Private Lender by AAPL by American Association of Private Lenders

SPECIAL FEATURE: AAPL'S ANNUAL CONFERENCE PREVIEW

Fall 2023

INDUSTRY ALERT Business Identity Theft Page 6

DEBT FUNDS Investor Referrals Page 14

OPERATIONS Loan Extensions Page 66

LENDER LIMELIGHT

Ready to Grow

Featuring Tina DelDonna and Amy Doshi

FALL 2023

The Official Magazine of the American Association of Private Lenders

FUND MANAGEMENT

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FALL

2023

CONTENTS

CORNER OFFICE

A Fresh Look 

MARKET TRENDS

CASE STUDY F l op to Flip 

30  5 O ppor t uni t ies and T hrea t s for Small

INDUSTRY ALERT

Pr i va te Lender s 34  Q uar ter Trend C ompar is on:

T he N ew Fr aud in Town: 

FUND MANAGEMENT 14  C api t al Raising:

Fe e s, and Finder s Fe e s

LEADERSHIP

70  N av iga t ing Loan

STRATEGY

is Incomple te, Now W ha t? 76  W ha t ’s t he Stor y wi t h Ground - Up Lending Now?

Wor t h t h e R i s k?

Da t a A nal y t ic s , Pre dic t i ve

T ime to Hire?

A nal y t ic s , an d A I

26  V e t t ing a CPA for

80  S FR Due Diligence and Risk

TECHNOLOGY U nl o c k in g t h e Power of 

22  W hen I s t he Right

Your Fir m

I n s ur an c e Re quirem en t s

S h or t-Ter m Ren t al s: 

Fund Management

FUNDAMENTALS

Fail to C omp l y w i t h

E x tensions: Your Projec t

18  T he Cur rent Buz z in

66  W ha t to D o W h en B or rower s

T h e Power of M en tor s hip 

Under s t anding C ommis sions, Refer r al

Revenu e w i t h O r igina t ion s

Unc hanged

OPERATIONS 60  I n c rea s in g B o t tom - L in e

L ands c ape Mos t l y

Busines s I dent i t y T hef t

LENDER LIMELIGHT R ead y to G row 

with Tina Deldonna and Amy Doshi

86 ANNUAL CONFERENCE PREVIEW 94

VENDOR GUIDE

LAST CALL M as ter ing a N ew Pa t h 

FALL 2023

FUND MANAGEMENT

The 11th Annual

SINGLE FAMILY RENTAL FORUM (WEST)

December 4-6, 2023

Scottsdale, AZ

New Venue! FAIRMONT PRINCESS

SCOTTSDALE

2000+

ATTENDEES

300+

INDUSTRY EXPERT SPEAKERS

12+ Hours PROGRAMMED NETWORKING

Use Discount Code AAPL For a 15% Discount Off Your Ticket To The Conference And The Awards!

DON’T MISS

The 2 ANNUAL SFR INDUSTRY AWARDS nd

directly preceding the conference Evening of December 3rd!

We will be accepting entries until Friday, September 22 Send your nominations for the opportunity to be recognized this December!

For more info email: awards@imn.org

For more information visit: https://events.imn.org/SFRWest23

PRIVATE LENDER BY AAPL

CORNER OFFICE

A Fresh Look LINDA HYDE

Executive Director, AAPL

‘Tis the season of the industry’s largest event, and with it

comes big announcements about changes that position us to

KAT HUNGERFORD Executive Editor

support the industry for future years’ successes.

DAVID RODRIGUEZ

“Oh, That’s Yours?”

Design

It’s embarrassing, but it happens often. With alarming

CONTRIBUTORS

frequency, our audience tells us they read Private Lender

Erin Abramovich Ashwin Agarwal

cover to cover (some even keep it as a reference), but they

Alex Breshears

Association of Private Lenders.

don’t realize it’s the official magazine of the American

Katie Bean

Alex Buriak

Evan Brody

Henry Chavez Ken Frisbie

So, as you turn the pages, you might notice that it looks a little more like … us. The new design also complements our longer-style articles. Because successful

Dana Georgiou

lending requires nuance and attention to detail, we give our subject matter expert

Alex Kaddah

to read, so you’re going to notice a new emphasis on packaging all that really-dig-

Kat Hungerford

contributors the space they need to explore topics fully. But walls of text are hard

Erica LaCentra

your-teeth-into-it education with white space to breathe, break-it-up subheads, and

Rodney Mollen

Jack O’Flaherty

colorful imagery.

Pavel Tchourliaev

Holding the Line

Ray Sturm

Scott Ward

Jennifer Young

COVER PHOTOGRAPHY Eugene Krasnaok

Private Lender is published quarterly by the

American Association of Private Lenders (AAPL).

AAPL is not responsible for opinions or information presented as fact by authors or advertisers.

SUBSCRIPTIONS

Visit aaplonline.com/subscribe.

BACK ISSUES

Visit aaplonline.com/magazine-archive, email PrivateLender@aaplonline.com, or call 913-888-1250.

Where there is money to be made, there is the potential for fraud. AAPL is seeing new activity on this front in the form of business identity theft that victimizes lenders and borrowers. Check out our executive editor’s deep dive into this frightening new trend (along with what we’re doing to combat it) on page 6.

Makin’ Moves In the past year and a half, AAPL has added two employees to the roster to better support our membership and mission: Shaylee Henning, marketing manager, and Chrissy Spencer, administrative assistant. Kat Hungerford has also been promoted to digital project manager in addition to her responsibilities as executive editor of this magazine. In a “didn’t that already happen?” move, I am now AAPL’s executive director, with Eddie Wilson moving to a chairperson role and minority owner Anthony Geraci as vice chair. Match names to faces on page 87 in the annual conference preview.

For article reprints or permission to use Private Lender content including text, photos, illustrations, and logos:

E-mail PrivateLender@aaplonline.com or call

913-888-1250. Use of Private Lender content

without the express permission of the American Association of Private Lenders is prohibited.

LINDA HYDE

Executive Director, American Association of Private Lenders

www.aaplonline.com

FALL 2023

FUND INDUSTRY MANAGEMENT ALERT

The New Fraud in Town: Business Identity Theft As our industry grows and gains credibility among borrowers and investors, private lenders must proactively guard against a concerning new digital risk.

KAT HUNGERFORD

“ W Always.

IMAGINE YOU’RE AT HOME ONE NIGHT AND RECEIVE A PHONE CALL FROM A BORROWER . HE ASKS IF YOU’LL BE FUNDING HIS LOAN, REMINDS YOU OF THE FEE HE PAID, AND WONDERS WHY YOU STOPPED COMMUNICATING. THE PROBLEM? YOU’VE NEVER HEARD OF HIM BEFORE.”

here there is money to be made, there is the potential for fraud.

In today’s digital lending world, the multitude of opportunities for bad actors to, well, act badly, is ever increasing and ever more sophisticated. You may be familiar with (and have personally seen a time or two hundred) “common” fraud-like borrowers faking income statements, email phishing attempts, ransomware, and elaborate wire transfer schemes. Most of these require some element of interaction with your business, a knowledge of how things work, and where your weak points are. You can (and should) train your staff against them, educate your borrowers, hire or outsource cybersecurity experts, and purchase insurance. When a fraudster hijacks your business’s identity—your website, your name, your reputation—it won’t be because an employee unwittingly clicked a malicious link or didn’t properly verify loan documentation. There is no training or awareness campaign that can prevent it because it’s not predicated on any exposure or attack point. It’s entirely external.

— Jeff Smallowitz, Private Lending Direct

WHAT IS BUSINESS IDENTITY THEFT? For private lenders, business identity theft generally looks like this: It’s You, But Not Quite You. You’re ABC Lender LLC. The scammer has cloned your website, ABClenderllc.com, but to a domain (XYZlenderllc.com) that doesn’t remotely resemble your business. They’ve also changed key details within the content of their new cloned site, like your company name (now XYZ Lender LLC), logo, location, and, of course, contact information and inbound lead forms. The brand colors will still be yours, as is all the content that differentiates you and makes ABC Lender, well, ABC Lender. Your face will probably still be up as the CEO, but instead of John Somebody you’ll be James Someday. And these are scammers, so some of the other pertinent details will fall through the cracks in their effort to separate ABC from XYZ: social links still go to you, your embedded videos are still up (and linked to your YouTube), and many of the internal pages will still have ABC-identifying information. The fraudster will have spun up a host of fake social media accounts for brokers and real estate agents, planted them in popular

online groups and forums, and have them make referrals and friendly recommendations to drive borrowers to the cloned site. The cloned site looks legitimate, because it was, up until it was stolen. It’s All You. These scammers aren’t just stealing your hard work to make themselves look and sound legitimate (with breadcrumbs that lead alert borrowers back to you). Their goal is to defraud people using your business, your name, and your reputation. You’re ABC Lender LLC; they’re ABC Lender LLC. Your site is at ABClenderllc.com; theirs is ABClenderllc. net. You’re John Somebody; they’re John Somebody. Your site looks exactly like their site (except location, contact information, and inbound lead forms). It’s So You, It’s Actually You. One lender, Jeff Smallowitz, didn’t have a website to clone. But he has a longstanding reputation in the business, is well-known in local investment groups for face-to-face lending, and a California Finance Lender License (which is likely how the fraudsters found him). Scammers built a website with their phone number, but his name, his company … and his home address.

FALL 2023

FUND INDUSTRY MANAGEMENT ALERT

AND THEN THE SHOE DROPS

PROCESS SERVING A LAWSUIT

When a borrower gets desperate enough after sinking thousands of dollars into application fees, down payments, underwriting fees, pre-closing fees, this-fee-I-just-made-up fees, they also (finally) get desperate enough to start digging.

Universally, these borrowers had not yet realized the lender was also a victim of fraud and that the scammer and lender were not the same. Many of them hadn’t yet realized they’d fallen victim to a scam at all, still believing the situation could be fixed and their money returned.

In the cases we know of, borrowers landed in front of the “real” private lender by: 1

C licking through the cloned site to find out where to blast them on Google Reviews or social media.

2 G oogle searching the business name

to land on the real site to send angry emails and phone calls. 3 S kip-tracing a home phone

number using information on the cloned and/or real lender site.

ENTER AAPL In all but one case (the private lender who didn’t have a website), by the time the borrowers found the “real” lender, that lender already had a heads up on the situation. This is because, in every case, the lender was a member of the American Association of Private Lenders and prominently displayed the member emblem on their site.

Either because fraudsters don’t realize what AAPL is or are hoping to use our credentialing to earn the trust of unwary borrowers, when these bad actors clone a site, they leave our emblem in place. And savvier borrowers will reach out to verify membership and potential red flags. We in turn check against known contact information, help borrowers understand the indicators that demonstrate they are not actually working with ABC Lending LLC or John Somebody, and then direct them to fraud victim recovery resources. Then we send a very bad news email to our member, along with next steps to get the fraudster site shut down (See DIY Fraudbuster Guide). But that takes time, sometimes months (if we’re successful at all). In the interim,

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consumers. When an industry becomes a haven for fraud, the government has historically proven that they view the easiest method to “protect the public” is to require a license to practice.

YOU DON’T NEED TO DIY (AND PROBABLY SHOULDN’T) Where there is fraud, there are people who make it their business to fight it (literally). Online Brand Protection is a growing sector of cybersecurity, encompassing monitoring for domains, social media, mobile apps, and the web. In our industry, it looks like counterfeit monitoring, but for content and brands rather than knock-off products. Companies specializing in these services use machine-learning technology to: lenders must deal with a 1-2-3-4 punch to their time, reputation, budget, and sometimes personal lives.

IT’S NOT ENOUGH When we point out that every business identity theft victim we know of was also displaying our member emblem, we’re aware this is the definition of confirmation bias. How many fraudsters removed the emblem from a cloned site? How many borrowers never reached out to verify membership? How many members are not displaying the (entirely voluntary) credentials? How many more private lender victims aren’t AAPL members? The larger picture issue here is that technology makes this scam easy to perpetuate. It’s easy to buy domains, clone websites, and replace information. Many bad actors have backup copies ready to spin up

when a cloned site is shut down. Most of these scammers operate internationally in countries known for ignoring this kind of activity, so there’s little permanent recourse. Simply put, mitigating business identity theft is like playing a game of whack-a-mole. The solution is to make things less easy, more uncomfortable, and even outright inhospitable for scammers—both for individual fraud events and as an industry. The more we can monitor for potential threats and the faster we can react, the more time, effort, and money fraudsters are forced to put into the scheme. Eventually they give up and move on to an easier target. Long term, preventing and reacting quickly to crack down on fraud is a powerful weight in our favor against new regulation or licensing requirements. Scammers don’t care if they are defrauding businesses or

Create domain watchlists so brands don’t have to purchase every iteration of their name. Monitor for site cloning and social media impersonation. Monitor for usage of protected images (like trademarked logos and emblems).

On finding fraudulent activity, they have Fastlane processes to rapidly: Inject decoy data into scammer phishing forms, hiding victims’ “real” data in a bunch of looks-real-but-actually-fake information. Have web browsers place “go back!” alerts on fraud sites. Take down fake social media profiles that directly refer borrowers to the fraud site. Take down the fraud site via the site registrar and/or hosting provider.

FALL 2023

FUND INDUSTRY MANAGEMENT ALERT

DIY FRAUDBUSTER GUIDE G AT H E R I N T E L There are several providers for these tools. Below are recommendations that tend to have more complete information.

Find the registrar of the scam site by searching the domain at lookup.icann.org/en. The search result may include an abuse contact email or phone number. Otherwise, search the registrar's website for abuse notification process.

Find the IP address of the scam site domain using “Website to IP Lookup” at NSLookup.io. The search result may include an abuse contact email or phone number. Otherwise, search the registrar's website for abuse notification process.

