CEO intends to set the cat among the broker pigeons
Long before he started in the mortgage industry while still at college, Ira Zlotowitz (pictured) wrote a business plan to open a chain of dry cleaners.
It was to be no ordinary dry-cleaning business, because it would also be an all-in-one shoe repair and film development service. With youthful chutzpah, Zlotowitz figured out that these were “the only three items a human drops off and picks up. Everything else you buy”.
Before he could realize his dream, Zlotowitz’s father casually asked him to meet a friend of his who worked in real estate. The seemingly innocuous request led to an abrupt career change for the 19-year-old.
From there, he would go on to co-found Eastern Union, one of the largest commercial real estate finance firms in the country, annually generating $4 billion with a portfolio that included commercial real estate, healthcare, hospitality and a myriad of investment projects.
Fast forward to today (Monday, December 06) and Zlotowitz is on the brink of launching a bold business plan, this time called GPARENCY, a new direct-to-bank service for the commercial real estate sector.
For a flat fee of $5,000, GPARENCY will offer to underwrite, shop, and negotiate term sheets. Once the term sheet is signed, the client will have the option to continue directly with the bank or work with GPARENCY for $500 per hour, with a cap of 30 hours.
Zlotowitz has made it clear that GPARENCY’s devastatingly simple pricing will be “along the lines of the billing model used by lawyers and accountants”, which will effectively cut out the middleman – the broker.
Investors have flocked to back the project and GPARENCY is reportedly oversubscribed, having raised the maximum of $15 million in venture-backed capital from more than 125 real estate professionals, resulting in the largest seed round in the commercial space.
Thinking ahead is part of Zlotowitz’s business philosophy and goes some way towards explaining why he decided to quit Eastern Union as CEO.
“The needs of the client have changed. I think actually 100% of borrowers would like to deal with a bank, but they have issues. The banks also want more direct relationships with borrowers, but the current system doesn’t allow for that,” he told MPA.
“I always believed that you should not just look for today, like Wayne Gretzky says, ‘go where the puck is going, not where it’s been’, and this is where the trend is going - the fees are dropping.”
While at Eastern Union, he admitted to feeling frustrated while trying to introduce new ideas. “We made a move to go to a quarter point and 40% of the brokers left in protest. I realized you can’t wear two hats, you either want to build ‘old school’ Blockbuster, or ‘new school’ Netflix. You can’t do both.”
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Fortunately for him, his GPARENCY co-founder and business partner, Ben Schweitzer, shared his vision for the future.
Formerly with Freddie Mac, Schweitzer’s strong tech background is intended to complement Zlotowitz’s origination side. The latter is convinced they’re on to a winning formula. “We could really dominate the space and be able to touch 80% of every mortgage - there is no competition,” he added confidently.
Zlotowitz went further, asserting his wish to “create a hybrid somewhere between Rocket Mortgage and Robin Hood”, handing much of the control over to the client to decide how much of the process they want to do themselves and only pay hourly at a discount, just for the hour they need.
He admitted he could have charged more than $5,000, but the fee made business sense. “Several years ago we beta tested it, and there’s definitely more room to charge. However, with the advent of technology, what’s the price? Like my dad once told me, ‘when you open up a business God could help you in two ways: make you smarter or make your competition not that smart’.”
Operating at the margins or not (industry colleagues warned him that charging $5,000 was too good to be true and would not be profitable) has only served to spur him on.
Currently on a hiring spree that could see staffing levels reach 80 by the end of the first quarter, mostly by employing tech experts, Zlotowitz gave the impression that he’s in it for the long haul.
“Live for today without sacrificing tomorrow,” he said, explaining his work ethic. “I’d rather thrive in five, 10, or 20 years than see myself go the way of stockbrokers and travel agents that don’t enjoy the same lucrative history they used to.”
GPARENCY may well thrive, but Zlotowitz also let it be known that his dry-cleaning service venture was only on the backburner - for now.
“Nothing too glamorous, but one day we’re going to open it, and we will be oversubscribed as well!” he said.