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Hello and welcome to a new episode of Asset CL, your podcast about growth and value. I'm Christian Wöhl, and today we're looking at the interface between the stock market and the real estate market together with an entrepreneur who was already doing fintech before the term even existed, who has digitized and disrupted real estate financing in a very special way with his platforms, who has experienced what it's like when your own stock quadruples and then crashes by 80%, and who, unlike many CEOs, also speaks plainly in politics, especially when it comes to his core competence: real estate prices, homeownership, and private wealth building. A warm welcome to Ronald Slabke, founder, major shareholder, and CEO of Hypoport.
Thank you. Hello, Christian.
Ronald, every successful business solves a problem, as the saying goes. And you have definitely been successful. In the last 12 months alone, just to have a number, 420 million euros in revenue, continuously profitable for over a decade, 30 million euros in net profit, market capitalization of 1.35 billion euros, stock even included in the MDAX. So, what problem do you solve?
Yes, well, it all started with us solving the problem that there are many banks in Germany that all offer good solutions for mortgage financing, but for the individual consumer, you have to find the best solution. And for advisors, it was previously very difficult to assemble the optimal solution from the hundreds of banks in Germany. And we solved this with a technical platform where advisors and banks find each other on one platform, and we find and match the optimal product for the respective consumer and handle all the processing.
So your focus was initially on these independent financial advisors who stood by people with home financing and fulfilling their homeownership dreams and structuring financing for people.
Yes, correct. That's how it started, and there weren't that many of them when we started 25 years ago because it was intellectually demanding and very complex in terms of processes to work with many banks. Through the platform, this market was created, so to speak. EUROPACE enabled it, which is why there are now 10,000 advisors who can choose from this wide range and focus solely on client advisory while the business processes run fully automatically in the background.
So we're talking about a topic that has been ubiquitous in the last 10 years: platform economy. Now you said, well, 25 years ago when we started, it was often the case that if you wanted to acquire a home, if you wanted to build, well, you might have just gone to the savings bank or the cooperative bank, and well, they didn't have a platform first, they did it somehow themselves. I know, I was in the 90s, those were my first steps in my professional life right after high school, working for Deutsche Vermögensberatung. But I only ever took care of the investment side, and when the topic of home financing came up, we were lucky to always have experts, but of course within a closed shop.
Your background is actually also a financial advisory company. After your studies, you were first a client advisor at a bank, at the Westdeutsche Immobilienbank, which belonged to the savings bank sector at the time. Then you went to Dr. Klein Privatkunden.
Exactly, such an advisory firm. There, you advanced very quickly. That means you had this perspective of the broker and advisor from the very beginning.
Yes, correct. Exactly. I started on the bank side, right. At Dr. Klein, it was the case back then that we only served the municipal and cooperative housing industry. And I would say after a few weeks, I had the feeling that this could be done more digitally, even with the guys in 1966, so 30 years ago now. And the digital offering we created then led to increased demand from private clients, and then I was able to convince the then shareholder that it was worth a try to work with private clients. And that's how the organized credit brokerage market in Germany for private clients effectively came into being.
So you were already thinking about platforms and digitalization in 1999. When we hear about digitalization, platforms, and new beginnings today, we're talking about startups. And it's usually common to first secure venture capital to build the pilot and prepare for market entry. That's common for startups. You took a completely different path back then. Today, one would say you bootstrapped, so to speak. You built the entire company, now with a market capitalization of 1.35 billion euros, without venture capital. How did you manage that?
Yes, well, to be fair, there was a business model that worked well: supplying the housing industry with capital as a credit broker. We bought it via an MBO.
MBO, you have to explain that to us. What is an MBO?
Management Buyout. It was clear that the then shareholder, Hamburg-Mannheimer Versicherungs-AG, had a different vision for the future than I did. We had just started the private client business, which convinced consumers. We were profitable with the private client business after three months, and Hamburg-Mannheimer was convinced that the private client business in mortgage financing wouldn't work without the corresponding sales structures they had. So what we were doing there, so to speak, on the phone with internet-generated leads, was just a gimmick and couldn't work. And because of this different perspective on future prospects, there was the possibility that we agreed on a price. We then financed it externally and bought the company on December 31, 1999. So exactly with the turn of the millennium, I then moved into the role of the entrepreneur, previously only in management, but as an entrepreneur who then also had liabilities that were incurred to further develop this company.