Ask borrowers how they found the fraudster site. L inks to referring social media profiles L inks to social media forums and/or groups I f via internet search, what search engine and term(s)

B U I L D YO U R F I L E

Keep track of affected borrowers Name and contact details Amount they were each defrauded How they found the fraud site Where they have submitted complaints If their complaints name you/your business

Document the fraud site. You may consider an all-in-one site archiving software like Stillio (stillio.com), Pagefreezer (pagefreezer.com), or TrueScreen (truescreen.com)

Site screenshots that include the domain Video recordings of a screenshare as you navigate the fraud site

Track where you've reported (see next section)

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R E P O R T, R E P O R T, R E P O R T Your goal here is to make law enforcement aware of (and proactively protect yourself from possible recourse), stop referral traffic, and take down the fraudulent site.

Government agencies and law enforcement Attorney General—Your state and fraudster’s “business location”: www.naag.org/find-my-ag/) Federal Trade Commission: https://reportfraud.ftc.gov US Cybersecurity and Infrastructure Security Agency: email phishing-report@us-cert.gov Federal Bureau of Investigation Internet Crime Complaint Center: www.ic3.gov/Home/FileComplaint

Report abuse to domain registrar and website hosting service.* Abuse phone number, form, or email from ARIN search results DMCA takedown notice Additional international resources via the World Intellectual Property Organization (www.wipo.int/members/en)

Report referring social media profiles. Links to referring social media profiles Links to social media forums and/or groups If via internet search, what search engine and term(s)

Report for blocklisting in web browsers and email services: Google (used by Chrome, Firefox, Safari): safebrowsing.google.com/safebrowsing/report_phish/?hl=en Microsoft (used by Edge and IE): www.microsoft.com/en-us/wdsi/support/report-unsafe-site-guest

*Each provider will have their own reporting methods. Common methods:

A L E R T OT H E R S

Create a quick-reference sheet based this Guide but with specifics of on what to report and where to go. Fraud site information pecific pages where S phishing occurs

ENGAGE EXPERT HELP AAPL Members receive a 30% discount off all Allure Security services. We have engaged Allure Security for AAPL brand and limited member site monitoring. We do not receive compensation or any affiliate fee for members who enlist their services. Reach us at contact@aaplonline.com for more information and to get started today.

ALLURE SECURITY

Both members and non-members may sign up for a free trial at https://alluresecurity.com/aapl.

Registrar, hosting, and social media reporting links

Similar domain detection Web beacon deployment (advanced cloned site alert)

Send your quick reference to affected parties. Anyone whose logo or name also appears on the cloned site Defrauded borrowers merican Association A of Private Lenders We will pass your sheet on to borrowers who reach out to us directly.

Domain and Web Impersonation Monitoring (We recommend this for most members.)

Blocklisting from web browsers, email services, etc. Data decoy injections into phishing forms Fraud site take down

Social Media Impersonation and Monitoring (brand and/or company executives)

We recommend this for larger lenders or lenders who have previously experienced impersonation attacks.

Monitoring on Facebook, LinkedIn, Instagram, Twitter Profile take down

FALL 2023

INDUSTRY ALERT

This multipronged monitoring and mitigation approach means that brand protection specialists can usually find and remove fraudulent activity within days, if not hours, and often before anyone falls victim to the scam. These services range from softwareas-a-service with high-touch/monitoring required from the user to all-inclusive packages with human-reviewed alerts.

ENTER AAPL (AGAIN) As the oldest and largest association for the private lending profession, we have a responsibility to be aware of everywhere our name is used and where our logo and member emblem appear. We must be proactive in safeguarding the industry by shutting down fraudsters pretending AAPL membership to gain borrower trust and by stepping up monitoring so we can alert members to potential business identity theft and other scam activity. We cannot rely on victims to be our canary in a coal mine. To that end, we researched, interviewed, and vetted more than 20 of the top online brand protection providers. Several work with financial services clients and hit the 12

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right blend of technology and account management. Ultimately, there is only one we feel confident can meet most of our members’ needs across service offerings and price point. Allure Security (alluresecurity.com) will monitor not only AAPL brand assets but also member site content. Allure Security also understands the importance of reacting quickly to protect lenders and borrowers when business identity theft occurs. As part of its partnership with AAPL, Allure Security will take down members’ first cloned site. We also encourage members to proactively take advantage of a 30% AAPL Member Discount on Allure Security services that include advanced domain and cloned site monitoring, blocklisting from search engines, data decoy injection into phishing forms, and social media monitoring. AAPL receives no compensation or affiliate fee. Locking down your brand assets will protect your reputation and prevent diverting untold resources to respond to threats after they’ve already gained a foothold. Importantly, doing so will also contribute to a broader effort to make our industry a safe, trusted place for borrowers, investors, service providers,

and lenders to conduct business. Reach us at contact@aaplonline.com for more information and to get started today.

KAT HUNGERFORD

Kat Hungerford is executive editor of Private Lender magazine and digital project manager at the American

Association of Private Lenders. She specializes in operations, project

management, and marketing. Hungerford also acts as secretary for the association’s Government Relations Committee,

which serves as AAPL’s advocacy arm in Congress and state legislatures.

AAPL is the oldest and largest national organization representing the private lending profession. The association

supports the industry's dedication to

best practices by providing educational

resources, instilling oversight processes, and fighting regulatory encroachment.

Find more information at aaplonline.com.

MEMBERSHIP ISN’T EXTRA. IT’S THE FOUNDATION OF EVERYTHING. AAPL membership is the standard among private lending professionals and the foundation supporting the industry’s viability and growth. We drive education and vision via a multitude of resources, shield reputation by enforcing standards of practice, and safeguard interests in Congress and state legislatures. Join the oldest and largest association providing for private lender education, ethics, and advocacy at aaplonline.com/join.

FALL 2023

FUND MANAGEMENT

Capital Raising: Understanding Commissions, Referral Fees, and Finders Fees As a private lender, it’s important to understand what’s legally permissible when you compensate someone who helps you raise money for your fund.

JENNIFER YOUNG

inding investors is one of the biggest challenges fund managers face. Often, fund managers meet individuals who are willing to help raise money in exchange for a fee. Unfortunately, this type of compensation likely violates the broker-dealer registration requirements of Section 15(a) of the Securities Exchange Act of 1934 (the Exchange Act). Understanding securities regulations, specifically the concept of "broker-dealer" activities will help you stay within permissible boundaries for compensating someone for these activities.

or not exempt from registration under the Securities Act of 1933 (the Securities Act). Broker-dealer activities are subject to strict regulation by the SEC and other regulatory agencies. Courts and the SEC have considered various factors when determining whether a person has violated securities laws by not registering as a broker-dealer. This often includes evaluating whether someone: Helps solicit or identify potential investors for the fund. Participates in discussions or negotiations with the investor.

BROKER-DEALER ACTIVITIES Under federal securities laws, Section 15(a) of the Exchange Act requires anyone engaged in broker-dealer activity to register with the Securities and Exchange Commission (SEC). The Exchange Act specifically provides that a person who is “engaged in the business of effecting transactions in securities for the account of others” is generally required to register as a broker. This rule applies to all offerings, whether 14

PRIVATE LENDER BY AAPL

Provides the investor with any advice regarding the fund’s merits or receives compensation in connection with the investor’s investment in the fund.

Receiving compensation in connection with facilitating securities transactions (including through referrals) is often classified as broker-dealer activities, and unless that person is registered under the Exchange Act, securities laws prohibit paying that person “transaction-based compensation.”

This includes any compensation tied to the success of the potential investment, payments based on the outcome of the potential investment, or the amount invested by an investor into the fund. An exception to these requirements is the “issuer exemption,” available under Rule 3a4-1 of the Exchange Act for fund manager employees who occasionally sell the fund’s securities but primarily perform other duties for the fund, whose compensation is not based on the sale of such securities (either directly or indirectly), and who meet certain other requirements. Under these specific circumstances, the employee is not required to register as a broker-dealer.

TRANSACTION-BASED COMPENSATION The SEC and state regulators are paying close attention to the type of compensation paid. Payment of “transaction-based compensation” alone can trigger violation of the Exchange Act. Transaction-based compensation (or success-based compensation) occurs when someone receives

payments based on the outcome or size of the transaction/amount invested. It doesn't matter whether such payments are called finders fees, referral fees, consulting fees, or success fees. The SEC has stated that the receipt of transaction-based compensation in connection with another person’s purchase or sale of securities represents a hallmark of broker-dealer activity. (See Brumberg, Mackey & Wall, P.L.C., SEC Staff Denial of No-Action Request; May 17, 2010). This means that paying someone to assist in raising capital when the payment is premised on a transaction is not permissible unless that person is a licensed broker-dealer.

RISKS OF USING UNLICENSED BROKER-DEALERS Fund managers who involve unregistered broker-dealers in capital-raising efforts may be subjected to both civil and criminal penalties, which include SEC enforcement actions for aiding and abetting a finder’s

violation of broker-dealer registration requirements and/or other enforcement actions from state securities regulators. Ultimately, such actions could lead to their prohibition from participating in or being associated with future securities offerings due to triggering ”bad actor” or “bad boy” events as defined by the Securities Act. Additionally, using an unregistered broker-dealer to help raise capital may give investors the right to require the fund to rescind their investment and require the return of all money invested. For example, violations of Washington's securities laws provide a private right of rescission that includes 8% interest and reasonable attorneys' fees (see RCW 21.20.430). Similarly, Oregon investors can seek rescission of the transaction plus 9% interest (or greater) and reasonable attorneys' fees (see ORS 82.010 - Legal rate of interest and ORS 59.115 - Liability in connection with sale or successful solicitation of sale of securities). In California, an investor can exercise its

right to rescind its investment, even if it no longer owns the securities, and can be awarded attorneys’ fees and costs (see Cal. Corp. Code § 25501). Fund managers, issuers, and other companies should be aware of these risks when working with others to raise capital.

REDUCING RISKS Guidance from the SEC on these issues is limited, despite efforts over the years to push the SEC for greater clarity. Despite a common misconception, the Exchange Act does not provide a finder’s exemption and the no-action letters issued by SEC staff providing an exception to broker-dealer registration contained very restrictive conditions and would only be applicable under very narrow fact patterns and specific situations. Additionally, several states (i.e., California, New York, and Texas) have implemented or proposed state-level registration requirements on finders. FALL 2023

FUND MANAGEMENT

JENNIFER YOUNG Section 15 issues may be eliminated when working with unlicensed individuals, so long as the fund managers (1) avoid compensation arrangements tied to deal success, investment amounts, or other investment-related factors and (2) ensure the individual does nothing more than make the initial introduction.

CONCLUSION

For example, a fund manager can pay a finder a flat fee for an introduction to a high-net-worth investor. However, that flat fee will need to be paid to the finder regardless of whether the high-net-worth investor ultimately invests any capital into the fund. Further, the finder must not attend meetings with the fund manager and investor, explain or discuss the investment opportunity or specific fund terms with the investor, or help prepare or distribute fund offering materials.

securities issues. As the SEC continues to

Capital raising is a complex and highly

regulated area, making it imperative for

fund managers to be wary of simple fixes intended to “work around” broker-dealer registration requirements and other

closely monitor private funds and their

capital-raising activities, fund managers should proactively seek guidance from experienced securities counsel before

paying anyone finders fees, referral fees, or commissions. Remaining vigilant, continuously learning, and staying in compliance

with the ever-evolving securities rules and regulations is crucial for fund managers aiming to achieve success.

Jennifer Young is an attorney on the

Corporate & Securities team at Geraci LLP.

The team specializes in real-estate-focused private placements and other alternative

investments for private lenders, real estate

developers, and real estate entrepreneurs; establishing mortgage funds, real estate

acquisition funds and syndications, REITs,

and Qualified Opportunity Funds; preparing complex private and public securities

offerings for alternative investment platforms in the U.S. and abroad; and helping clients

structure strategic partnerships and create innovative solutions.

15 Maple St., Summit, NJ 07901 212.393.4100 www.toorakcapital.com

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SUMMER 2023

FUND MANAGEMENT

The Current Buzz in Fund Management Fund investors and managers looking for opportunity—and success—in today’s environment should be mindful of these five tips.

SCOTT WARD

he current private lending market has been arguably the most turbulent and unpredictable in recent memory. It’s anybody’s guess where the smooth water is.

$64,000 question. In the upcoming months, the “buzz” is that this market will again start to produce these assets for investment—and sometimes there are some diamonds in the rough.

The good news? Some old-school practices are shedding some solid income returns and attracting a whole group of quality investors in the fund space! This embraces the one thing that never changes: The interest in strong debt funds and the ethical structure that fund managers adhere to (keeping their investors safe—and paid) in this current real estate market.

Fortunes have been made and sometimes stalled in this space, so take a hard look at your appetite for this asset class. The strategy comes down to a few key elements that would seem fairly simple. This basic investment approach must be tailored with a keen ability to set realistic current values (both for geographic and individual assets) and to turn these assets around to gain the profit upon exit.

The pressures on current fund managers are greater than ever, with constant yield volatility and interest rates in flux. And, because of the extra competition in the space, it is becoming increasingly difficult to distinguish the “wheat from the chaff” when it comes to quality investments. Here is a Top 5 list of some buzzworthy topics and practices for “in-the-trenches” fund investors and managers.

1. I NVESTING IN NON-PERFORMING ASSETS Is “one man’s trash another man’s treasure”? This is and always will be the 18

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The risk associated with these property buys comes with unseen issues that aren’t detected by underwriters or arise from a false market understanding. Another factor can come down to a lack of understanding the “true” exit and what it will take do a clean deal dismount. Real rehab numbers from high-quality local contractors as well as knowing the specific market and its real heartbeat are also paramount to protecting the fund and its investors. Many times, fund managers look only at the ones and zeroes on a page and don’t consider the amount of work it will take to get to the exit without holding assets longer than they wish.

