A former White House chief usher during Donald Trump's presidency raised about $100 million for a real estate fund to help first-time homebuyers make down payments.
Timothy Harleth is launching Generational Equity Labs. The Washington-based fund plans to use a technology platform linking would-be homebuyers to institutions that will essentially co-invest in a concept dubbed "equity sharing." Investors will be able to buy and sell their shares of the real estate funds that hold the home equity stakes.
While Americans have traditionally relied solely on debt to finance home purchases, rising interest rates have left prospective buyers unable to afford mortgages and discouraged existing property owners from taking out home equity loans or refinancing. Selling fractional interests to investors has emerged as an alternative way for Americans to tap roughly $30 trillion of wealth locked up in their homes.
"From Wall Street's perspective, it's an enormous amount of home equity that is illiquid that they might help households access," said Tomasz Piskorski, a professor of real estate finance at Columbia Business School. "Even if you get just a small portion of this, it's a pretty substantial business opportunity."
Harleth, previously director of rooms at the former Trump International Hotel in Washington, was recruited by First Lady Melania Trump to serve as chief usher — the White House's head of household staff and operations. He began setting up Generational Equity after being dismissed from that job on the morning of Jan. 20, 2021 — hours before President Joe Biden moved in to the executive mansion.
A November filing with the US Securities and Exchange Commission lists one other Generational Equity shareholder, Marcia Lee Samples, Trump's former director of White House Management, who later served as chief executive officer of the 2020 Republican National Convention.
Harleth cites his family history — including the plight of his grandmother, who migrated to the US as an indigenous Mexican and was homeless until being taken in by a Native American reservation — as motivation for creating Generational Equity.
Teaming up with a co-investor results in a larger down payment, allowing the prospective homebuyer to take out a smaller, more affordable mortgage. The investor in turn gets to share in the property's future appreciation.
"GEL is building a marketplace that will enable homebuyers to finance their house using both equity and debt," the company said in an emailed statement. "This process will result in responsible and sustainable homeownership, while reducing debt and providing significant affordability for homebuyers."
Here's how it works: After obtaining a mortgage from an approved lender, the homeowner and Generational Equity would enter into a shared-equity agreement. The firm's real estate fund would then pay its portion of the purchase price at closing.
While the shared-equity agreements would typically last 30 years, investors wouldn't have to wait that long. They can use Generational Equity's technology platform to buy and sell shares in the fund that holds the home-equity stakes.
Ohio focus
Generational Equity registered as an exempt investment adviser in November and set up a real estate fund that raised about $100 million from a single investor, according to the filing. The firm plans to initially invest in homes in Ohio.
The state's relatively affordable housing has, counterintuitively, stung some aspiring homeowners. The low prices attract bids from big investors, including American Homes 4 Rent and VineBrook Homes, that have converted properties into rentals, often charging more per month than a mortgage.
This has contributed to rising rents and a dearth of moderately priced homes, drawing scrutiny from lawmakers.
Republican state Senator Bill Blessing has proposed a monthly tax of $1,500 per property on entities that own more than 50 single-, double- or triple-family homes in one county. US Senator Sherrod Brown, an Ohio Democrat, is co-sponsoring a bill that would restrict tax breaks for investors that own 50 or more single-family rental homes.
"Housing was rarely discussed as an issue at the statehouse" in the past, said Marcus Roth, communications and development director for the nonprofit Coalition on Homelessness & Housing in Ohio. "But last year it really exploded."
Consulting staff
Generational Equity's consulting staff includes Justin Bis, a onetime executive director of the Ohio Republican Party who was associate director of presidential personnel under Trump. Joseph Bottari, the firm's vice president of business development, is a former member of the finance team for the Republican National Committee who worked as an associate director in Trump's National Economic Council.
At least four other firms buy or facilitate the purchase of fractional interests from homeowners, including Point, Unison, Unlock and Hometap Equity Partners. Eoin Matthews, a Point co-founder, said he expects the industry to originate $2 billion of fractional home interests this year and $5 billion in 2025.
"You can buy and sell equity in your home like you can sell some of the stocks in your portfolio," he said in a phone interview.
Unlike Generational Equity, Point and most of its peers only deal with existing homeowners. Buying shares in newly purchased homes could be tricky, Matthews said, because stakes in such properties "are a riskier piece of equity and very hard to price in the current market."
There are also structural and institutional barriers to using equity financing in the US housing market, said Andrew Caplin, an economics professor at New York University. He has seen roughly 50 models for creating "partnership markets" in residential real estate — none of which have succeeded — since publishing a book on the subject in 1997.
"The logic is that you shouldn't go all debt on a big asset," Caplin said. "It's generally a very good idea, but one that is very hard to implement."
