder and CEO of Key: So, we need to find a way to align the interests of developers and the owner/operators of the structure to make the right choices in materials and technology and process to create more sustainable infrastructure, was problem number one. Problem number two is the industry is fundamentally inefficient in that 35,000 developers in North America build one building at a time and they finance that because it’s not an asset class that the *** and gambler(9:08) can write a 100-million dollar cheque into every time you’re building a condo, the equity you need is around 5 to 30 million dollars, so it’s too small for institutional investors, it’s just not organized effectively for that. And so, we raised money from hard at work families, you make 4000 phone calls, you get a couple hundred families to write $150,000 cheques and that’s the way you raise your 30 million bucks. It’s expensive time, it’s time consuming, it’s a pain in the ass. Between that and the finance charges from retail sell through programs, now you’re paying brokers, and all that stuff and everybody then has to go get individual mortgages, and then you take that package to the bank and unlock construction financing. And we’ve calculated that, and they were up to 12% of the cost of a condo is just non-marginable waste. Right? So, instead of selling condos that are $1000 a foot, we should be selling them in the $880 or something like that. And when you think about a 700-foot condo that’s a massive impact on the end buyer. So, those two problems were bugging me. And then along comes this affordability crisis, I mean, 2008 created a generation of renters. The mortgage industry itself went completely upside down because of the financial sector manipulation of these products for credit default swaps and all this crazy shit that wall street was doing. And it just got everybody out to water, and since then, we have a whole generation of our young people and our immigrants that are locked out of the property ladder on which their grandparents and their parents built their generational wealth. They’re locked out, they’re stuck on this rental hamster wheel, going around and around, and prices are rising faster than wages. Their rents are going up and they can’t save for a down-payment. In Vancouver, it’s been nearly three decades now before the average person can save for a down payment. In Toronto, it’s 21 years. We asked a couple of millennials at SoftBank and in the valley, and one of them drew an infinity sign, another threw her hands up in disgust because they had no idea when they would ever get on the property ladder. And they’re desponded about it. Home ownership is still a culturally ingrained value and we want that low-risk investment. We want to be able to invest in where we live. Owners think differently than renters. They’re more located to their property. They feel the pride, and the comfort and security than tenancy that goes with ownership, and they want that. It’s a top three goal for millennials with education and marriage. But we just shut them out of that opportunity, so the ironic thing is, the capital from our wealthy families and other investors is keeping our young people locked out of ownership so it just increasing the wealth they buy. It’s like this never-ending problem that keeps spiraling. So, how do we cut through all of that, in a way that we right side the industry. We need a new economic model, in order to do that. A new economic model of home ownership, and we call it ownership on demand. We’ve filed two patents so far, with a third, a fourth and a fifth in preparation. And so, this system of ownership on demand just digitizes the homeownership experience. Right now, and you know we’ve taken the CHMC checklist and other information and we got a lot of realtors on our team and so we know, we understand deeply what the condo buying process is, having been in it for about 38 years with Plaza. And there are 42 steps to buying a condo. 42 steps…

Mike McAra – Beyond the Box Host: Only 42?

Rob Richards – Co-founder and CEO of Key:  Only 42, it’s the meaning of the universe, if you’re a Doctor Who fan probably reaching too far back for a millennial like you!

Mike McAra – Beyond the Box Host: Hey, hey, I’ve got some archives that I can dust off once in a while!

Rob Richards – Co-founder and CEO of Key: Cool, cool! So, a measly 42 steps. Things you have to research, people you have to talk to, processes you have to go through, documents you have to review, things you have to sign. All of that. There are 16 costs to buy a home. It’s not just about the list price of the condo. It’s everything else in and around that, including land transfer tax and all kinds of other little things that nibble away at your pocketbook. There are 9 recurring costs in being an owner. You know, condo fees, taxes, repairs, all the things that you have to worry about. Your capital costs. And there are 8 major unknowns, or 8 major financial risks associated with being an owner. And people just don’t have the knowledge or the time to fully understand what they’re getting into. And you’re seeing stories of condos in Calgary where repairs, you know, 5,6,7 years down the road that nobody anticipated. You know, garage falling apart, or bricks falling off the building. And $25,000 to $30,000 capital costs to people who just can’t afford it; what do you do?