2. FRAUD IS ON THE RISE Fraud is always a hot button item and something to be alert for in the finance world. The latest buzz in fraud is AI. Artificial intelligence comes in all shapes and sizes and with little to no learning curve for the criminal. As such, AI is becoming a major part of the modern scammer’s playbook. Did you know that within three minutes, a fraudster can program an automated voice program to answer a phone call, state certain things (as a borrower), and even cold call outbound to lending and banking institutions? This can all be done Day One—with no training, no real computer knowledge, and no real human being. Scary stuff, to say the least. AI can also create fraudulent documentation as well as change current documents to look authentic and legitimate. The documents presented via AI are nearly perfect, and without a special program to uncover digital changes and electronic criminal “fingerprints,” a fund manager would never know. Scammers can change bank statements, titles, and appraisals in seconds, and they can create voices and communications with human beings that don’t even exist. AI isn’t going away—keep learning everything you can about it.

3. FUND DIVERSIFICATION “Too much of any one thing isn’t good for you,” as the old saying goes. It’s true of fund management too. For many years, fund managers were known to be super niched (one loan type and one client type). With market turbulence as it is today, you need “several choice hats in the hat store” now. The buzzword here is to diversify, diversify, diversify! FALL 2023

FUND MANAGEMENT

“

YOUR FUND IS NOT A ONE-MARKET-FITS-ALL FUND—AND YOUR APPROACH SHOULDN’T BE EITHER."

That approach can be the cornerstone of a long-term successful fund operation. Investors are looking for a bit of depth, not just one asset to tie their entire investment to. A diversified portfolio will attract more educated and loyal investors, including opportunities in new geographic locations. There are many growth and quality options available now. If you were to put all your eggs in just one basket and that basket were to fall down the stairs and break, then you are stalled—and so are your investors’ distributions. It can be overwhelming to diversify (especially if you are not familiar with some asset classes), so take it slow but do investigate opportunities as they arise. It is completely OK to grow with a fund and also with a very bumpy market in parallel. Change is always a constant, so “growth with diversification” must be part of the business plan.

4. STRONG COMPETITION We all know there will always be stiff competition in the investing space, especially in the real estate investing space. The new buzz to set your fund apart is to find a way in which it educates both its investors and its borrowers. A small number of fund managers are already doing this very well. It is paramount to not fund success but rather the quality reputation a fund carries for the long term. While this seems easy 20

PRIVATE LENDER BY AAPL

enough, many funds lack that special touch of constant bilateral education and growth. Marketing alone will not put your fund ahead of the competition. You must do more now to legitimately have your marketing meet your audience where they are. Too many fund managers believe this involves 57 color-page pitch decks and YETI water bottle giveaways at the trade show booth. Investors are smart. They understand the need for honest education and want a true understanding of how you will help both sides of the equation grow, so honor that. Borrowers, if trained well, will be return clients. By educating them, you are giving them two things: a better chance at success and loyalty (because, as a true partner, you have helped them achieve their goal). There is nothing better than a borrower you have been helping coming back and investing in the same fund that helped grow and achieve their goals.

5. KNOW YOUR MARKET CONDITIONS It cannot be stressed enough that markets are changing, and it is also true that all markets are not the same. A deal in Lansing, Michigan, is not the same as one in Dallas, Texas. Yes, both markets are going through expansion and contraction, but a 10% drop in value in a mid-Michigan SFR is not the same 10% value drop of an SFR in the fourth largest MSA in the U.S.

A guest on a business television show recently said that all markets are starting to cool. This statement could not be further from the truth. Your fund is not a one-market-fits-all fund—and your approach shouldn’t be either. It is also not your contemporary’s—and it shouldn’t be. Your fund was created with special thought and solid logic to address a current need. It was birthed from an educated business plan, and designed with your sole desire to be successful and deliver returns for the long term, given your team’s knowledge and experience. Deviating from that approach creates problems. Investors are looking for more but walking away from what they perceive as detrimental. As such, investors are also looking for educated fund managers with real knowledge and real experience.

SCOTT WARD

Scott Ward is the director of commercial

lending for Caz Creek Lending, a member of The HUNT Companies. Throughout

his extensive 25-year career, Ward has successfully underwritten and closed

thousands of private money residential, commercial, and raw land investment

loans. He has been involved with several equity funds that specifically focused on investment property throughout many

verticals (all non-owner occupied) covering 11 states. He is a panel speaker for real

estate equity investments and commercial development properties as well as an

AAPL certified fund manager and a current

member of the AAPL Education committee.

This is Your Sign to Contact RCN Capital Today!

Visit RCNCapital.com \ Email CorrespondentLending@RCNCapital.com \ Call 860.432.5858 ©RCN Capital, LLC. 2023 All Rights Reserved. NMLS #1045656. RCN Capital, LLC is licensed in AZ (License #: 0932325), CA (Loans made or arranged by RCN Capital, LLC pursuant to a California Finance Lenders Law license # 60DBO-46258), MN (MN-MO-1045656), and OR (ML-5571). This is not an offer to lend. All offers of credit are subject to due diligence, underwriting and approval. Not all borrowers will qualify and not all borrowers that qualify will receive the lowest rate or best terms. Actual rates and terms depend on a variety of factors and are subject to change without notice.

FUND FUNDAMENTALS MANAGEMENT

When Is the Right Time to Hire? Private lenders must be aware of the indicators that point to the need for additional personnel—whether you’re in the initial stages of building your business or trying to scale.

ERICA LACENTRA

t some point in your private lending business, you will face the question

of whether it’s the right time to hire addi-

tional employees. You’ll likely also have to

figure out whether to keep certain business functions in-house or outsource them. 22

PRIVATE LENDER BY AAPL

There is no definitive answer to these questions, but there are certainly key indicators private lenders can identify to determine

when they should expand their team and what route will work best for their business. Let’s take a look at some of them.

YOUR FIRST FEW HIRES Private lenders who are just starting out may find it easy to operate efficiently with a very small operation. In most cases, a private lending business can start with a few key employees to get things off and

ancillary marketing expenses early on. Your sales staff should be comfortable not only finding leads but also processing their own files. Although origination volume for your company is lower and just starting to grow, having sales personnel who are willing to take on responsibilities like document collection, processing, and prepping a file for underwriting is critical to get files to closing. Your point person on the operations side can do the final review of files before getting items ready for closing. At this stage of your company, there are definite areas where outsourcing makes the most sense. For example, consider outsourcing all legal work through closing. You can pass on legal costs to the client, saving you additional expenses and employee overhead. Loan servicing is another area to consider outsourcing. Numerous companies specialize in the private lending space.

running. At this stage, the important areas of the business to consider are operations and sales. Having an employee who can manage the creation and implementation of standard practices and procedures, provide daily oversight for the business, and work on long-term planning will be critical for the ongoing success of the business. Unless this individual is also savvy in accounting, including cash flow oversight, budgeting, and P&L maintenance, you’ll likely also need someone to assist with daily and long-term financial tasks. On the sales side, having one or two great salespeople may be all you need. Try to hire salespeople who want to build their own books of business to reduce the need for

Finally, if you need basic marketing services (e.g., social media and digital marketing campaigns), outsourcing to a marketing consultant or small firm specializing in working in the real estate or mortgage industry is likely your best bet. With regular check-ins to ensure you are accomplishing your goals, you can keep costs low while also enjoying professional marketing assistance.

EXPANSION PLANS As you look to expand your business, it's important to think about your goals and the personnel necessary to achieve them. If your loan volume is increasing or you want to increase loan volume, for example, it is likely time to remove that workload from your sales and operations personnel. First, you will need to invest in personnel to assist with loan processing and underwriting.

YOUR FIRST 4 HIRES Hire #1: Operations Often the Business Owner B uild & Monitor Practices & Procedures D aily Business Oversight L ong-Term Planning F ile Review

Hire #2: Operations Can be combined with Hire #1 if skillset crosses over C ashflow B udgeting P &L Maintenance

Hires #3 and 4: Sales L ead Generation F ile Processing & Prep

Initial Outsourced Services L egal L oan Servicing M arketing

Additional Personnel & Infrastructure for Growth-Ready Companies L oan Processors U nderwriters T reasury & Capital Markets L egal & Compliance O pportunity & Risk Analysis M arketing T echnology (all-in-one solutions are common)

Loan Origination Platform CRM Document Management & Storage Pipeline Progress

FALL 2023

“ FUNDAMENTALS

KNOWING WHEN TO HIRE IS A CRITICAL PART OF THE GROWTH PROCESS FOR EVERY PRIVATE LENDER."

Having dedicated processors allows your sales team to do what they do best—sell. They’ll be able to spend more time getting deals in the pipeline rather than worrying about every detail and document needed for a file. Loan processing times will be faster, meaning your company will be able to handle increased volume without the customer experience suffering. Hiring dedicated underwriters will also help free up your operations staff, allowing for a faster, more streamlined, and consistent origination process. Hiring in these two areas will give you increased capacity to handle more loans without overextending your staff. As you begin hiring staff who serve more specific job functions, it’s also a good time to start considering technology solutions that create a more uniform process. You don’t necessarily need to hire developers and create your own software. Private lending software options now include access to a CRM, document management and storage, pipeline progress, and much more functionality. Choosing and implementing a good technology solution early can reduce the number of employees you’ll need as you grow. If you are looking to grow your business by diversifying the types of loans you offer or by expanding your geographic footprint, it may be a good time to hire individuals specializing in treasury and capital markets as well as legal personnel well-versed in compliance and state-specific regulations. Hiring employees who are savvy at navigating and developing capital relationships and are able to analyze areas of opportunity and risk will likely be a more costly hire, but it’s

PRIVATE LENDER BY AAPL

crucial for your business. These employees will be able to identify product opportunities and also forge connections with capital providers that will allow you to offer those loan programs. If you are expanding geographically, it's important to either hire internal counsel who can navigate the intricacies of lending throughout the U.S. If you are already outsourcing most legal work, work with your existing law firm to ensure you have appropriate licensing when needed and are in compliance as you expand to new territories. In any company expansion situation, marketing will be a big factor in your hiring decisions because marketing will supplement your sales team's efforts to drive new business. Keep in mind that it's very common for private lenders to handle some internal marketing as well as use outsourced consultants or agencies for certain functions. For instance, you could have a few internal marketing employees to help oversee overall marketing efforts (e.g., media buys, event planning, email marketing and social media) and branding initiatives to establish greater consistency across marketing initiatives. One of those people can be your liaison with an outside design firm, eliminating the need for in-house graphic designers.

EVERY BUSINESS IS DIFFERENT Knowing when to hire is a critical part of the growth process for every private lender. It all comes down to recognizing key indicators that require you to make additional hiring decisions (e.g., loan volume expansion,

diversification of products, or geographic expansion). Although these are not the only key indicators, it's important to realize that any decision to hire should align with your strategic growth objectives and commitment to providing quality customer service while managing risk effectively. Yes, hiring can come with numerous challenges and costs, but ultimately you must find that delicate balance of expanding your team to meet future goals while ensuring the long-term sustainability of your operations both financially and operationally. By making informed and timely hiring decisions, you can set yourself up for continued growth and long-term success as a private lender.

ERICA LACENTRA

Erica LaCentra is the chief marketing officer at RCN Capital. She is

responsible for planning, developing, and implementing the company’s

marketing plan and overseeing the

marketing department. Joining RCN

Capital in 2013, LaCentra led a strategic rebrand to position the company for nationwide expansion. Her ongoing

efforts have rapidly expanded RCN’s customer base and elevated the company to a national brand.

LaCentra currently serves as a member of the American Association of Private Lenders’ (AAPL) Education Advisory

Committee and as the marketing and communications chair for AREAA

Boston. She holds a bachelor’s degree in advertising with a minor in fine arts from Suffolk University in Boston.

Take the First Step Toward Better Loan Management

Trusted by Thousands of Companies Across the Globe

(800) 833-3343 www.TheMortgageOffice.com Applied Business Software, Inc.

2847 Gundry Avenue, Signal Hill, CA 90755 sales@absnetwork.com FALL 2023

FUNDAMENTALS

Vetting a CPA for Your Firm Managers must consider the qualifications of the financial professionals they work with to ensure managerial and financial statement compliance.

HENRY CHAVEZ AND JACK O’FLAHERTY

uilding out the financial team for your lending business or fund is an important step toward success. One of the key components of your team will be developing working relationships with outsourced CPA firms specializing in financial reporting, tax reporting, auditing, and other back-office needs. Using outsourced CPAs offers distinct advantages to your firm because most in-house managers do not have a deep knowledge of accounting or the tax rules specific to their investment vehicles. External CPA firms provide specialized expertise in accounting and reporting, can help you navigate complex regulatory landscapes, and ensure tax compliance. Outsourcing can also be cost efficient because it eliminates the expenses associated with maintaining an in-house CPA team.

WHAT SERVICES ARE NEEDED? Understanding which accounting services you need can be daunting. There are many accounting firms, and each seems to provide a different suite of services. What you need depends on your internal team’s capabilities, the structure of your lending entities, regulatory requirements, and investor preferences. Here is a summary of the general categories of services to consider: Tax Structure. Determine which tax structure will best accomplish your objectives, including whether a fund should include a Real Estate Investment Trust (REIT) structure, which provides certain tax advantages.

An outsourced approach grants you the flexibility to scale resources as needed to focus on core investment strategies and client relationships, while you rely on seasoned professionals to handle critical financial and regulatory tasks. By leveraging the expertise and resources of outsourced CPA firms, you can streamline operations, reduce risk, and concentrate on your firm’s growth trajectory.

Tax Compliance. This involves filing the required tax returns and tests for your business and determining tax efficiencies. To the extent you run a fund, CPAs can prepare federal and state K1s that will go out to your investors. If you have a REIT, they will assist with quarterly REIT compliance and with filing required REIT tests. Everyone needs to file taxes, so you’ll need to make sure you have a plan for these services.

Let’s look at some of the things you should consider when vetting outsourced CPAs and accounting firms.

