U-Haul offers direct path for small investors

Originally posted 12/21/2012 on http://www.bizjournals.com/phoenix by Tim Gallen.  Read the original article at http://www.bizjournals.com/phoenix/print-edition/2012/12/21/u-haul-offers-direct-path-for-small.html?page=all

To secure additional financing for new equipment and real estate purchases, U-Haul International Inc. is offering investors an alternative to standard stocks and bonds.

For the past two years, the Phoenix-based provider of moving trucks, storage and other services has been attracting funds through the U-Haul Investors Club, an online program that allows individuals to loan and invest money directly into the company.

The idea came out of the 2008 financial meltdown, said Jim Shoen, vice president of U-Haul. When banks clamped down on lending and capital dissipated, Shoen researched alternative financing methods to purchase equipment and real estate.

That turned into the U-Haul Investors Club, which launched in February 2011. About $19 million has been invested to date, with roughly $1 million more coming in every month, Shoen said. The goal is eventually to get to $50 million.

U-Haul has 800 members in the club, with 300 considered active investors, said George Huang, the club’s program manager.

Prospective members can go to the club’s website, www.uhaulinvestorsclub.com, to check out the available opportunities. They then choose which options they want to invest in. The minimum initial investment is $100. Interest rates depend on the term and type of investment. Terms range from two to 30 years.

There are no fees associated with the investment program.

While the U-Haul Investors Club offered only individual accounts when it launched, Shoen said the company has added options for custodial accounts, as well as traditional and Roth individual retirement accounts.

Shoen does not anticipate the investors club supplanting the company’s more traditional financing options. It accounts for about 5 percent of U-Haul’s total funding for new equipment and real estate purchases. For the six months ended Sept. 30, U-Haul spent $331 million on capital expenditures for new rental trucks and trailers, Huang said.

U-Haul’s concept evolved out of what is called “peer-to-peer” or “social” lending, which allows individuals to loan money directly to other individuals.

“In a very broad sense, it’s more like a direct exchange of capital between parties who want to raise capital or borrow money (and) people with capital to invest, without any intermediaries,” said Peter Renton, a social lending analyst and editor of Lending Academy, an online publication focused on the peer-to-peer lending sector.

The two big players in the space are Lending Club and Prosper, Renton said. Both offers platforms for individuals to loan money directly to others for uses such as debt consolidation or buying a car.

Though it evolved from the social lending sphere and is based on Lending Club and Prosper, the U-Haul Investors Club is not an exact replica. For one thing, the investments — called U-Notes — are asset-backed securities through U-Haul’s parent company, Amerco.

“What you’re doing ... is lending money to Amerco, and you are getting collateral, which is either equipment or real estate,” Shoen said. “You also have the added security that it’s a general obligation to the corporation.”

Because U-Notes are asset-backed, Shoen said investors have recourse against U-Haul’s parent if the company should become unable to fulfill its obligation.

“People that would invest in our U-Haul Investors Club have priority over common stockholders,” he said.

In contrast, an inherent risk in peer-to-peer lending is that the loans are unsecured, Renton said.

“The borrower could just walk away and declare bankruptcy,” he said. “They could lose their job, lose their house, (have) no assets. There’s not much recourse that Lending Club or Prosper can provide.”

Many participate in social lending because they are looking for relatively safe places to invest, Renton said.

“It’s a great way to get a good return on your money,” he said.

Renton said he believes another factor is a dislike of banks following the economic problems of the past four years.

“There’s a real appeal to be able to invest in individuals who are not that different from yourself,” he said.

With people looking for a more stable place to earn a return on their money, Shoen said U-Notes are a fairly safe bet.

“In the world of investing, I view this as an investment that’s on the very conservative and safe side of investing,” he said.