Mike McAra – Beyond the Box Host: Well, even further to that, purposely lowering condo fees on new builds as you say. Issue one, the lack of alignment between the developer and the end user, right?

Rob Richards – Co-founder and CEO of Key: Yep.

Mike McAra – Beyond the Box Host: And obviously those things manifest over time too so, yeah. Those are prime examples.

Rob Richards – Co-founder and CEO of Key: Well, where I live in city place in Toronto, we’re heading into a billion dollar plus issue as we’re realizing the windows aren’t made to last and we’ve got other issues with this infrastructure. Who’s going to pay? We have no idea. We’re heading into a massive problem. So, we can’t continue to build that way. And we’re seeing massive insurance rates in Vancouver starting to double, triple. Putting these condo associations under water, and it’s because the infrastructure isn’t up to snuff. So, we’ve got to tackle all of that. So, with first digitizing that journey and the development process, we can take non-marginable cost out, we can make the whole process so much more efficient. We can take more than 10% of the cost out of the real estate itself and take a ton of costs and middleman out of the buying, owning and selling journeys to make them far more efficient and effective. And so, the fundamental prop with Key, is to provide the true benefits of owning, which are: One, you have an equity investment that’s growing in value with the underlying real estate in a nice stable way, it’s not a public stock with all of its volatility. Like a REIT, REIT’s are like, 27% under nav right now because of public markets. We can’t have that when it comes to home ownership. So, a nice stable value tied to the underlying real estate which always goes up in the end, and I’ll talk more about that. That’s number one. Number two is you’ve got security of occupancy. There’s no dreaded, “knock on the door” where your landlord is renovating you or where their daughter is going to University of Alberta and you’re out. And that happens thousands of times a year in downtown Toronto. People are renting condos who get that knock on the door and there’s nothing they can do about it. So, security of occupancy is Keys model, and it’s your place for life if you want it, nobody can kick you out. And the third thing is, you can get the pride and the comfort, and the security of ownership and you think like an owner. You have that investment; you have that security and you can customize your home. You’re going to take better care of the place where you live if you own it. And it’s proven time and time again. And then, in our communities, everyone’s an owner. So, unlike condos now which are isolated, and fractured environments where you don’t know who your neighbours are month to month. And in many cases, now you’re living in a community of owners, and everybody cares. And we’re going to layer on technology for a better social fabric, more connectedness and interest groups, and community support, and what happens in a pandemic and are there resources that can help you if you can’t leave the Toronto of your unit. And crazy story, we have an underlying medical condition in the family, so we’ve been locked in here for the last 8 weeks. I think I’ve been outside twice in eight weeks, and it’s just to start the car to make sure it runs if we need it. But you know there’s something down in the lobby, one of the two times I did go out, a sign that says there are people here to support you. And there’s the phone number of somebody you can call, and they’ll help you with recycling and garbage and grocery delivery and what have you. But I had to go down to the lobby to find this thing. Where it should be that you don’t have to go down to the lobby, call us instead. I mean… just crazy stuff where you kind of give your head a shake. So, we can do so much better from the way we design our buildings, the way we build in more resiliency, the way we build in more social fabric and connectedness in the community.

Mike McAra – Beyond the Box Host: So, tell me more about the Key process then. So, you are full start, start to finish. Are you the developer and builder as well as the owner vehicle as well? Or, how does that pull…

Rob Richards – Co-founder and CEO of Key: We partner with developers. So, our value prop to them is, “Do what you love to do. Assemble the land, do your demographics, do your architectural concept, and then build the buildings and deliver quality products, and we’ll help you build even higher quality products, because we’ll get further investment in the technology and materials to make better buildings.” And we’ll take care of everything else. Here the sell is one signature now. You don’t have to go through the whole retail sell process, you don’t have to worry about construction financing; we take care of that! So, if you’re a developer, my absolute profit margin is maintained, but I can take 10 months out of the process, and I take all of this hassle out of the process, so my rate of return goes up. So, developers look at us as an engine of growth for their business. They can do more, faster, better. Getting rid of all the bullshit.