Audit. This involves an independent third party giving an opinion on whether you have provided an ”accurate” view of your

PRIVATE LENDER BY AAPL

entities’ financial situation on your yearend financial statements and footnotes. The audit firm will assign a team to your account to take a look at the internal controls governing your accounting policies and procedures. They will also test the reasonable accuracy of your year-end financial statements as well as assist in drafting your financial statements, if requested. An audit is not always required. It’s generally performed because your investors, your bank, or certain regulators require it. Talk to your legal counsel and the rest of your team to determine whether an audit is necessary. Financial and Investor Reporting (Fund Administration). This involves day-to-day bookkeeping and ongoing financial and investor reporting. To the extent you have a fund, a fund administration team can perform investor-level calculations and waterfalls in order to send your investors regular capital statements and updates. They help manage your investor portal, get distributions out the door, and track your investments. Although these services can be done in-house, the majority of lenders opt to outsource to experts to reduce the burden of building out an internal team and the costs that come with doing so. The primary advantages of outsourcing are the industry knowledge and dedicated

teams that come with it. Further, financial statement reporting will become increasingly important because of the recent

Securities and Exchange Commission vote to adopt more stringent quarterly report-

ing requirements to investors. You should

work with your legal counsel and CPAs to determine whether you have enhanced reporting requirements.

only tax compliance) and others provide

As you talk to CPA firms, keep in mind that some firms provide only one of these services (e.g., only fund administration or

CPA firms (and may even have referrals

multiple. Most CPA firms are accustomed to collaborating and working with other for firms they enjoy working with and think would suit your needs best).

FALL 2023

FUNDAMENTALS

The one exception is auditor independence. Auditor independence regulations require that auditors remain independent of the companies they audit. Specifically, per the SEC “an auditor’s independence is impaired if the auditor is not, or a reasonable investor with knowledge of all the facts and circumstances would conclude that the auditor is not, capable of exercising objective and impartial judgement on all issues encompassed within the audit engagement.” This regulation limits the work outside of audit services a CPA can perform for their audit clients (including bookkeeping, certain management functions, and valuation services). One exemption generally applied is for tax services. It is common, therefore, to have your audit firm handle tax prep and compliance, but it is not allowed to also perform your bookkeeping or fund administration.

INDUSTRY EXPERTISE AND REPUTATION Once you start reaching out to CPA firms, it is crucial to understand the extent to which they are experts in the spaces you need. Private Lending. You should consider the experience a firm has in the private lending space, especially in the specific types of deals you’re doing. Ask industry-specific questions upfront to get a sense of their familiarity with your business and types of transactions. Also ask whether they have other clients that do what you do and how experienced their team members are in the space. Just because they can talk fluently about your business doesn’t always mean the entire firm has experience in the space. If you are a direct lender, it’s hard to overemphasize the importance of working 28

PRIVATE LENDER BY AAPL

with service providers that are lending experts. They need to be familiar with your deal documents, loan servicer reports, etc. to properly do the job. Given the growth of the private debt and direct lending space over the last 10 years, a lot of service providers are trying to break into the market. Make sure you pick a team that knows your business as well as you do. Private Funds/REITs/Structure. If you are launching a fund, REIT, or a combination of the two, you’ll want CPA firms that specialize in these structures. It’s common for a lender to use a longtime in-house tax preparer or bookkeeper who knows the lending business well but quickly gets “over their skis” when a fund or a REIT is launched. You can ask probing questions about REIT compliance and testing, or fund economics and waterfalls, to get a sense of their knowledge.

ADDITIONAL CONSIDERATIONS Besides the previous factors, consider others that may be important to you in selecting a CPA firm, including pricing, knowledge, and reputation. All three are related. Knowledge comes with a price tag, but if it limits your risk of litigation or non-compliance, investing in experienced professionals can actually save you money. Also ensure that the CPA firm you select can meet your needs now as well as in the future. The time and expense involved in changing firms can be significant and disruptive. The private lending world is becoming increasingly complex and regulated. Managers must consider the qualifications of the professionals they will work with to ensure managerial and financial statement compliance requirements are met. As with all things, the right due diligence now will pay dividends later.

HENRY CHAVEZ

Henry Chavez works as a strategic

resource for the growth and success of thriving organizations. In a public

accounting career spanning nearly three

decades, Chavez has provided assurance and business advisory services to

privately held businesses in the financial

services, manufacturing and distribution, technology, and nonprofit sectors. He is a member of the American Institute of CPAs and the California Society of

CPAs. Chavez serves on the Education

Committee for the American Association of Private Lenders and provides training on financial accounting and reporting issues related to the private lending and mortgage banking industries.

JACK O’FLAHERTY, CPA

Jack O’Flaherty, CPA, is a founding partner and managing member at

High Divide Management (HDM), a

fund administrator that specializes in

providing outsourced financial reporting, investor reporting, and CFO consulting

to real estate lending funds. Before HDM, he managed the financial reporting

for Columbia Pacific Advisors’ bridge

lending funds and was an auditor in the alternative investment practice at PwC.

FALL 2023

MARKET TRENDS

pportunities and Threats for O Small Private Lenders

Even in a tight deal market, there are opportunities you can take advantage of; however, you must also be aware of their associated risks.

ALEX BRESHEARS

enders, especially new and small lenders, must keep their eyes open for both opportunities and threats. Changing market conditions can bring good deals that nimble and niche lenders can take advantage of—as long as they are aware of the pitfalls to avoid. Let’s take a look at five current opportunities as well as their corresponding threats.

1. OPPORTUNITY: NON-LOCAL MARKETS As private lenders, we aren’t necessarily constrained by geography. If your local market is experiencing a correction, chances are there are other areas of the country that are maintaining or expanding economically. A city or county's economic development website will often provide solid baseline information about the population, industries, and projected plans for community development. Paid data website services that break down economic data for a chosen area are also available. The Milken Institute also has a wide variety of data-driven reports on their website, including information about the best-performing markets at the current time. 30

PRIVATE LENDER BY AAPL

Threat: Compliance Requirements. Since

borrowers. If smaller lenders want to remain

private lending laws are state specific,

competitive without being involved in a race to

if you do jump to a new state, make

the bottom on rates and fees, value-adds help

sure you are aware of the requirements

differentiate your lending business from others.

for licensing and usury compliance.

2. OPPORTUNITY: VALUE-ADDS The market rates for smaller lenders are not usually held against some benchmark index. If interest rates do fall in the future, smaller balance sheet private lenders likely won’t see a significant rate reduction for their loan products compared to current interest rates. Smaller lenders can offer additional value adds to their borrowers (e.g., flexibility on some loan terms, connections to vendors in their market, referrals to permanent financing if the lender only offers shortterm debt options). Leaning into the value a small lender can bring to a deal other than rate and terms will create repeat business from borrowers who appreciate those additional services and connections. Threat: Interest Rate Races. Larger lenders may use capital tied to a floating index rate. When

3. OPPORTUNITY: SECOND LIEN PRODUCTS Many homeowners and investors have locked in historically low rates that they see significant value in keeping. Refinancing that low-rate debt is usually the last thing they want to do because they know they cannot get a rate anywhere close to their existing one. This has created a significant demand for second-lien loans. Investors taking properties “subject to” from distressed homeowners are actively seeking out private lenders to provide funds for the transaction (e.g., closing costs, catching up the mortgage, repairs, or cash to give the seller to walk away). Many new lenders may be approached or drawn into these opportunities because they usually offer a very attractive interest rate and have a lower loan amount, sometimes as low as $20,000.

their cost of capital gets cheaper as interest

Threat: Greater Risk. This type of loan in the

rates decrease, they may lower rates to attract

current economic climate can be very risky!

Lending as a second-lien lender requires extensive lending knowledge to mitigate your risk and properly assess the opportunity. Make sure a few things are in place before you agree to fund such a loan. Lending in the second-lien position may have additional underwriting criteria that may not be present with a first-lien loan. For example, make sure the first lien is current and the combined loan to value still allows for a healthy equity buffer, generally below 75% CLTV. Using a conservative valuation and having multiple strong and suitable exit strategies for the borrower are also crucial when lending in the second-lien position. Involving a knowledgeable lending attorney to review the deal and the loan documents can help secure a stronger position in the loan.

4. OPPORTUNITY: PERMANENT DEBT LENDERS AS A BAROMETER A typical private loan is for a short duration, often measured in terms of months, not years. This leaves the borrower with a deadline to either sell or refinance the property. Usually, one of those scenarios will involve new debt on the property. As the economy deteriorates or improves, underwriting standards for more traditional loan products will fluctuate. Our industry saw this in the early stages of the pandemic when underwriting was changing weekly. A smaller lender needs to pay attention to these changes. Having a relationship with local permanent debt lenders and regional banks can be very helpful. Checking in periodically to make sure there haven’t been any significant changes to their loan terms or underwriting criteria can help shape your choices for lending moving forward. Threat: Changing Terms. Discerning which direction things are moving is invaluable for avoiding a borrower being stuck in your loan.

FALL 2023

MARKET TRENDS

For example, if your local debt connections repeatedly say they will only do a rate and term refinance up to 70% of the value of the property, lending at 75% may mean your borrower has to bring significant money to the closing table just to get out of your loan. A borrower may not have that capital available to even close the loan, especially including any reserve requirements.

OPPORTUNITY: PARTNERSHIPS When deal flow is down, there may be opportunities to partner on deals you don’t have experience with. A well-thoughtout pivot can be helpful to a business, but trying to do too many things at once is detrimental. Lending on traditional construction fix-and-flips is different from ground-up construction or raw land purchases. There are significant underwriting differences, title considerations, and potential unique loan terms that may not fit within your current business model. 32

PRIVATE LENDER BY AAPL

Or, you may have the opportunity to open up your buy box to atypical construction (e.g., tiny homes or container homes).

ALEX BRESHEARS

Threat: Impulse to Pivot. Work with a more knowledgeable lender if you do want to make a jump to an unfamiliar loan product or property type. That lender should understand the parameters of the new loan product and borrower.

As you can see, being able to look ahead and see where the lending landscape is moving is crucial. There have been, and likely continue to be, significant capital inflows into our industry. Knowing what you do, how you do it, and executing it well is critical, especially in times where valuations may be falling or deal flow is low. Talk to other lenders and network with vendors and borrowers to gain insights about what’s happening in your market. Remember what makes your business an advantage to borrowers—and use that as your superpower.

Alex Breshears is a private money lender and a BiggerPockets published private

lending author. She passionately believes in investing passively to live actively. Breshears started an educational

Facebook group called Private Lending Lessons, which offers educational

lessons, daily posts for discussion, and opportunities to network with other investors about private lending and

various projects that may need funding. TC Capital LLC is an all-female-owned private lending business. It lends for fix-and-flip and rental properties in Missouri, Virginia, and Kentucky.

PHOENIX

MARCH 28 - 29

Experience what Think Realty Conference & Expos have to offer Network with professionals in our packed vendor hall and at the cocktail reception.

Attend sessions and specialty workshops on a variety of investment strategies.

Meet vendors specializing in REI tools, products, and services.

Level up your deal flow and partnerships with the biggest names in the business.

MARKET TRENDS

Quarter Trend Comparison: Landscape Mostly Unchanged Second quarter 2023 trends are similar to first quarter.

PAVEL TCHOURLIAEV

verall, we're seeing the same trends as we did in the first quarter: rising interest rates, rising fees, movement toward safer investments. Closing ratios are down significantly, indicating lenders are more selective about the loans they are willing to do. Note: These data include detailed breakdowns of numbers that are most likely to affect lenders' day-to-day decision-making. However, numbers are based on national data, which may not be as relevant to your specific

PRIVATE LENDER BY AAPL

DEFINITIONS geographic area. The analysis is based on data exclusively from lenders who have undergone complete onboarding and actively utilized the system during both the first and the second quarters of 2023. The dataset encompasses nearly 15,000 loans, ensuring a comprehensive representation of the market dynamics during the specified period. Keep in mind that although the loan product definitions included here may serve as a guide for readers, lenders self-select the loan type for each transaction they enter into the platform.

Fix-and-Flip: Short-term loan for the renovation of residential property Standard: Conventional 30-year mortgage with standard consumer borrower Commercial: Loan for the purchase of non-residential, commercially zoned property Construction: Loan for new, ground-up construction of residential or commercial property

AVERAGE INTEREST RATE

2023 Q1

2023 Q2

CHANGE

Fix and Flip

12.12%

12.33%

0.21%

Standard (Purchase/Refinance)

9.94%

9.30%

-0.64%

Commercial

10.78%

12.34%

1.56%

Construction

11.18%

11.61%

0.43%

11.68%

11.80%

0.12%

The rates are continuing to trend upward. There appears to be more appetite for basic purchase/refinance loans with increased competition, causing the rate to go down slightly. Commercial loan rates are moving up a lot faster, indicating less lender demand for these types of loans.

LOANS CREATED VOLUME Down by 1.35% in Q2 over Q1 2023

LOAN POSITIONS 99.19% of loans are first mortgages.

BORROWERS (COMPANIES VS INDIVIDUALS) 8.87% of borrowers are companies/LLCs.

PAYMENT METHODS 98.93% of borrower payments are done via ACH.

CLOSING RATIO 30.67%—down from 43.32% in

AVERAGE ORIGINATION FEES

2023 Q1

2023 Q2

CHANGE

Q1 2023, indicating increased application scrutiny and fewer approvals, with construction

Fix and Flip

2.29%

0.00%

Standard (Purchase/Refinance)

1.62%

1.79%

0.17%

Commercial

1.80%

2.21%

0.41%

Construction

2.24%

2.41%

0.17%

2.15%

2.22%

0.07%

loans declining most.

AVERAGE DAYS TO CLOSE Average days to close is 22, almost unchanged from Q1 2023.

PAVEL TCHOURLIAEV

The fees for fix-and-flip loans haven't changed at all during the quarter, but once again commercial mortgage rates are increasing quickly.