But you then also developed very quickly and started building this first platform. If I see that correctly, EUROPACE. Explain to us briefly, even today, the nucleus and one of the very strong platform themes at Hypoport. What exactly does EUROPACE do?
Yes, well, EUROPACE digitizes the process today from the consumer via the advisor to the bank for any mortgage financing.
What does EUROPACE do for the consumer?
It provides an app for the consumer so they can participate in the process, have transparency about what's happening, and can contribute where it's helpful, update their conditions, provide documents, etc. For the advisor, we are effectively the workplace. Everything a mortgage financing advisor has to do today in interaction with the consumer and also with the lender or appraisers happens within EUROPACE, so to speak, completely digitized for the advisor. He needs the calculations, model calculations, checklists, what documents need to be submitted, and of course, probably also a first assessment of whether these documents are sufficient.
Yes, exactly. So logically, there's still the traditional form of data entry, so to speak. The consumer has already entered a bit on the internet, a few data points need to be supplemented by the advisor, or there's access to the consumer's account where the data is read out, analyzed, and the data profile is established. Then comes the area of document collection, what the consumer has on hand about the property, proof of income, or account access. Then, if possible, create documentation so that the data situation is verifiable.
Exactly. Then the EUROPACE algorithm accesses the credit scores, the credit rules of all banks, so to speak, matches the consumer's data against everything the banks want and what they are willing to grant the consumer as a loan under certain conditions and at what terms. And from the, so to speak, infinite number of offers, hundreds of banks that you can combine with each other, so the options, EUROPACE determines the optimal constellation for the consumer, suggests it to the advisor, also with the pros and cons, so here cheaper but takes longer or is a bit less reliable in the further processes, can also say no later from this bank. So what do you want, consumer? Lowest price, highest reliability, or highest speed? What is important to you right now? So that the advisor can then optimize this with the consumer and make the right decision. And then we process it, depending on how digital the bank's processes are, from milliseconds to a few months.
So there must have been a change in speed, right? Since you started, within 20 years, you must have gone through a lot with interfaces and so on.
Yes, well, a lot has changed in the last 25 years. The world has developed, but we are still in a, I would say, partially traditional industry. We are just at Scalable, so that you can change it. The industry is clear, but it doesn't change entirely quickly and easily. We have certainly managed to significantly accelerate the process of offer creation, selection, and the consumer's decision. That used to take weeks. The processes in the credit departments of the banks, if you go to the EUROPACE reference process, One Click it's called, then it's done in milliseconds. But most banks still value their traditional process. They are also subject to massive regulation in Germany on how this traditional process must look. You can optimize mail delivery times there, you can also take calculations away from the credit decision-maker that he would otherwise have to do painstakingly. But in the end, it's still always a complex legal process that still takes two months in Germany. So between the consumer deciding and the money reaching the consumer, two months is the norm, and that's still brutal.
But it's then small-scale optimization, that you get a day out of here and a day out of there, and in the end, it's also a relief for the advisor when he has everything in one system under one interface and it's also prepared accordingly. That means he can then focus more on what his core competence should be, namely to look for a solution that is optimal for the customer he knows, in contrast to the system, also in personal contact. What other advantages are there for the end customer from being able to go through this platform as an advisor and not having to do it the old-fashioned way?
Yes, well, the consumer benefits in the first step through the price, because we find the optimal, the cheapest product for him from the hundreds of banks that exist all over Germany. He benefits directly from the price.
So you are already stimulating competition through this platform.
Yes, definitely. That intensifies competition for the banks. It also led to product innovation for a long time. Now in the last few years, that has slowed down a bit because regulation has occupied the banks too much. But we have intensified a price competition that was previously only fought locally, and we have brought it to a nationwide stage. And whoever offers low prices today quickly gets a lot of volume and can quickly stock up as a bank, can do it in a controlled way, and so to speak, find the right price point. And the consumers benefit from that in the end. Consumers also benefit most from transparency. We can tell every consumer specifically for their case, based on their data and situation, how long it will take at which bank until they get an approval. That's, so to speak, AI allows the data situation to do that. No one could have told him that before. The banks themselves don't know how long they will need. We can already say that based on the data.