Mike McAra – Beyond the Box Host: Well, if you think about that, you said there were 42 steps to buying a condo, right? And say you build a 200-unit complex. And you’ve got your sales team that has to go through all 42 of those steps for all 200 of those units and it’s obvious some are easier than others, but as you pointed out, that complexity and all those issues are now replaced with a single signature with Key taking off.

Rob Richards – Co-founder and CEO of Key: Yeah.

Mike McAra – Beyond the Box Host: I feel like that’s a tough sell, I’m sure nobody likes that.

Rob Richards – Co-founder and CEO of Key: So, yes, we hope to grow rapidly because developers recognize that this is really an engine for their business and they’re going to be able to make better product and they’ll be able to have their brand affiliated with something that has a positive economic and social impact and environmental impact.

Mike McAra – Beyond the Box Host:            So, I’m a consumer. And I want to get into a Key arrangement, I want to work with Key, or I want to buy a Key equity state or something like that in a building.  How does that work from the consumer side?

Rob Richards – Co-founder and CEO of Key: So, the consumer, what they’re buying is shares in a real estate holding company.

Mike McAra – Beyond the Box Host: Okay.

Rob Richards – Co-founder and CEO of Key: So, Key is structured as a dual company model. A prop-co, and an op-co. The prop-co is the real estate holding company, and the op-co is the technology company and the management company that manages the real estate. So, you’re buying shares in the prop-co. So, you have a pro-rata share of the underlying real estate, right alongside the world’s best institutional investors on the same terms as they have it. And so, we fund all of the infrastructure with sort of half institutional equity and half commercial debt. And we let owner residents buy in for just $25,000. Full stop. For $25,000 you buy a Key and that gives you full rights of ownership to the unit that you then select. And we take you through a discovery process, and a move-in process, and then you’re an owner in Key. But you own shares in the pool. So, your investment goes up or down with the pool of real estate. And we sort of ring fenced that to regions. So, we have a whole co for Vancouver, we have a whole one for Calgary, we have one for Toronto, one for Boston, one for Shanghai. So, you’re inventing in how you think that city is going to do.

Mike McAra – Beyond the Box Host: Gotcha.

Rob Richards – Co-founder and CEO of Key: Right? But it’s transferrable, but we’ll talk about that. So, you buy in for that $25,000. What does it get you? Well, it gets you the shares, you’ve got equity that is going to compound with the growth of the real estate. What it also buys you is the reduction of the monthly rent. So, you’re going to go into paying a market rent, and we’ve priced that according to what’s happening in the city, and that kind of unit in that part of the city and what happening on a monthly basis. Market rent, but then you get a deduction. So, say your suite is worth $500,000, and you put in $25,000. So, that’s 5%. So, you get a 5% reduction on the variable rent. You still have that baseline that you pay that covers condo fees and taxes, but everything on top of that; just say you have a mortgage on that balance, right? So, you’ll owe $475,000 to BMO for your mortgage, and you start paying that mortgage off and the amount of cash flow you have lessens every month.

Mike McAra – Beyond the Box Host: So, with each payment, it does deduct against what your position is.

Rob Richards – Co-founder and CEO of Key: Yeah, we would add a little bit into a savings plan, and that’s something you can set in the app.

Mike McAra – Beyond the Box Host: Okay, perfect yeah, so it’s very customizable then.

Rob Richards – Co-founder and CEO of Key: Very customizable on how much extra you want to put in to buy equity and buy down next month’s rent. So, you get to the point where you’ve invested $500,000 or your investment is worth $500,000, you’re not paying any variable rent.

Mike McAra – Beyond the Box Host: I could see a guy like myself playing around with that and going like, “Okay, so if I put this much, it’s this much.” And playing with that app, right? You know, actually we’re going to do this, and actually we’re not going to go to Mexico this year. Right? We’re going to do this, and it does this, and we can go to Mexico twice next year, or something like that.

Rob Richards – Co-founder and CEO of Key:           But at least now you have the information and you can make an informed choice. Information is power. Information is power.