Q2 2023 Average Portfolio LTV Mix

LTV < 60%

60% <= LTV <= 70%

LTV > 70%

Fix and Flip

27.70% (up 6.58%)

34.88% (down 6.44%)

13.09% (down 6.26%)

Pavel Tchourliaev is the CEO of Mortgage

Automator and an innovator in the mortgage

and lending industries. Mortgage Automator

Standard (Purchase/Refinance)

14.66% (up 11.82%)

0.3% (down 2.97%)

0.71% (down 6.05%)

has had monumental success and is a leading end-to-end loan origination and servicing

software. Through Tchourliaev's leadership,

Commercial

3.39% (up 1.75%)

2.88% (up 0.96%)

1.97% (up 0.55%)

the company has simplified the lending

Construction

0.35% (down 0.01%)

0.05% (up 0.05%)

n/a

To stay informed about these trends and

There is very large movement toward safer, lower LTV loans. Lenders appear to be declining the majority of loans above 70% LTV and are moving to safer alternatives to protect investor capital and accounting for a possible market correction.

process for myriad clients across the globe. gain access to further statistical insights, subscribe to the Mortgage Automator

newsletter at mortgageautomator.com. FALL 2023

LEADERSHIP

The Power of Mentorship A good mentor can save you years of hard knocks as you build your private lending business. Here’s how to find and work with one.

RAY STURM

ehind every successful executive is a line of people who helped bring out

their best. Coaches who worked tirelessly

to improve specific skills, like public speaking or management. Advisers who helped open doors and launch partnerships.

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Brilliant mentors are often the driving

force behind the world's most successful

business leaders. Everyone needs someone to believe in them more than they believe in themselves. Someone to raise the bar a few notches. Someone to hold them

accountable. And someone to make sure they transform every challenge and failure into growth and success. Maybe you are looking at your own career and yearn to be better, even though you’ve experienced success. Perhaps you’ve

plateaued. Maybe you are having trouble

reaching that next rung or you are unclear about what should (and could!) be your next area of growth.

Some large organizations have formal

mentorship programs with structures and applicants and a clear path to career pro-

gression. However, if you are in the private lending space, you likely work in a small

company or you are an entrepreneur who

founded your company. Although you may have built your current success on your

own, perhaps the skills that got you here

will not get you where you want to go next. So you need help. You need guidance. You need a mentor.

FINDING A MENTOR The best mentors are probably the last people to ever call themselves by that title. Rather than simply having a skill or title you want, these people serve as role models—and someone you would generally be proud to be one day. Given all this, a great mentor is incredibly difficult to find. In fact, many of the best mentor relationships happen organically and cannot be forced. You probably already have what are sometimes called “virtual mentors.” These are people whose books and articles you religiously consume and whose lives you have studied in an effort to better understand them. Now may be the time to start, or perhaps significantly deepen, a relation-

ship with a mentor who is focused on your specific aspirations and challenges. Perhaps the most valuable and least appreciated aspect of mentorship is the chance to dig in with someone you admire on what could be the best goals for you. We are often focused on winning the game right in front of us; but slowing down and working with a mentor who might have a wider lens than your experience affords can be transformative not only in achieving your goals but also in setting the right ones! Ask yourself these two questions before kicking off your search: 1

Are you ready for mentorship? To get the most out of mentorship, you must be ready to bring your biggest problems, deepest fears and boldest goals to the table. A good mentorship session might feel like a training session at the gym, one that leaves you exhausted but proud knowing you walked out stronger than you entered.

2 W hat do you want out of this relationship?

A mentor who is three to seven years ahead of you can give tactical advice and get into the weeds with you. A grizzled veteran can help you build and go after long-term career goals, often helping you see around corners. Decide which you are seeking first, keeping in mind that in the long run, it is helpful to have both.

The people worthy of being a mentor are rare and valuable, so you’ll likely have to earn a great mentor rather than find one. These relationships are not transactional, so you will need to spend time with people you respect and admire. Get to know your potential mentor by sharing your values and goals. Ultimately, it will be on you as the mentee to ask if the person is willing to be your mentor; share what your vision of that relationship might be. FALL 2023

LEADERSHIP

4 F ocus. A mentor may feel like

they’re making progress by turning 20 different knobs one-inch each. What you really need, however, is targeted and massive progress aimed at your highest priorities.

5 B e Honest and Transparent. A good

mentor will bring their authentic self. You are coming to your mentor seeking help solving your biggest insecurities.

who hold up a mirror and, through questions, help you better see where you are today and what you truly want, often helping you discover your true goals and motivations.

SUCCESSFUL MENTORSHIP RELATIONSHIPS Once you have found a mentor, you can get the most out of your relationship by: 1

S lowing Down. You’ll want to dive right

into questions and challenges in your life, but temporarily put that aside. Instead, in the first meeting, focus on building a relationship that will lay the foundation for a stronger experience. 2 T aking Ownership. Although your

mentor is more experienced, it is your responsibility to make the experience successful, garner the guidance you need, and put it to work.

3 E ach mentorship relationship is unique.

Starting with clear agreements is critical to being successful—from how often you meet to your expectations of each other to what you each commit to do.

4 C ommitting the Time. Clear your

mind and focus before each session. Take time to reflect, at the end of each meeting, on what you just covered. If you cannot make the time, why should your mentor?

4 S eeing the Mirror. Your mentor is not a

silver bullet for all your questions and problems. The best mentors are guides

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Likewise, it’s important to understand how most good mentors will approach the relationship. Successful mentors will: 1

You may be entering one of the most fulfilling phases of your career. In an entrepreneurial industry like private lending, which has exploded in size and success during the last decade, we need mentors more than ever. It’s time to grow.

RAY STURM

D ole Out Fishing Rods, Not Fish. Their

role is to help make you better. They’ll focus on teaching principles and frameworks rather than giving answers and advice. Instead of solving your problems, they’ll walk you through specific situations they found challenging and help you work through each one with thoughtful questions. 2 B e Present. Nothing builds trust more

quickly than having someone give you their undivided attention. Both mentors and mentees want to feel 100% heard, that their counterpart is present, and that their time is being wisely spent and valued.

3 B e Flexible. There are numerous

definitions of what mentorship can look like, both in process and outcome. Your mentor will likely try to meet you where you are in your career and experience and work from there.

Ray Sturm is the head of single-family real estate at 10X Capital, a global alternative asset manager. Prior to

his current role, Sturm founded two prominent venture-backed asset

management companies, AlphaFlow

and RealtyShares, which were backed by top investors, including Y Combinator and Point72 Ventures. His early career

in finance included investment banking at Bear Stearns and Lazard Frères and private equity at CCMP Capital.

Sturm has a bachelor’s of business administration in finance from the University of Notre Dame

and MBA and JD degrees from the University of Chicago.

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FALL 2023

STRATEGY

Short-Term Rentals: Worth the Risk? They can be, but thoroughly researching and understanding their financial, legal, and operational aspects is essential to avoiding loss.

DANA GEORGIOU

re you considering investing in vacation rental properties, or are you a lender exploring options to expand a program for short-term rentals? With the travel industry on the rebound, now might be the perfect time to explore this sector. Buying a vacation rental property has become increasingly popular, and in today's current market, you can find numerous success stories. But, as with all things, sometimes what makes these properties potentially dangerous to an investor's portfolio isn’t always talked about.

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Let's delve into the pros and cons of vacation rental property investing and lending.

UNDERSTANDING THE VACATION RENTAL MARKET The vacation rental market has experienced significant growth during the past few years. According to data from AllTheRooms.com, there are nearly 1 million properties listed as short-term rentals on places like Airbnb and VRBO, which is 65% higher than the number of homes for sale according to Realtor.com.

Some of this growth is due to travelers choosing vacation rentals over traditional hotels, seeking unique experiences and more space for their getaways. Additionally, the rise of online booking platforms like Airbnb and Vrbo has also made it easier for property owners to connect with a vast audience of potential guests, increasing the opportunity to keep their properties rented. As a lender, one of the best ways to help mitigate your risk is to understand the property market. Easy Street Capital

what may work for one investor versus another, here are opportunities to consider: Tourist Hot Spots. Areas like Myrtle Beach, South Carolina, or Orlando, Florida, draw a huge influx of tourists every year. With consumers wanting different experiences for their travel these days, a short-term rental property will be a better investment for both the borrower and the lender financing that property than a more obscure location will. Areas with a Strong Local Economy. Places that generate business travel and conferences, or even areas attracting large industry, are prime markets for short-term rental properties—places like Austin, Texas, where Tesla, Meta, and USAA have large campuses, for example. has very strict guidance around what experience an investor has in a particular market. Robin Simon, one of their partners, noted: “We give particular weight in our underwriting evaluation for investors who have more than one short-term rental in a given market and can demonstrate performance and success with that property.” Simon noted they look for a demonstration of the borrower’s property performance by requiring the property to be listed with at least one national listing site like Vrbo or AirBnb and evidence of at least one completed booking by way of verifiable income through a third-party report or bank statements. This type of borrower-qualifying item can help mitigate the risk for a lender who may not intimately know the buying market.

IDENTIFYING PROFITABLE LOCATIONS One of the keys to success in vacation rental investing is choosing the right location. Although there is no perfect science as to

Other Markets. An investor and/or lender could even capitalize on more obscure markets. Take Floyd, Virginia, for example. Although Floyd itself only has a population of about 435 people (with a very quaint walkable downtown, including an awesome open air farmers market), it hosts a litany of events and festivals in the area far past what the local area hotels could support. But buyer and lender beware! Sometimes even in areas with great economic growth, an oversaturation can cause diminished returns. For example, in Phoenix, Arizona, Airbnb owners have seen their revenues plummet by more than 50% between early 2022 and May 2023, likely due to the fact that the supply of short-term rental properties has nearly doubled in the same time frame.

ANALYZING RENTAL TRENDS AND SEASONAL DEMANDS To make the most of your vacation rental investment, conduct thorough market

research. Tools like AllTheRoom.Com and AirDNA are great resources for both investors and lenders. Additionally, use technology to help you understand the property revenue. In a recent call, Simon noted: “Lenders must consider utilizing things like the AirDNA Rentalizer qualification tool.” In fact, Easy Street has built into their website a STR Revenue calculator that can provide an estimate of expected revenue and ADR for any eligible address in the United States. Using these tools to analyze rental trends and seasonal demands can help a borrower optimize a property's occupancy rate and pricing as well as help lenders in understanding a truer sense of debt coverage and risk. As noted, the property market is a key driver in analyzing trends or seasonal demands. As a lender, you may understand that a property in Breckinridge, Colorado, will drive a potentially higher nightly rent in the winter months for skiers than it will in the summer months and, therefore, get comfortable with an average rental rate across seasons.

ASSESSING FINANCIAL VIABILITY Lending or investing in vacation rental properties requires careful financial analysis. You should consider not only the purchase price and renovation costs but also ongoing expenses such as property management, utilities, and maintenance, much as you would with any rental property investment. However, with short-term rentals, your expenses can be significantly compounded for things like wear and tear, extra cleaning costs, and marketing to keep the property occupied. These extra costs will impact the financial viability of your asset FALL 2023

STRATEGY

and can vary widely depending on the property and its local short-term rental market. Perhaps the most significant difference in short-term rentals versus long-term strategies is the potential for regulatory restrictions. Local municipalities, state regulatory bodies, and others (e.g., HOAs) can all have a dramatic impact on the viability of a short-term rental performing. Lenders should do their due diligence in reviewing any HOA documents or local/state laws for regulations that can impact a short-term rental. Of course, one of the ways to mitigate risk for a short-term property is to qualify it as a long-term rental using the standard market rental analysis. Using this qualifying strategy, a lender knows that

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even if regulations changed to not allow short-term rentals, the payment would be covered through a long-term lease. Otherwise, the only real strategy is to sell the property to minimize loss for the borrower and lender.

MANAGING RISKS As with any investment, there are risks associated with vacation rental properties. Market fluctuations, regulatory changes, and unforeseen events can impact your returns. However, preparedness and proactive management can mitigate these risks. The viability of short-term rentals can vary significantly depending on various factors, such as location, local regulations, tourism trends, and economic conditions. What might

be considered the "best" and "worst" markets for short-term rentals can change over time. Although things like strong economies, tourism, and other previously noted factors can be positive for a short-term rental, there are also things that can inhibit an investment and lenders should scrutinize. Regulatory changes, economic shifts, or even negative rental ratings are all examples of things that pose a risk. Regulations around short-term rentals can vary significantly depending on the location and jurisdiction. They can encompass registration, permits, duration limits, host presence, safety requirements, and zoning restrictions. It's important for hosts and guests to be aware of and comply with these regulations to avoid legal issues and ensure a positive experience for all parties involved. Keep in mind that regulations

can change over time, so it's advisable to check with local authorities for the most up-to-date information. Airbnb laws in the U.S. can vary significantly by city, county, and state due to the different regulations and zoning laws that govern short-term rentals. These regulations can impact aspects such as the legality of hosting, required permits, taxes, safety standards, and more. Here are a few examples of Airbnb laws in different U.S. cities as of fall 2021: New York City, New York. New York City has some of the most stringent regulations on short-term rentals. It's generally illegal to rent out an entire apartment for fewer than 30 days if the host is not present. However, renting a room within your home while you're present is usually allowed.

San Francisco, California. San Francisco requires hosts to register with the city and obtain a business registration certificate. Additionally, hosts can only rent out their primary residence for a maximum of 90 days a year if they're not present, and there are various restrictions on short-term rentals in certain zones. Los Angeles, California. In Los Angeles, hosts must register with the city, and shortterm rentals of an entire unit are generally limited to 120 days per year when the host is not present. Hosts are also required to collect and remit occupancy taxes. New Orleans, Louisiana. New Orleans has a unique system that requires hosts to obtain both a short-term rental permit and a homestead exemption. There are

restrictions on the number of permits issued in certain areas to maintain the character of residential neighborhoods. Chicago, Illinois. Chicago hosts are required to obtain a short-term residential rental license. If the rental is for the entire unit, the host must also include specific information on the listing, such as the license number and the maximum number of guests allowed. Austin, Texas. In Austin, hosts must obtain a short-term rental license and display it in their listing. Short-term rentals are subject to certain occupancy limits and noise regulations. Nashville, Tennessee. Nashville imposes restrictions on non-owner-occupied short-term rentals, particularly in certain residential zones. Hosts are required to obtain a permit

www.buchalter.com

FALL 2023

STRATEGY

and adhere to regulations related to maximum occupancy, advertising, and safety. Miami Beach, Florida. Miami Beach has strict regulations on short-term rentals, including requirements for hosts to obtain a business license and adhere to zoning laws. Short-term rentals in certain areas are prohibited. It's important to note that these examples might have changed, and regulations can vary within cities themselves. Always refer to the most current and local regulations to ensure compliance with Airbnb laws in your specific area. Unfortunately, there is no all-inclusive resource for lenders to know state-to-state or local laws. However, a good internet search will usually return who the local governing authority is for the property.