So you are already using AI to make this prognosis.
Yes, of course, from these many data points, absolutely.
Exactly. Now you mentioned regulation in this whole process. We notice in Germany that regulation often doesn't come from Berlin but from Brussels, from the EU. That's why you probably have a view of the European foreign market, even though Germany is your topic. Are we in Germany rather cheap or rather expensive when it comes to housing finance? I'm asking because we're looking at topics like, I like to look at bank stocks and see that, for example, large banks in Italy operate with a completely different margin than large banks in Germany. Is there also such a disparity to be seen in real estate financing?
Yes, absolutely. Well, basically, you can say that the German system, how we finance real estate, especially refinancing, is highly efficient. That is an absolute strength of Germany, and it produces the lowest mortgage financing terms that you can have, not just in Europe but in the world, relatively speaking, of course, to the current interest rate level. That's clear. But if you compare it now, and also in one currency, we are really the cheapest in Germany, absolutely in the Eurozone.
What is the reason for that? You said refinancing, so the way banks get the money they lend to the new buyer of a home back again.
Yes, correct. Well, I would say it's a combination. We benefit from regulation, but also from one made 150 years ago in Germany, namely that in Germany you can make a fixed interest rate agreement with the consumer for up to 10 years. That is also very common in Germany. You agree on an interest rate for 10 years, and that there are no unilateral options in favor of the consumer or the bank to get out of it. And that helps because we created a Pfandbrief system in Germany 100 years ago that enables a competitive long-term refinancing for banks. And that means savers, everyone who invests knows Pfandbriefe, but also someone who just has money lying around with their insurance company, money is invested in long-term Pfandbriefe.
And briefly, what are Pfandbriefe, especially since there are actually Pfandbrief ETFs where you can also invest as a private investor and thus be active on the other side of the real estate financing market.
Yes, well, Pfandbriefe are a regulated instrument of the German capital market. They only exist in Germany. Covered bonds in other countries haven't really caught on. And the German Pfandbrief is characterized by the fact that it establishes a clear assignment of individual real estate financing with a maximum risk, also related to the individual real estate financing, as security for the creditor of this bond. So there is a portfolio of real estate that is financed, and against that there are the debtors, the creditors who have acquired the Pfandbrief. And thereby, independent of the creditworthiness of the bank in between, a high security is created for the buyer of the Pfandbrief that he will get his money back. And for a long time, Pfandbriefe have therefore always traded at the level of German government bonds or slightly below, a few basis points worse in terms of yield. And that is an incredibly powerful refinancing for German mortgage financing, and at the same time much more plannable than the asset-backed securities and what we saw before the financial crisis, where packages were bundled from real estate loans but not in this regulated form as we have here with the German Pfandbrief.
So we also see that regulation can be positive. Interesting that this regulation is already so old, and the Pfandbrief is a very, very established instrument.
Yes, yes. Well, I'm not necessarily known as a friend of regulation, but you have to say that Germany benefited enormously about 100 years ago from regulating and standardizing many things very early on, for example, the refinancing of real estate loans. And thereby managed to quickly create an efficient market. So regulation can be very helpful for efficient markets, you just have to apply it in the right dimension.
Exactly. And today we are more like what Christian Sewing says, the Silicon Valley of regulation, but back then we were at least much more sustainable when we see that these instruments have endured for 100 years. We'll get to the political topics later. I want to come back to this platform. You just explained to us the original platform, the original, so to speak, of Hypoport, EUROPACE, the platform that targets independent advisors and brokers. But that's not all. You now have a total of 19 different companies under Hypoport, many platform technology companies, software companies, but also several platforms, because there isn't just one EUROPACE, but there is also a GENOPACE, where you work specifically with cooperative banks. You are also only 45% involved in this platform, the rest are institutions from the cooperative sector. Then there is FINMAS, where you are 50/50 partners with the savings banks of the financial group. And then there is STARPOOL, where you made an online platform with Postbank, which is now at DKB, a subsidiary of Deutsche Bank. So now I'm summing that up and establishing, okay, independent advisors, cooperatives, savings banks, and private banks. That means you really have the entire German financing market completely covered, that every one of these pillars has a platform with you.