Mike McAra – Beyond the Box Host:            And the big thing too is that barrier to entry has essentially been removed. You know, 21 years to get a down payment. Versus $25,000, which is a large chunk of money for a lot of people, but it’s also very achievable for a lot of people. Whereas, let’s say Vancouver or Toronto where your average home price is in the millions or at least it was a couple months ago. Okay, you know, 10%, $100,000. Okay, 5%, $50,000. See you’re cutting that in half, right? Even right there, so that’s really exciting. So, right now, you’re in Toronto?

Rob Richards – Co-founder and CEO of Key: We’re starting in Toronto. We have 2.8 billion of real estate identified. We have LOI’s for the first billion, billion and a half of that. And so, we’re building some new condo projects from the ground up and we’re buying blocks of suites as well, so we can get going with current product. Our long-term model is almost everything we do is going to be build our way from the ground up, and our buildings will be unlike anything you’ve ever seen. We don’t need 3-acres of parking garage with 6 foot-6 ceilings. Who needs that? We need to be growing vegetables in our underground. We need to be having makers studios and we need to be having weather protectant and hailing and scooters and Tesla’s on demand. That’s the kind of stuff we need in our buildings, not a huge parking garage. And we want to have fresh food and co-working, and pop-up retail and telemedicine in our lobbies. You know, pet grooming stations, and all kinds of things that are more suitable to our lifestyle. So, our buildings are going to have innovations in them all the way from the ground up to the social fabric of connecting and owning a residence to community around our buildings. So, very, very special. But getting going, we’re starting with some existing with some condominium suites where the real value proposition there is, “let me be an owner.” It’s the Fin-Tech focus. How can I own, and every month the really great thing about real estate on demand is that every month you can buy your equity up, or you can sell it down! So, if you want to take ten grands out to fund your wedding, or your trip to Fiji, you can do that. So, we’ll have a monthly redemption capability at a monthly share price that is set for the use of Big Data and through certified appraisals. So, every month we know what our net asset value or our portfolio is worth in the city where you’re worth and that defines the price per share. And that’ the price at which we will redeem your equity.

Mike McAra – Beyond the Box Host: Got it.

Rob Richards – Co-founder and CEO of Key:  So, now you’ve got 45k, and you want to take 10k out, you can do that.

Mike McAra – Beyond the Box Host: So, you’ve got that access to liquidity as well, which is a huge one, especially when you’ve got something that happens in life where, let’s say you have a traditional ownership model. Well, now I have to sell my house. And the advantage of ibuying, at least in the states, there’s some level of liquidity, at least there was, but what is that market rate, what are you getting, and that’s what the real estate community would always throw back is “you’re giving it away. It’s a fire sale” and there’s data to support that in a lot of cases, but the point is it was a liquidity issue. And now you’ve spoken about three issues there. There’s a fourth one to throw on your list, and it’s the liquidity on the exit side.

Rob Richards – Co-founder and CEO of Key: It is, and now if you want to get equity out of your home, you have to get a home equity line of credit, or a reverse mortgage. And you’re paying fees and these middlemen, contracts…

Mike McAra – Beyond the Box Host: How many steps is that process?

Rob Richards – Co-founder and CEO of Key: Well, too many, I’ll tell you that much! And it costs too much. And everybody’s got your hand in your pocket every step of the process. So, now we have a frictionless month-to-month, you know you’re paying 50 basis points for a share transaction.

Mike McAra – Beyond the Box Host:  It makes you kind of wonder what’s the catch, Rob. It seems like this utopian world of ownership, property ownership. Why hasn’t this been done before?

Rob Richards – Co-founder and CEO of Key: Well, it hasn’t been done before because like every great idea, you think of, 20 people have thought about it before you, and that’s generally true. We come across a lot of people who have been thinking of something very similar. So, I can’t tell you how many investor calls or partner calls, calls from people in the ecosystem like, “Yeah, I’ve been thinking about this. I’m glad to see someone finally doing it.” So, usually with something like this, someone just finally has to do it. You know, we do have our unique take on it, and we do have patents applied for, so there’s been some original thought. But not anything that other people haven’t been thinking; certainly, about the need for!