From there, standard due diligence practices of checking the authority site for details or even calling them will usually provide intel on what the current regulations or requirements may be. As a lender, it’s also important to have a line of sight to what renters are saying about the properties. Going through the posted reviews can give you good insight if the property owner has some type of egregious renting practice that could impact the revenue of the property. Before jumping into short-term rentals, thoroughly researching and understanding their financial, legal, and operational aspects is essential to avoiding loss. Although lenders like Simon remain bullish on the short-term market, it isn’t without a measured approach. As with all things mortgage these days, it’s not for the faint of heart.

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TECHNOLOGY

Unlocking the Power of Data Analytics, Predictive Analytics, and AI These innovative technologies can drive the efficiency and growth of your private lending business.

ALEX KADDAH

s the private lending industry gains momentum, data analytics, predictive analytics, and artificial intelligence (AI) have become essential tools for originators, helping them to stay competitive and make informed decisions. Let’s explores the significance of data analytics, predictive analytics, and AI in the private lending space, especially in terms of how they can drive efficiency, assist with risk management, and contribute to the overall growth of your business. Having the correct tools in place allows decision makers within your organization to make smarter data-driven business decisions rather than guess in the dark.

THE RISE OF DATA ANALYTICS IN PRIVATE LENDING Data is the lifeblood of any financial institution; private lenders are no exception. Data analytics refers to the process of examining and interpreting large datasets to identify patterns, correlations, and trends that can guide business decisions. For originators in the private lending space, being able to use data analytics effectively can lead to numerous advantages. 46

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Risk Assessment and Credit Scoring. Private lenders often deal with borrowers who may not have a well-established credit history, making traditional credit scoring models less effective. Data analytics allows originators to assess the creditworthiness of potential borrowers more accurately. By incorporating unconventional data points, lenders can gain deeper insights into a borrower's financial behavior and capacity to repay. Market Analysis. Data analytics can help private lenders gain a comprehensive understanding of market trends and customer preferences. By analyzing industry data, lenders can segment their products based on trends they previously were not capitalizing on. Segmentation, for example, facilitates personalized loan offerings, leading to enhanced customer satisfaction and increased borrower retention. Improved Operational Efficiency. Data analytics streamlines internal processes and operational efficiency for originators. By identifying bottlenecks and optimizing workflows, lenders can minimize manual interventions and reduce processing times. Moreover, automated data analytics systems can help with real-time monitoring of loan performance, allowing lenders to take proactive measures to mitigate potential risks.

Having alert systems in place for potential default risks puts organizations a step ahead when it comes to putting the brakes on a potentially troubled loan before it’s too late. How do lenders achieve their analytical goals and needs? It comes down to each organization’s needs. Lenders can consider several options for working with analysts, ranging from internal hires to thirdparty vendors. When choosing analytics vendors, ask: How do you get the data? Do you sell personal data? Will having the data benefit my company today? Will there need to be any changes in how I leverage this new knowledge, given the current systems I have in place?

HARNESSING THE POWER OF PREDICTIVE ANALYTICS Although data analytics help originators understand past and present trends, predictive analytics takes things a step further by forecasting future outcomes based on historical data and statistical modeling. Integrating predictive analytics in the private

Predictive analytics can serve as an early warning system for originators. By continuously monitoring key indicators and variables, lenders can detect potential signs of distress among borrowers. Timely intervention can help prevent delinquencies and defaults, preserving the lender's financial stability. Dynamic Pricing Strategies. With predictive analytics, private lenders can implement dynamic pricing strategies that align with borrowers' risk profiles and market conditions. By setting appropriate interest rates based on predictive models, lenders can optimize profitability while remaining competitive in the lending market. Predictive modeling will allow lenders who were previously reactive (i.e., relying on word-of-mouth or making reactive deals as they see what competitors are doing) to be the proactive drivers of products in markets in which they previously were unable to gain traction.

lending space can yield several benefits that have not yet been seen in our industry. Anticipating Default Risks. Predictive analytics enables originators to identify potential default risks before they materialize. By analyzing historical loan performance and borrower data, lenders can build robust models to predict the likelihood of default for new loan applicants. This proactive approach helps lenders minimize losses and maintain a healthy loan portfolio. Building these models can be a challenge, which is why some technology service providers have developed analytics systems

that integrate with lenders' processes. When looking for a provider to fit your needs, be sure to ask the following: Does the provider employ or work with credentialed data scientists? Where is the data curated from (the platform's own compiled data, sourced from data providers, data scrubbed from various places on the internet, etc.)? What are the company’s model accuracies? (This should extend beyond model accuracy percentage to include several numbers that dig deeper.)

This technology “exists” in the market. It is currently in its infant stages, with companies using systems called loan sizers to price their loans. It can be a hassle and almost always needs either an internal hire who solely works on the loan sizer or a vendor who already has the loan sizer integrated with their system.

LEVERAGING AI IN PRIVATE LENDING Artificial intelligence has revolutionized numerous industries, and private lending is no exception. AI, in combination with data analytics and predictive modeling, offers originators a powerful toolkit to enhance decision-making processes and customer experiences. AI is being underutilized in the private lending space; we are at the tip of the iceberg in terms FALL 2023

TECHNOLOGY

“

... IT IS CRUCIAL TO ADDRESS CHALLENGES RELATED TO DATA PRIVACY, BIAS, AND TRANSPARENCY TO ENSURE ETHICAL AND RESPONSIBLE IMPLEMENTATION ..."

of what AI can truly do for the industry. The technology is available and exists today, but it is up to each lender to choose how to live with this next generation of technology. The following examples are offered in some capacity today, usually by vendors but also by any data analyst or data scientist who has recently completed a data-centric program. Natural Language Processing (NLP) for Due Diligence. AI-powered NLP algorithms can efficiently analyze vast amounts of unstructured data, such as legal documents and contracts. This capability streamlines the due diligence process, allowing lenders to assess potential risks and legal issues associated with loan agreements more quickly and accurately. Chatbots for Customer Support. AI-driven chatbots can significantly improve customer support for borrowers. These virtual assistants can answer frequently asked questions, guide borrowers through the loan application process, and provide personalized assistance, enhancing overall customer satisfaction. Automated Underwriting. AI-powered automated underwriting systems can analyze loan applications in real time, considering a multitude of factors and historical data. This automated process not only speeds up loan approvals but also minimizes the chances of biased decision-making.

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OVERCOMING CHALLENGES AND ETHICAL CONSIDERATIONS Although data analytics, predictive analytics, and AI offer immense potential for originators in the private lending space, they come with their own set of challenges and ethical considerations. Data Privacy and Security. Ensuring data privacy and security is paramount. Originators must comply with relevant data protection regulations and implement robust security measures to safeguard sensitive borrower information. Bias and Fair Lending. AI models are only as good as the data they are trained on, and bias in the data can lead to biased lending decisions. Originators must regularly audit and monitor their AI models to identify and rectify any biases that may creep into the decision-making process. Transparency and Explainability. AI-powered systems can sometimes provide predictions or decisions that are difficult to explain. It is essential for originators to maintain transparency in their AI processes and provide borrowers with clear explanations of how decisions are made. As private lending continues to flourish, data analytics, predictive analytics, and AI have become indispensable tools for originators seeking to remain competitive and efficient in the market. From risk assessment and credit scoring to dynamic

pricing and improved customer support, these technologies offer numerous benefits to private lenders. However, it is crucial to address challenges related to data privacy, bias, and transparency to ensure ethical and responsible implementation of AI-driven solutions in the private lending space. By striking the right balance, originators can harness the power of data and AI to foster sustainable growth and deliver exceptional services to borrowers.

ALEX KADDAH

Alex Kaddah is the lead data analyst

at Liquid Logics. Along with his duties as a data analyst at Liquid Logics, he is also a vice president of sales and

operations responsible for meeting

top-line growth and opening new market opportunities. Kaddah grew up around the industry, and after finishing his

undergraduate studies in finance, he

received his MBA with a concentration in data analytics and predictive modeling.

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FALL 2023

FUND MANAGEMENT

LENDER LIMELIGHT WITH TINA DELDONNA AND AMY DOSHI

READY TO GROW Tina DelDonna and Amy Doshi brought the right skills—at the right time—to scale Sharestates.

KATIE BEAN

he paths that led Tina DelDonna and Amy Doshi to their roles at Sharestates—DelDonna as CFO and Doshi as general counsel—were wildly different. But kismet brought them together at a time when their diverse skill sets were needed. Beyond that, the two women on Sharestates’ executive team have come to deeply appreciate each other. “I don’t think I would be as successful in my role if not for Tina,” Doshi said. “It’s nice to have such mutual admiration,” DelDonna agreed. Their respect for each other reflects the strong team bonds they’ve been able to instill at Sharestates, a national private lender based in Great Neck, New York, that focuses on nonowner-occupied residential and commercial properties.

”DESTINED TO BE IN REAL ESTATE” DelDonna knew from taking high school electives in business and finance that she wanted to continue that path as a career. She grew up in a Navy family that settled in Virginia Beach, and she attended state school James Madison University, where she was attracted to the strong business curriculum.

FALL 2023

LENDER LIMELIGHT WITH TINA DELDONNA AND AMY DOSHI

Sharestates' Executive Team: Michael Ramin, Director of Business Development; Amy Doshi, General Counsel; Richard Wisniewski, Chief Investment Officer; Allen Shayanfekr, Co-Founder and Chief Executive Officer; Christina (Tina) DelDonna, Chief Financial Officer; Radni Davoodi, Co-Founder and Principal; Raymond Y. Davoodi, Co-Founder and Principal

“My favorite class was actually real estate finance,” she said. “I was destined to be in real estate.” After college, DelDonna moved with her husband to Washington, D.C., and worked as a controller for a private equity company that provided loans. DelDonna’s career accelerated along with the company. Moving to the small business lending division, she built it to a $4 billion asset by 2008. She enjoyed growing a company and the teams she worked with, but “2008 came along and changed our world,” DelDonna said. 52

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The onset of the Great Recession meant lenders, like DelDonna's company, were in for a bumpy ride. Through it all, she learned how to maximize value even in turbulent times.

time for family and to reflect on her ca-

When the company sold in 2010, DelDonna stayed on as CEO of the small business lending subsidiary. And when that portfolio sold in 2018, DelDonna again stayed on, this time as COO to oversee the merger.

Throughout the pandemic, DelDonna

After a year in that role, DelDonna hit pause in 2019. Her daughter was a senior in high school, and she wanted to take

“I liked the company and

reer before deciding what to do next. “Then COVID came and gave me more time at home,” she said. continued to network with industry colleagues and former co-workers, which led to an introduction to the Sharestates leadership team in 2021. where they were planning to go with it,” DelDonna said.

THIS OR THAT TEXT OR CALL? Tina: Call Amy: Depends on the nature of the topic.

PEN OR PENCIL? Both: Pen

EGGNOG OR HOT CHOCOLATE? Both: Hot chocolate

COMEDY OR MYSTERY? Tina: Comedy Amy: Mystery—I watch and read a lot of true crime.

CROSSWORD OR SUDOKU? Both: Sudoku

MOUNTAIN OR BEACH? Both: Beach

NIGHT OWL OR EARLY BIRD? Tina: Early bird Amy: Night owl

READ OR PLAY A GAME? Tina: Play a game Amy: Read

PLAN AHEAD OR WING IT? Tina: I definitely prefer to plan ahead, but I can wing it too. Amy: Mixed. I have a higher risk tolerance for things that only affect me but lower if it affects someone else.

LENDER LIMELIGHT WITH TINA DELDONNA AND AMY DOSHI

GLOBAL EXPERIENCE Although she is from New York City and was raised in Queens, Doshi worked around the world before arriving at Sharestates. She had always wanted to be a pediatrician, but she earned a scholarship that changed her career path. Doshi was part of the Smart Start Program from JPMorgan Chase & Co., which provides full scholarships for ambitious New York students. The catch was she had to stay in New York for college. Because of the scholarship, she also decided to try business classes rather than pre-med. Doshi worked for JPMorgan’s London office during a stint studying abroad, and she loved her real estate law class, piquing her interest in both subjects. She graduated from college a year early and worked as a paralegal, which cemented her interest in the field. Doshi had also worked as a DJ for a South Asian radio station in New York. Although it was a fun experience, she knew it wasn’t going to be her life. She went to law school and continued her education in real estate there. “I knew that was something I wanted to be involved in,” she said. She started her career at a law firm doing economic development work, but she was also involved in economic development at a more personal level. Her parents, who emigrated from India, owned small businesses. Around the time she became a lawyer, they began investing in real estate, first by selling their businesses but retaining the buildings. Those circumstances led Doshi to first foray into private lending. She said in the Southeast Asian community, families 54

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When she got married, she moved to Bahrain with her husband and worked for a Middle Eastern investment bank that had offices in Singapore, London, and Atlanta. She helped restructure the U.S. branch through Chapter 11 bankruptcy and later moved to London, where she helped expand the company’s real estate and private equity portfolios. Doshi had her first child shortly before moving to London, and the pandemic hit shortly after her move there. Between Brexit and the pandemic, markets were stagnant, and she said she found herself wanting to come home to New York. “I was looking and Sharestates was looking,” she said. “In talking to the team here, it was a young team, a smart team, and on the cutting edge of fintech, to some extent.” In addition, it wasn’t far from her home in Long Island. Doshi joined the team in 2021, shortly before DelDonna did.

