Our journey at Otso has been a whirlwind. As owners and investors of several commercial properties across Texas, we were flabbergasted at the status quo we had as Landlords when it came to properly assessing the creditworthiness of potential tenants. It’s just plain hard to know whether the business you are looking at for a lease will be a great tenant.
Many (the majority even) of these businesses are quite successful! However, they kept their financial information in a variety of “formats” that made it quite difficult for us as a small to midsize partnership to efficiently understand what every Landlord ultimately wants to know…will this tenant be successful?
We would receive handwritten accouting statements, excel printouts, projections, tax returns and all sorts of disparate types of financial information on corporate credit. Running a simple credit report on a business is costly as well ($180+ in most cases for a proper one) and oftentimes if that entity is not buying “X amount of widgets” and repaying those widgets on credit? Well then the bureaus don’t have a ton of information either.
It’s a real problem for Landlords, who are often putting in substantial funds into leases (usually in the form of improvements and commissions) in order to get a deal done. Experiencing a default in the first 24 months of a lease you have just spent a large amount of partnership capital to lease is a pretty grim scenario…especially when the market demands this money be respent to get the space ready for occupancy when trying to lease it again… 🙁
So how do Landlords mitigate these risks? Well, since historically we’re creatures of habit, we ask for cash! Security deposits typically combine some level of rent, TI dollars and/or commissions that the Landlord is outlaying on a deal, so that there is something to reduce the monetary damage if a default occurs. Sadly, there is a massive gap between what the market allows most Landlords to collect in cash vs the costs to put it in. In our humble experience, most markets allow for 1-3 months cash as a deposit…and it costs about 300% more than that on average to put a tenant into a space. Yikes.
It’s not all roses and sunshine for tenant either! As a founder and owner of a business (or two) I understand this problem all too well from the Tenant perspective. For tax reasons or other financial strategies many SMB’s structure their accounting in a favorable way for themselves personally, it makes total sense. In terms of outlaying cash into a deposit it makes absolutely ZERO sense to give the Landlord a dime…that capital sits dead, at zero percent interest, for years on end. Losing money every day against inflation is a sin against the finance gods, especially in this environment. Worse is a letter of credit, where tenants literally pay their banks to lock up their OWN money (seriously, don’t get me started).
So what could be done? My partner and I thought deeply about the issue and knew we wanted to solve three core problems:
- We wanted an efficient and transparent way to assess SMB creditworthiness in a fair, fast and free fashion. For everyone involved.
- We wanted to help close the gaps between the risks of leasing and what is able to be collected to mitigate those risks.
- We wanted to help the businesses save their capital for things that matter…for their growth.
We knew we could solve these problems. Insurance was the answer! Insurance uses risk mitigation strategies that are baked into the products themselves…it was perfect…except it didn’t exist. So we decided to build it! Otso was born! Putting solutions in place that we felt were essential for both landlord and tenant.
- We built underwriting software from scratch, automating the process of collecting audited financial information from Tenants (directly from banks and credit bureaus) in less than five minutes of effort for applicants. We like to think of it as the “Rocket Mortgage” for Commercial Real Estate Leasing.
- We created a new financial product that allowed Landlords to collect more against the risks of leasing, while significantly reducing the capital required from the Tenant.
- We worked with investors and our banking relationships to back the policies, so Landlords had confidence in the policies.
This was an awesome start! We quickly saw the demand from Tenants, Brokers and Landlords as we on boarded millions of square feet of property and received more than $12M in applicants in less than 12 months. As we started writing policies one thing became clear, Landlords wanted us to be able to offer insurance. Our product felt like insurance, but it wasn’t, Otso is not a licensed insurance company!
The market told us (mostly Landlords) that we love this product, but we won’t go “all-in” until you can show me a major, rated insurance carrier backing these policies. This makes sense, we always would have a ceiling by using a mix of cash and credit to back policies and it’s far more efficient to use insurance vs credit when you can bake risk into the equation.
The great news was that we had that data! We’ve received so much activity that we could take our data and program to insurers, showing them a new path to revenue and an exciting new vertical to tap into. We were fortunate enough to get connected with Assurely, founded by David Carpentier and Ty Sagalaw (founding member of Lemonade Insurance) and quickly knew there was a synergy between our businesses.
Assurely is dedicated to bringing tech-enabled solutions to insurers and connecting companies like ours with the backing, support and technology to grow and scale. Through Assurely we got connected with the team at Accelerant, an experienced insurance carrier with a mind for technology (a rare combo!). The trappings of a deal were being formulated immediately.
I’m proud to say we’ve officially partnered with Assurely and Accelerant to offer the industry’s first multi-year insurance product for commercial real estate leasing. Our technology seamless underwrites and automates financial review of potential prospects while our partners insurance allows tenants to save massive amounts of capital when signing a lease. For Landlords, they’re now getting an AM BEST EXCELLENT rated policy that covers every instance of default their leases do.
It’s a win-win-win. Otso is now offering in over forty (40) states with policies that can cover $1K-$500K, across office, retail and industrial assets. We’ve proven the demand for our product and 87% of tenants prefer Otso when given the option. If you’re a commercial landlord you can get onboarded and start benefiting from Otso’s exclusive reports, 100% free.
If you’re a tenant, come get pre-approved! We are bringing that seamless experience of online mortgage approvals to commercial leasing. Search for space with confidence, using our financial report and an A-rated backing to show Landlords you are not only qualified, but don’t need to put up any capital in a dead-money deposit or LOC.
Today is a pivotal day in Otso’s history. Our product is now fully realized due to the partnership with Assurely and Accelerant. We’ll be out in the market near you, showing landlords, tenants and the dedicated brokers who serve them a better way to securitize their leases. Join us!