Mike McAra – Beyond the Box Host: I think it’s about connecting the dots too, right? Like, one thing that jumps out to my mind is a conversation that I’ve been having, or have had with a lot of people over the last several years, is “How do I invest in real estate in a select market, from a diversified portfolio approach, without having the capital to do it.” So, can I get a regional specific reach is the best example. For a city, but not in a REIT format. And by doing your holdcos, regionally specific you’re satiating, your checking that box, but you’re also checking all the other boxes. And this is something that you can probably speak to from the venture side, is a lot of people have these really great moonshot ideas, that are like, if you could do x, y, and z, this would be an amazing way to change the world. But where the disconnect is, is what is the strategic path that solves pain points all along the way to get to that end vision. And what you guys have been able to do with your path here, is you’ve started with those really granular, actionable things, where there’s a real “hair on fire” problem, obviously with the disconnect between the developers and the owner. The inefficiency of the buildings, the affordability problem. And then drilling it down to your original thought and connecting those dots, and then layering on all of those things that people have been thinking about this, and thinking about this, but they didn’t have that action able step to go forward. And I’m sure you’ve thought about that, and I’m sure you see that a lot in venture, is that. So maybe you could speak to that.

Rob Richards – Co-founder and CEO of Key: Yeah, and you know the thing there is, do you control the underlying asset? Do you have the scope to think about it, influence all of these things? Like, how does a passive investor get in for 500 bucks? Why should a teenager with 500 to invest be able to make an investment in regionally focused real estate where not only do they have an investment that is going to grow with real estate, but there is a path to home ownership at the end of that. It’s not just buying shares in a REIT, because you can’t turn that into home ownership in the same way. We’ll talk about our economic flywheel because it’s really important for the past investor and the resioner. And then, if you control the asset, you can really look at every point in the journey and you can impact it. If you don’t control the asset, you can bring your point solution, and a lot of them are great, like an ibuyer. And you can impact one part of the journey, but you can’t impact the whole journey. And we’ve seen businesses that don’t control their underlying assets and those that do, you can compare eBay and Amazon. eBay has no impact on the distribution structure or any of that. Whereas amazon does. And so, they have more control of the end to end experience. And look which business model is more effective. Airbnb has done an amazing job of becoming a brand for a short-term rental, but without control for the underlying assets, they’re extremely vulnerable.

Mike McAra – Beyond the Box Host: Well, and that’s that whole ecosystem play, and Apple is an easy example for most people with the Appstore. Okay, you’ve got your asset, the phone and the iOS, right. But then, because you can control that component, you can build all these insuleray thing upon it because you control that entire user journey from start to finish. So, now you can build those brand modes or those protective barriers to entry for the competition, but it also allows you to innovate on all of those different pieces along the way.

Rob Richards – Co-founder and CEO of Key: It really does. It really does, so for the passive investor we innovate and say, “you can now buy into a pool of the best multi-family real estate that you can get your hands on. It’s prime real estate.” You just couldn’t get access to that before. There’s no way. You had to be a high-network family willing to write a $200,000 cheque. So, now you’re a teenager with $500 to invest, you can get access to that real estate, that amazing investment right alongside the Harvard endowment, or the Canada pension. And then, we can innovate in terms of the owner-resident experience, and what we call “activation” of the real estate. So, why should real estate just be brick and mortar and just sit there and develop value in terms of what people think the brick and mortars were? Can we not activate that real estate in some meaningful way? I’ll give you two examples. One is, why couldn’t we for all the things that residents consume on a regular basis, why can’t we do marketplace deals where the supplier of broadband or the supplier of furniture or the plant watering or the dog walking services, or the deliver of food. The grocery company down the block. Why wouldn’t these people be interested in having preferred access to all of this demand? And then, why wouldn’t they give me the ability to convert loyalty points into equity? And that’s where our next patent is on, is how do we actually transform regular purchasing power into equity through the conversion of loyalty. So, now, when you spend $100 bucks at Safeway, if Safeway would let us convert the loyalty points associated with that purchase so we could increase equity, the person who spent $100 bucks now they’ve got another $1.50 worth of shares!

Mike McAra – Beyond the Box Host:  So, now I don’t have to get a toaster with my credit card points, I can get equity in my property.