TWO PIECES OF THE PUZZLE Doshi explained that the secret sauce at Sharestates is that it’s not just an originator; it has a fintech platform that differentiates the company from others in the industry and will allow the company to scale—which is exactly what it wants to do. Plans include adding business lines and product types, geographic expansion, and “some type of growth opportunity” such as franchising, merging or an initial public offering at some point in the future, Doshi said.

that have liquidity will provide loans to new immigrants who want to start a business and don’t have credit yet. It involves all the same documents and practices that private lending firms use, she said.

TIN A DEL

FAVORITES

O AMY D

MOVIE OR T V SHOW? Tina: I like to laugh, and “Seinfeld” always makes me laugh. I can watch an episode of “Seinfeld” any time.” Amy: I don’t have one favorite TV show, but I’ve been into many South Asian web series. I like to watch Spanish and Hindi shows—it takes my mind off of life.

PL ACE TO TR AVEL? Tina: Southern Italy Amy: The Maldives

SEASON? Tina: Fall, because of Halloween. And the crisp air of fall going into winter energizes me. Amy: Summer. For me it’s the heat — I like hot weather. One of the reasons I left London was their summers are not summery enough for me. Summer or any hot weather is my favorite.

HOLIDAY MOVIE? Tina: Christmas is a big deal at our house. We have to watch “It’s A Wonderful Life” every year. Amy: For me it’s any Hallmark holiday rom-com.

WEEKEND AC TIVIT Y? Tina: We like to entertain, have friends over. Amy: Going out with my husband or going out with friends. We have friend date nights.

GUILT Y PLEASURE? Tina: Anything chocolate—really good chocolate Amy: Same! I have to put it on a high shelf so I don’t eat everything. I also enjoy going to car events and car shows.

LENDER LIMELIGHT WITH TINA DELDONNA AND AMY DOSHI

“We got here at the right time,” she said. “The founders had a vision to take the company from a family-owned business and try to scale.” In pursuit of those goals, both women tap their wide breadth of experiences and both wear many hats. In addition to legal and compliance matters, Doshi also oversees human resources for the time being. DelDonna oversees accounting and finance, working closely with the chief investment officer. “Tina and I both bring skills for different facets of this business,” Doshi said. “She has a keen eye for numbers and really for growth, from her expe-

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rience growing companies. She helps bring that mindset to the table for our team of founders that have grown this from scratch but don’t have corporate experience outside of this company.” Noting that she worked for her family’s business, Doshi said she brings the other facet. “Even in the Middle East,” she said, “it was a large multifamily office. Understanding how they make decisions and helping to guide families in the decisions you need to make legally to grow with checks and balances. I can bring that to the table. We’re two pieces of the puzzle in being able to grow the company.”

DelDonna said one of her mandates when she joined Sharestates was to implement structure to help the company scale. Part of that has been augmenting the team with industry veterans, some of whom she has worked with in the past. “The team has been fantastic about allowing us to bring in the right resources,” she said. “We’ve come a long way in the past two years since we arrived.”

FANTASTIC GROUP OF WOMEN Bringing in the right people for the right roles, especially for members of her immediate team, has been a “tremendous

“

opportunity,” DelDonna said. She noted that hiring people with different experience and skills allows varied perspectives to be shared, and the growth trajectory at Sharestates allows ample opportunities for employees to grow in their roles.

One of DelDonna’s secrets for finding the right fit in a new employee is taking time to get to know them during the interview process and hiring for personality just as much as for skill. DelDonna and Doshi said among the hires they’ve made, they’ve been able to assemble a “fantastic group of women” at all levels of the company “who are supportive of each other.”

WE’RE TWO PIECES OF THE PUZZLE IN BEING ABLE TO GROW THE COMPANY.” –AMY DOSHI

DelDonna is mindful of the importance of mentorship for the women on her team and helping to show them a path they can aspire to. “It’s our responsibility as leaders to look out for those who are younger,” she said. “Mentorship was really important for me in my career. I had a fantastic mentor, and I still think about, ‘what would she do?’” Having women in decision-making roles makes Sharestates “different and very lucky,” Doshi said, because it creates a well-rounded mix of approaches. “That benefits us more than others who have less diversity on their team.”

KATIE BEAN

Katie Bean is a former newspaper and magazine editor who loves telling

the stories of businesses and great

leaders. She is based in Kansas City.

FALL 2023

CASE STUDY

Flop to Flip Cogo Capital helps give a nuisance home in Spokane, Washington, a new start.

THE SITUATION For more than a decade, Cogo Capital, a private money lender specializing in financing distressed, foreclosed, and abandoned homes, has been committed to working with investors who help their communities. Many of these acquisitions originate from a local government’s need to seek help from local investors, who often buy these homes when the city’s hands are tied. So, when a seasoned borrower brought a deal to Cogo that involved turning a nuisance home in Spokane, Washington, into one that could be flipped for a profit, it was an easy decision for Cogo to say “yes.” This particular 1,776-square-foot ranch home had fallen far beyond what most people would call disrepair. The original owner had died, leaving her adult son living there. As his mental health issues and drug use worsened, police were called to the house more than 50 times, often for disturbances and welfare checks.

THE SOLUTION Eventually, the owner agreed to sell the house to the borrower. In addition to funding the deal, Cogo Capital also paid the city about $5,000 to cover outstanding fines and abatement costs on the property. The borrower’s construction crew gutted the house, finished the basement, and 58

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LOAN DETAILS Lender // Cogo Capital Architecture Style // Ranch Square Footage // 1,776 Property Location // Spokane, WA Year Built // 1953 Original Loan Amount // $100,000 Length of Loan // 12 months Anticipated Rehab Costs // $10,000 LTV to ARV // 74% Leverage toward Purchase // 90% Interest Rate // 9.99% Credit Score Considered? // Yes, to determine cost of capital Borrower Experience Level // 5+ deals completed

added a new bathroom, gas heating, and egress windows to give the house a total of four bedrooms. Once the house went on the market, there was a full-price offer within a few days. This house is the fourth city “nuisance” house Cogo Capital has helped finance for this borrower. Neighbors say their property values have increased now that the home has been given new life and they can sell their homes with no concern if they choose to. This case study highlights the extent to which a community can benefit when all parties involved in a deal have a larger goal. In addition to the monetary profit that can be made on a deal, communities can be elevated when homes and neighborhoods are restored. FALL 2023

OPERATIONS

Increasing Bottom-Line Revenue with Originations Consider these simple steps to scale your business.

ALEX BURIAK

f you're yearning to boost your bottom-line revenue, the secret sauce might just be hidden in the mystical realm of "originations." Yes, I said it, the mystical realm—where loan officers tread and borrowers dance through paperwork like it's a field of molasses. But fear not, you can transform your origination department into a legendary money-making machine.

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Let’s face it, when most companies look at the origination department, they see loan officers, assistants, and processors—people who can finish a step-by-step process and close loans. But what if you could get more loans in the door, streamline your process, and change your loan originators from mindless protocol drones into relationship managers with your borrowers?

GETTING MORE LOANS (BECAUSE MONEY DOESN'T GROW ON TREES, OR DOES IT?) Every lending operation knows there

are three major revenue streams in the

business: (1) originating new loans and capturing points and fees, (2) receiving monthly interest payments, and (3)

collecting any points and fees at payoff.

There is only one way to increase your bottom-line, and that is getting more loans through the door. Sounds good and easy, right? You might be surprised to learn that it really isn’t that hard. But some of the simplest things we can do can be the hardest thing to achieve. You know what you must do, but you need a team that has the fortitude to execute. As a department manager, you must be able to instill excitement and motivation for your team to execute. The actual tasks that need to be executed aren’t the issue; it’s the motivation and the resolve to execute. Here’s what you need to do: 1

H ave your loan officers become the gatekeeper of information. They must: a. Know how to structure your loan. b. Know how to solve problems to make loan work. c. Know how to visually show the borrower on a video call and social media videos. Keep in mind they don’t need to know all the answers; they just need to know where to find them.

2 H ave your loan team provide content

that builds relationships. The content can be used on your website, at networking events, and on social media. The content should demonstrate and reinforce how easy it is to get a loan from your company using real examples. 3 B e the company that knows who can get

a deal done if your team can’t. 4 P ost daily on all social media channels. 5 U se effective marketing strategies that

don’t just involve facts but also trigger emotions. Borrowers are consumers, and consumers make initial decisions with emotion and then logic.

OPERATIONS

SIMPLIFYING THE LOAN APPROVAL DANCE (LESS CHA-CHA, MORE QUICKSTEP)

your borrower wonder how the speed of

You got the lead in the door, now don't let them ghost you. Make the process as simple as getting dressed in the morning. One thing that stagnates growth is finding the lead goes nowhere once you have captured it. The hardest part was getting the borrower in the door but keeping them is your next hurdle.

If you get a resounding yes, you're golden.

Your initial application process should be easy. Borrowers believe they are busier than a caffeinated squirrel, so be snappy. Loan officers must give quick answers— like a magic 8-ball, minus the cryptic responses. Within 24 hours, your staff should be able to send quotes that make

you everything you need to move forward.

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your responsiveness is even possible. If your borrower hesitates or doesn’t provide what you need for next steps, you have a problem to solve. Imagine someone asking for money and not closing their hand once it’s there. Seems weird, right? When the borrower is ready to move forward, say: “That’s fantastic. I am going to send

THE DANCE OF THE DOCUMENTS Gathering documents should be a breeze, not a hurricane. Make collecting them as smooth as a buttered dance floor: Don't send a billion emails with attachments that need printing, signing, scanning, and the summoning of spirits. Keep things simple. First, revamp your paperwork so it's clear and foolproof:

Can I have this by 5 p.m. today, or is 9 a.m.

Create electronically fillable documents.

tomorrow morning better for you?”

Make your input fields “required” so

Remember, in the lending Olympics, speed

you never receive empty responses.

is the Usain Bolt of success. Don't get left in

Combine your documents into one PDF

the dust with slow origination operations.

so everything is completed at once.

Send the paperwork with whatever digital signing software you have.

Then, follow up until you have everything you need. Initiate a phone call, text, email, and even a carrier pigeon, if necessary. Just make sure they see it, hear it—and potentially dream about it. Make sure your team babysits borrowers through signing, assisting just like personal trainers, but with less sweating and more e-signatures.

THE ART OF THE EVALUATION (MORE ART, FEWER STICK FIGURES) Pulling comps and appraisals isn't just for nerds with calculators; it's for cool people who want their investments to thrive.

Remember, appraisers are the divas of value–you can ask 40 and get 40 different numbers. Prepare your borrowers for this appraisal roller coaster. Remember, it’s not about “who’s right,” but “what’s possible.” Just like a superhero team-up, collaborate with borrowers to find solutions. You're the Batman to their property's Gotham. The point of the appraisal is to give a third-party perspective of what is possible in the consumer market with an appraisal company. This gives the borrower data so they calculate how much risk they are willing to take on, because the value that a project’s finishes add to the property is largely speculative. Set expectations: “I am not in control of what they project as value. When

that appraisal comes back, let’s look at it. If any problems, let’s find a solution as a team. Does that sound fair? We just want to take care of you.” Since the evaluation process can be so speculative, it’s important that your origination team refines the relationship between your team and the support it offers.

CONDITIONS ARE CONDITIONALLY CONDITIONAL WHEN THE CONDITION ARISES (SAY THAT FAST THREE TIMES) Conditions shouldn't be scarier than a haunted house; they should be more like a well-organized garage sale. Keep them manageable:

FALL 2023

“ OPERATIONS

SCALING YOUR BUSINESS IS LIKE CLIMBING A MOUNTAIN. YOU DON'T START WITH JETPACKS BUT RATHER WITH SOLID SHOES AND A SAFETY ROPE."

T urn those pesky conditions

into a checklist, a bit like a scavenger hunt for paperwork.

G ive borrowers a heads-up. Send the list of potential conditions and say: "Hey, be ready. We're Sherlocking our way through this!" C ommunication is key. Borrowers should be more in-the-know than a spy on a secret mission. Let them know early about any and all conditions that may pop up. Reinforce that you and your origination team are behind them every step of the way to get things done, even if conditions arise.

PRE-CLOSE CALL (THE WARM-UP BEFORE THE BIG GAME) Before the big "let's sign our lives away" moment, have a pre-close call. It's like rehearsing lines for a play, but with fewer costumes. Your loan officer is the narrator, explaining the plot (terms of the loan), the climax (when you pay), and the sequel (future draws). This call isn't just a ritual; it's akin to writing down your battle plan before entering the dragon’s lair. And recording the call is like having a magical memory spell—it eliminates "he said, she said" nonsense.

Celebrate the closing like it's someone's birthday. Send video texts and emails filled with confetti and virtual cake emojis. This is a really exciting time for your borrower, so make them feel special. After closing, keep the conversation going. Your borrowers need attention like a plant needs water. Every 7, 14, 21, or 30 days, drip simple emails like “Just seeing how the project is going.” Repeat business is like a boomerang; it comes back if you throw it right. Keep those lines of communication open and the business will keep rolling in. Your marketing managers will thank you—you can successfully place more marketing dollars into untapped markets. Frequent communication also allows the loan officer to control any problems the borrower may have very quickly. You must consider: This borrower just spends a few weeks or more with this origination team. They have no idea who the servicing side is and do not have that report. Everything is fine and status quo when things run smoothly, but real relationships and long-lasting business are made by solving problems and solving them quickly.

THE LESSONS WE LEARNED (NOW WITH A BOWTIE AND FANCY HAT)

FUNDING ISN’T THE END—IT'S THE BEGINNING

Scaling your business is like climbing a mountain. You don't start with jetpacks but rather with solid shoes and a safety rope.

Funding isn't a full stop. Instead it's a comma in the epic novel of your borrower's relationship with your business.

Relationships and daily communication are the bread and butter of business sandwiches—without them, you've got a

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sad salad. Remember, you can't predict the future, but you can prepare for it—just like packing an umbrella on a sunny day. Obtain anything you think you need on your growth journey before you need it. If you wait too long, you will run into some serious bottlenecks. So, there you have it: a journey through the realm of originations. Your guideposts are creating relationships, communicating like a champ, and navigating the labyrinth of lending like a seasoned originator. Now that you have the knowledge, go forth and grow your team.

