| LeaseTrading.com By Hal Brown Business ideas can come from all sorts of places, the genesis for LeaseTrading.com, a year-old Norwalk company came from a Range Rover. Specifically, Michael Penfield's wife's Range Rover Discovery, which she wanted to trade for a higher-end model. With months left on the auto lease, however, Penfield, an investment banker, couldn't get any help on getting out of the lease. Of such impasses are secondary leasing markets born. Penfield is now president of LeaseTrading.com, an online company that helps bring lessees wanting to exit their leases early together with people who are interested in assuming them. The company, begun in Penfield's garage in February last year, has grown from through two other offices and into 6,000 square feet of soon-to-be occupied space in the Lock Building in South Norwalk. Penfield said after the Range Rover dealer couldn't give any options for exiting the lease, other than paying all the remaining lease payments, he started investigating. "My wife can be very persistent," he said. "So I continued to try and find a way to take care of this problem economically. I couldn't find anything out there. "I started researching, not just in the auto section, but ... the commercial side of the leasing business, where I found the problem was even larger. No one was doing anything about it there, either. "I came up with a business model, spent a few months trying to kill the business model and finally I couldn't do that. I quit my job and started the business. I brought in a couple of partners in April and have grown the company since then." The idea seems simple on paper. Equipment and automobile leases total almost $1 trillion worldwide, with half that business in the United States. For the smaller leases, those of a couple of hundred thousand dollars or less, the industry rule of thumb is that 4 percent go into default, Penfield said. That means a lot of people who presumably will pay to be rid of a lease that's become a financial burden. Penfield said having a lease trading market is attractive to leasing companies, too. Not only can they cut some of their losses by having others assume outstanding leases, but it's a sales tool for them as well. "What we tell them and what they believe is they actually lose some business, right up front, because people are afraid of being locked into a lease for a long term without any escape," he said. "But, if they come up with a way to address that fear, they can do more business-and most of them understand that." The entire process can be accomplished online, although LeaseTrading also has a trading desk, manned by a Wall Street veteran of sales and trading of fixed assets. The process works when the person, who wants to transfer the lease lists the equipment or vehicle on LeaseTrading.com, with asset information and lease terms. The lessee typically comes to terms with the person who wants to take over the lease and receives a cash payment. The parties to the transfer arrange credit and logistics arrangements online and the property and the lease are transferred to the new lessee. Membership in LeaseTrading is free, although lease-trading parties have to be members to use the service. LeaseTrading collects 5 percent of the value of the lease from the person transferring the lease to someone else. Lease trades go far beyond automobile and truck leases Penfield said. Right now LeaseTrading lists cars and light trucks, commercial trucks and trailers, construction equipment and computer related office equipment. Penfield said there are plans to expand into medical equipment, gaming equipment and oil and gas equipment leases, too. The web site, he said, "is a first-and it's something that, especially in this economic climate, that not only corporate America but consumers out there need. Anyone who leases, and that's roughly 30 percent of all financings." Penfield said the middle and lower ends of the leasing industry are LeaseTrading's target market, basically leases of assets worth $1 million or less. The company could be operated without the Internet, he said, but it would be more difficult and time-consuming. "Let's say a contractor wants to get out of a backhoe lease or a collection of backhoe leases he's in. Locally there's probably going to be relatively few people who would have an interest in assuming the lease. You really have to get out to a wider audience very quickly. Using the Internet allows us to get out in front of a whole bunch of different eyeballs immediately. "The other thing is the whole process with the leasing company, as well as the negotiation between the guy getting out of the lease and the guy who is going to assume the lease, is pretty time-consuming. It's not that complicated, but doing it off line can take three months. By handling this online, with the technology we've developed, we can shorten that period down to a couple of weeks, and even shorter for some of the smaller leases." LeaseTrading completed its first trade in the last couple of weeks, a lease on a 1999 Peterbilt truck. The truck, located in Washington, was leased by a New York man. Penfield doesn't have the picture on his wall as a memento of the first sale, but he does have pictures, they helped do the deal. "Using a digital camera you're able to get a picture of the engine, and everything basically, so you can get very comfortable with what the condition of the truck is," he said. "If you're looking at a condition report you almost don't have to be there any longer." Penfield said he's heard from a lot of people that the idea, once explained, seems obvious. "I hear that from so many people, and from people in the leasing industry," he said. In a meeting with the owner of Monitor, a leasing industry trade publication, Penfield said the interview started on a skeptical note. "He'd heard all the stories about the latest dot.com start-ups and had pretty much dismissed them all," Penfield said. "Our conversation started with him tell us what a lousy idea most of these companies are, and finished up with him saying pretty much that [the concept] is so obvious, so right for the industry, he couldn't believe it hadn't been done, it's terrific." |
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