Rob Richards – Co-founder and CEO of Key: You can get equity in your property. And it compounds! So, the more equity that you generate, it’s also delivering a higher price per share because our rev share catered to all of that is shared back with the real estate holding co’s. So, it lifts everybody’s boat when the higher price per share. And then the third thing that happens is, you’re paying less next month in rent. So, it’s like this triple whammy every time you spend, you get more shares, you get a higher price per share, and you get a lower cash outflow next month.

Mike McAra – Beyond the Box Host: I would have loved to have been a fly on the wall during that whiteboard session when you guys were articulating those details and seeing a lot of the dots come together. I can just feel the passion coming out of it!

Rob Richards – Co-founder and CEO of Key: Yeah, well, the lightbulbs that have gone off has been like, holy cow. This is so powerful. And then the other things is, is let’s talk further about Airbnb and short-term rentals. What we see now, is we’ve exposed all of the systemic risk in that industry with one month of Covid. Airbnb urban business is just wiped out. It went from wherever it was, growing like a weed, to zero, overnight. Their vacation business and they’ve got other models that they’re responding to and developing really good revenues in other sectors, but their core urban condo rental business just vanished. And it was going to be hit anyway because they were facing regulatory headwinds, where cities like Toronto and Vancouver and others have said, “No, you have to be a principle resident. We don’t want ghost hotels anymore. We don’t want people leasing 20 condos and then putting them on Airbnb and running them as a kind of a hotel without any real service.” And so, ghost hotels were gutted overnight, and maybe rightly so. It out a lot of economic shock into the system, so now a lot of these condos are under water. If you were a guy that was leasing your condo to one of these hotel operators, they’re gone; they’ve all defaulted. And now you’re putting your condo up in the long-term rental pool, which probably is a good thing. But a lot of people are in trouble now because they don’t have that income and there are an estimated over 7,000 condos in Toronto that have gone into shock because of that.

Mike McAra – Beyond the Box Host: Well, the Wall Street Journal is calling it the “Magic Money”, was their big headline. The “Magic Money is gone now!”

Rob Richards – Co-founder and CEO of Key: The “Magic Money” is gone, exactly. And it wasn’t underpinned on anything real to begin with. A lot of entrepreneurs took advantage, made a lot of money for a period of time, but then any kind of stress, any kind of recessionary headwind, and boom; you’re upside down. So, how do we take Airbnb back to its roots and what it was meant to do, which is true home-sharing. It adds a lot of value to cities that are stressed with hotel inventory, gives a lot of elasticity in handing tourism and things, when people can share their own homes, and it’s good micro-tourism because it puts money in the hands of residents and it brings money into the local economies.  You know, where people are staying at a condo downtown, they’re not going to be shopping at the Gap and Home Depot. They’re going to be going to local restaurants and they’re going to be going to boutiques to get unique items and souvenirs to take home. So, it really puts money into hyper-local economies and it’s how it was meant to be from the start. So, with Key, we have this incredibly unfair advantage in that every resident in our buildings is an owner-resident, principle resident. So, we’re on side with the legislation. And the second thing is, we are the condo board. So, we say, “No, no, no, we’re not outlawing short-term, because short-term was done so poorly. We’re implementing it in a way that guarantees the highest quality experiences. Minimum 2-night stays.” 90% plus of the problems on Airbnb, chairgroul, murders in Fort York, they’re 1-night party rentals. People go and create accounts to rent out condos to throw a party. That’s where all the issues come from. Breakage, and everything else. So, now we have 2-night minimum stays, only the highest rated guests in the system. So quality curation; verify government id. And then we welcome the guests into the community. So, we say, “No, you’re a welcome guest. You don’t have to get delivery of a fob in a dark alley at 10 o’clock at night.”

Mike McAra – Beyond the Box Host: It’s not at a key box around the corner at a 7/11.

Rob Richards – Co-founder and CEO of Key: Yeah, exactly.

Mike McAra – Beyond the Box Host:  You get your bags; you’re knocking over the Twinkies.

Rob Richards – Co-founder and CEO of Key: Yeah, exactly. So, we’ve all been through that. So, now they’re welcomed into these communities with open arms, connected to interest groups, invited to social functions, lots of opportunity for experience and guides to take them through that neighbourhood. Really make it a wonderful thing the way it was meant to be from the start. And we have the support of the founders of Airbnb. My co-founder, Daniel McDougal came from Airbnb. He was running Canada, East of the Rockies and a chunk of the north east. He was running Toronto!

