Barbara Corcoran rejects ‘Shark Tank’ deal after spotting red flags in real estate pitch: 'Too spooky'
What made Barbara Corcoran say a big no to this ‘Shark Tank’ real estate pitch? Tycoon founder Aaron McDaniel came on the show seeking $50,000 for a 5% stake in his company. The CEO pitched the idea of crowdfunding real estate, an idea that Mark Cuban immediately hated and opted out of the deal. “I hate it. I’m out,” the Shark announced as soon as he heard about the crowdfunding business plan. “I smell jail time,” Kevin O’Leary joked. “Well, Mark, that’s aggressive,” he added. Corcoran asked the contestant to continue with his pitch as she hadn’t formed an opinion yet.
“So all of our deals are professionally vetted, only working with top developers, and if the funding goal is not met for a certain project, everyone gets their money back,” McDaniel explained. He showed his website, which allows users to check out properties they could invest in, ranging from residential to commercial. The users can select the property and the minimum amount they would like to invest, and complete a simple online process. “Once the investment goal is met, you're a real estate investor, then you can sit back and enjoy the profits you get from the appreciation and the cash flows of the property,” he added.
Nevertheless, Robert Herjavec argued that the investment is risky and far from conservative. Moreover, the people who tap into investments look for safer options. He decided to opt out of the deal. Cuban explained what was wrong about the business. He said that the idea may seem lucrative at first, but the people will have no liquidity despite owning a stake in the property. “The way that the rules are outlined is that after a year of holding a crowd-funded equity investment, you have an opportunity to be able to sell it,” the entrepreneur revealed. But when Cuban asked to whom, he had no reply. “Exactly,” the Shark exclaimed.
“I don't like the idea of investing in real estate online with a bunch of other people I don't know,” Lori Greiner pointed out, and refused to invest for the same reason. At this point, Corcoran sensed the loophole in the business plan. She had issues with the company’s anonymous lead investor, stating a lack of transparency. “Who is the lead investor? How smart are they? How do they work the angles? What kind of financing do they provide?” the Shark questioned. “I believe that that's the key to any great real estate investment,” she added.
Corcoran pointed out that one of the main aspects of real estate investment is a mystery in Tycoon. “This is a mystery investor here. How do I know he's got a good eye? How do I believe his projections?” she asked. “Too spooky, and frankly unfair to someone who isn’t well informed in the real estate business,” she added. Corcoran explained that the mystery aspect of the business plan was scary for her, and she decided to opt out of the deal. In a surprising twist, O’Leary offered a deal but for a 50% stake in the company, which McDaniel eventually refused.