Mike McAra – Beyond the Box Host: He probably knows a lot about that!

Rob Richards – Co-founder and CEO of Key: Yeah, he knows it well. So, now if you’re going to stay with your girlfriend for a couple days, your visiting your parents, you’re taking that trip out to the Rockies. Now you just say, with one tap in the app, here are the dates that I’m gone, take care of it for me. And Key automatically arranges to rent out the suite, safe storage of your personal valuables, arrange for the cleaners, at the start and at the end. Just make the whole process completely seamless to you, and then all of a sudden, you’ve got $1,000 bucks that shows up in your account. And you can choose what you want to do with that. Do you want to buy more equity with all of it or a chunk of it? Do you want to save it for cash flow for next month’s rent? What do you want to do?

Mike McAra – Beyond the Box Host: And it’s just that whole, forced savings plan; that money that you don’t see coming into your hand is so much easier to invest, or save, than money that is just easier to spend. But by putting those systems in place, you’re almost just building, in essence, better habits in a way. Perhaps, you are helping people in building better habits, or even positioning society in a much stronger financial position even. So, yeah, wow. There’s so many things to jump in on this and I think you and I could probably talk for months on this, but I’ve already used the double of the amount of time that I was anticipating, and I feel like we could keep going! But, in the interest of your time, and I just want to be respectful of that. So, just to wrap this up, on the Key side, you’re in Toronto right now. For people who are interested and want to learn more about Key. How do they find out more about Key?

Rob Richards – Co-founder and CEO of Key:  The easiest thing is to go to and sign up and what you’ll get is newsletters every once in a while, and you’ll get invitations to webinars and that’s really the best next step, is just come and attend one of our online calls. We take you through the model in more detail, and we get such good questions. Our Q and A board is just lit up every time we’ve run one of these webinars. And we’re there to answer the questions and really fill in the details on. “How does this compare economically to a mortgage?” And, “What do you mean I don’t have any personal debt?” or, “What if I wanted more leverage to make more money out of real estate, how does that compare?” So, all of these questions are answered in great detail and it just develops comfort and shows you the path forward. Key is not for everybody, it’s not solving all of society’s ills, it’s not fixing the entire housing market, but it’s a big chunk. It’ll appeal to probably 70%. We deal with the real estate agents a lot, and they love it because we talk about that 70% of their missing middle of their CRM. These are people that they just can’t help right now. So, in real estate, is your stance is, “I’m not selling you something, I’m helping you achieve something.” And so, if they can go to that missing middle and say, “I can help you get onto the property ladder. And you’ll build equity, as long as you want to live downtown that’s great, but what if you get to a point where you want to have children, or you want the yard and the white picket fence.” Well, I’m there with that relationship to then sell you your first home outside of Key. So, they view it as a real advantage. So, we’re not for everybody, but we are for a big chunk of people who can’t get on the property ladder.

Mike McAra – Beyond the Box Host:  I love it. I love it. When people talk about innovation, this is exactly the poster child of what it is. You’re addressing a numerous amount of problems with creative ideas. New ideas that you’re bringing together but you also have that actionable plan to connect those dots from taking that overarching, big, hairy audacious goal, but actually having that executed path to get there which is super exciting. I can’t thank you enough for coming om the show here, and telling our viewers a little bit more about Key and I think we’re definitely going to want to have you on and drill more deep on some of these things because there are so many great things to talk about. So, thank you so much for your time Rob, and I look forward to chatting more in the future.

Rob Richards – Co-founder and CEO of Key:  My pleasure, I look forward to it!

— End of Podcast —

Beyond the Box: Conversations with real estate executives, venture capital partners and technologists on what lays ahead for the real estate industry in a world after COVID-19.

Beyond the Box Podcast Hosts

Lynette Keyowski
Beyond the Box Host: Lynette Keyowski – Managing Director at REACH Canada
Mike McAra Headshot
Beyond the Box Host: Mike McAra – Director at REACH Canada