ALEX BURIAK

Alex Buriak, senior vice president of Jet Lending, has a demonstrated history

of working in the investment and real estate industry. After graduating from the University of Pittsburgh

and National University of Health

Sciences, he spent three years running multiple clinics. His search for a better

avenue to raise capital to start another practice led him to real estate.

Alex has helped expand real estate

companies to other markets and states and has solidified and modernized

operations to achieve efficiency and

ease of business. He regularly speaks on

panels, addressing lending, business, and underwriting operations and strategies. Buriak has bachelor's degrees in

emergency medicine and natural

sciences (focus in medical sciences)

and a doctorate degree in chiropractic, rehabilitation, and natural medicine.

FALL 2023

OPERATIONS

What to Do When Borrowers Fail to Comply with Insurance Requirements Force-placed insurance is a common solution, but there’s a better approach.

ASHWIN AGARWAL

o secure a loan, borrowers must have insurance to cover the property. If a borrower does not obtain insurance, lets their insurance lapse, or their coverage is terminated, the lender usually has the right to get insurance to cover the property. This insurance is called “force-placed insurance” and protects the lender, although the borrower will be required to pay for it. Force-placed coverage not only carries a higher cost compared to standard policies but also is burdened with an abundance of documentation, time-intensive processes, and unnecessary intricacies. Force-placed insurance is not the sole recourse available to lenders dealing with borrowers who aren’t in compliance with their loan's insurance guidelines. In fact, it should be considered a final resort after exhausting all other mitigation approaches. Even so, in some cases, resorting to force-placed insurance may seem to be the only option, albeit one that is marked by cumbersome expense and is time-intensive. The discourse surrounding force-placed coverage is contentious. Critics of forceplacement posit that because the purchaser of the insurance (the lender) and the party responsible for its payment (the borrower) are distinct entities, the buyer lacks incentive

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to negotiate for a better premium price. Consequently, this misalignment results in a higher premium price than is necessary for the level of coverage. This discord frequently culminates in challenging dialogues between lenders and borrowers. This issue has attracted substantial criticism, prompting state governments, most notably in Florida and Missouri, to take action in an effort to "enhance fairness" within the process. One such measure, House Bill 793, strives to establish a legal structure for lender-placed coverage in Florida. Likewise, recent revisions to insurance regulations in Missouri establish clear guidelines dictating the circumstances and methods for implementing force-placed coverage. Does a viable solution exist that allows lenders to avoid resorting to force-place insurance altogether? Yes, the solution lies in technology. But before we can understand the benefits of that technology, let’s consider why borrowers become noncompliant with insurance requirements to begin with.

REASONS FOR NONCOMPLIANCE? Insurance experts have varying perspectives about the underlying reasons behind why borrower’s coverage becomes noncompliant. Most agree, however, that

it’s attributed to poor administration surrounding the renewal of existing coverage or cost-related factors stemming from fluctuations in interest rates or overall escalations within the insurance market. A subset of borrowers opts to prematurely terminate insurance policies to trim expenses. There are also borrowers who fail to secure coverage that adequately aligns with the lender's pre-determined insurance requirements. The difference in time frames between insurance policies (typically spanning a year) and loan terms (which can extend up to 30 years) exacerbates the challenge of aligning lender prerequisites with insurance coverage. This is particularly relevant because a lender's insurance requirements might undergo changes at any point during the loan tenure. To summarize, borrowers generally become noncompliant for one or more of the following reasons: 1. Lapse in making annual premium payments 2. Policy becoming dormant or reaching its expiration 3. Termination of existing policies 4. Insufficient coverage due to insurers changing policy midterm

5. Challenges in securing underwriting for high-risk properties (i.e., those in disaster-prone areas or high-crime neighborhoods)

resources, resulting in additional costs for lenders that can detrimentally impact existing lender-client relationships.

6. Inadequate coverage within present property insurance policies

WHEN CAN LENDERS FORCE-PLACE?

The process of force-placing insurance creates extensive amounts of back-and-forth communication and paperwork between lenders and borrowers. It is estimated that as much as 10%-15% of all paperwork generated by insurance companies is for lender force-placement issues. Although it is possible to charge borrowers for force-placed coverage, the cost of tracking each borrower’s insurance compliance status requires extensive

The Real Estate Settlement Procedures Act of 1974 sets out the process for when and how lenders can force-place coverage. Foremost, the loan servicer must establish that the borrower has failed to maintain compliant insurance coverage for the life of the loan. Upon establishing that the borrower has failed to maintain proper insurance coverage, the lender must send a notice indicating that if coverage remains noncompliant after 45 days,

the lender will force-place their insurance. This notice must contain the: 1. Notice date. 2. Servicer's and borrower's names and addresses.

3. Property identification by physical address.

4. Request for hazard

insurance information.

5. Notification of expiring, expired, or insufficient hazard insurance.

6. Servicer's inability to verify coverage. 7. Indication of necessary hazard insurance.

FALL 2023

“ OPERATIONS

IT IS ESTIMATED THAT AS MUCH AS 10%-15% OF ALL PAPERWORK GENERATED BY INSURANCE COMPANIES IS FOR LENDER FORCE-PLACEMENT ISSUES."

8. Intention of servicer-initiated insurance purchase. 9. Call for prompt submission of information. 10. Description of required information and submission methods. 11. Note about cost and coverage differences compared to borrower-purchased insurance. 12. Servicer's contact number.

If relevant, it should also include advice to review additional information within the same communication. The reminder notices must be delivered or mailed at least 15 days before imposing a premium charge or fee related to forceplaced insurance. The reminder notice must not be sent until 30 days after delivering the written notice. For cases where hazard insurance information is not received despite the

initial notice, the reminder notice should include the date, a statement that it's the final notice, necessary information, and the cost of force-placed insurance. If you lack evidence of continuous coverage, the notice should contain the date, required information, a statement acknowledging receipt of provided insurance information, a request for missing information, and details about the borrower's responsibility for the servicer-purchased insurance. You are likely beginning to see why force place insurance can be laborious and expensive.

AN ALTERNATIVE? Establishing a strong relationship with your borrowers that consists of clear

insure smarter. With monthly billing and no minimum-earned premiums, discover insurance solutions designed for real estate investors. Our program can insure a residential portfolio of any size with one to 20-unit rental, renovation, or vacant properties on one monthly schedule. Request a proposal today.

nreig.com/AAPL 888.741.8454

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communication, mutual trust, and personalized support is ultimately the best way to reduce borrower noncompliance. Here are some strategies you can integrate in your day-to-day operations: Verify at closing that the contact information for the broker and borrower is accurate. Upon loan approval, ensure that all approved policy and insurance documentation is stored. Prior to renewal, ensure that all policies are compliant with both federal requirements (if any) and your internal guidelines.

Guarantee accurate and timely reminders for tracking policy expirations, cancellations, and non-renewals, leaving no room for errors. Communicate to your borrowers, in advance, about the substantial cost and excessive fees that come with force-placement. Now, envision having to manually undertake all these activities using dedicated hourlybased teams, which would inevitably add an extra layer of administrative burden to your

operations. Clearly, this approach is far from cost-effective. The true solution to avoiding the hassle can be found in technology. Contemporary solutions available in the market have been purposefully designed to assist lenders in refining their process management. These platforms empower lenders to stay ahead of potential issues by streamlining document management, administrative tasks, and borrower communication, thereby enhancing overall efficiency.

upon the receipt of various notice types, and compliance checklists tailored to your specific insurance requirements.

ASHWIN AGARWAL

Groundbreaking technology enables streamlined workflows for insurance status tracking, customization of follow-up cadence, and automation of compliance checklists. Existing systems that rely on manual intervention are more error-prone and generally more expensive than tech-enabled solutions.

Ashwin Agarwal is the CEO and

If you are constantly dealing with borrowers being noncompliant, consider the benefits of seeking tech-enabled insurance compliance solutions. These solutions include sending automated follow-ups to brokers to resolve compliance issues, a non-compliance tracker that is triggered

and Augustus Specialty. He also

co-founder of Advocate Technologies, an insurance compliance automation platform for loan servicers. Before

founding Advocate in 2020, Agarwal

was the lead insurance and technology investor at a multibillion dollar private equity fund and sat on the boards of Convene, ITMA, Risk Settlements,

worked in the investment banking and

compliance groups at Goldman Sachs. To learn more about modern

automation solutions for loan

origination and servicing, contact

Agarwal at ashwin@tryadvocate.com

FALL 2023

OPERATIONS

Navigating Loan Extensions: Your Project is Incomplete, Now What? Communication and advanced planning between both borrower and lender are critical to the financial success of any rehab project.

EVAN BRODY

very rehabber aims to complete a project on time and within budget. Success can be measured in many ways, but it ultimately comes down to the old saying: Time is money. This could not be more true when it comes to rehab loans. Rehab lenders provide short-term financing, with most loan terms being 12 months or fewer. The key for the borrower is to

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complete the project within those terms to avoid accruing additional interest and costly extension fees.

COMMUNICATE, COMMUNICATE, COMMUNICATE

and has closed on the loan. Now what? Communication with both borrower and lender does not stop when the loan closes, nor should it be a one-way street. It is both the borrower’s and the lender’s responsibility to maintain constant communication throughout the life of a loan.

The borrower has identified a new project, set a detailed budget with a clear timeline,

The lender must review every draw and only release funds on budget line items

the onset of the loan changed? The lender should assess several factors that can impact a project. Has the borrower’s employment, income, credit, or liquidity changed? Is the borrower currently working on other projects? Remind the borrower that loan extensions can and will be costly.

WHAT CAN GO WRONG At the beginning of a project, the borrower will have a good sense of the work that needs to be completed, how much it will cost, and how long the renovations will take. A thorough and detailed inspection by a trusted third party will yield a budget that is both complete and realistic. This is critical to any project’s success. However, like anything in life, unforeseen circumstances can and often will delay a project’s completion and impact overall profitability. Some common issues that can impact a project include: that are 100% complete and done in a satisfactory manner. The job of the lender and loan servicer is more than just collecting interest payments on time. The lender should know the borrower, understand the project, and monitor draw progress. If a budget is designed with phases, the borrower must ensure each phase is being completed in the specified timeframe, with as few deviations as possible. The lender should be looking for any red flags both early and often. For example, if a borrower takes no draws, it should automatically trigger a response. The lender must contact the borrower and determine the reason why. Are they funding the work out-of-pocket and plan to take all draw funds at the end? Have they run into permit issues that have impacted the start of work? Are they having issues with their general contractor or finding labor in general? Are there personal issues that will

impact the borrower’s ability to pay their interest and complete the project? Try to understand the borrower on a personal level without being too personal. The lender and borrower must understand that communication is vital in any relationship and is the only clear way for shared success. Once a project is underway, the lender should be updating the borrower on key maturity dates as well as reminding them of the original terms of the mortgage note. When the note is coming close to maturity, the lender should be making contact at 90, 60, and 30 days before maturity. A simple email, letter, or phone call usually does the trick. The lender should ask the borrower about the progress of the project and whether they think they will be able to complete it on time. Has the original exit strategy changed? If so, what does the new one (if any) look like? Have the circumstances at

Permits/Inspections. Borrowers thought they had all permits in place, but now additional permits/inspections need to be performed. Borrowers are often at the mercy of cities and municipalities and can face heavy delays. Poorly Executed Rehab Budgets. Initial budgets are light or highly unrealistic, leaving borrowers scrambling for additional funds to complete the project. Such a development puts both borrower and lender in jeopardy. Unforeseen Construction Circumstances. No budget is perfect, and construction and rehabs often encounter issues that were not planned for in the original budget. Structural issues, septic issues, and a host of other items can often delay and sabotage the success of a project. Unforeseen Personal Issues. Life happens. Unfortunately, it can impact a rehab projFALL 2023

OPERATIONS

ect. A borrower, family member, or close friend becomes ill. A spat occurs between business partners. A borrower loses a major source of income. These are all items that can delay the completion of a rehab project. Not Knowing Your Market. The borrower overimproved the property, spending too much money, which leads to listing the property at an unrealistic price. You may have the nicest house on the block, but that does not mean it will sell at a premium. The property will sit for sale for an extended period of time, incurring additional carrying costs. Change in Real Estate Market. The project is complete and ready for sale or rent, but changing market conditions make the exit strategy difficult or impossible.

THE EXTENSION AGREEMENT The borrower and lender have been in constant communication during the life of the project and the loan is due to mature. Now what? It’s time to discuss loan extension options. No matter the circumstance, once a loan has matured, it must be extended, which necessitates a signed loan modification. This is a legal document that alters the original note. Often, the reason for extension is clear, and the borrower simply needs extra time to complete the project and exit. The property is currently listed with active showings (or under contract) and should sell shortly. Construction took longer

than expected, but completion is near, and the project is moving along. These circumstances may require a simple threeto six-month extension, which can be negotiated on a month-by-month basis or for an upfront fee for a set period. If the borrower and lender have communicated well, an extension can often be foreseen and pre-negotiated. This best-case scenario allows for ample planning, providing a comfort level for the lender. Ensure that all guarantors on the loan are aware of the situation. An extension agreement must be signed by all parties to the loan, including guarantors. A lender must remind all guarantors they are financially responsible. More important, the borrower must continue

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with the rehab to complete and pay off the loan within the extended timeframe. Both borrower and lender want to avoid a multiple extension situation at all costs. Not only do these additional fees eat into project profitability, but the lender will also incur significant costs of carrying the loan, especially in a high cost of capital environment. In some circumstances, a lender may consider foregoing all extensions on a project for many reasons. Lack of experience or mismanagement has left the borrower with little to no remaining budget, with a significant amount of work remaining to finish the project. The original budget may have grossly underestimated the rehab needed and the borrower will not

be able to complete the project, even with additional time. The original scope of the project changed significantly due to unforeseen construction issues. Or perhaps the loan has been outstanding much too long with multiple extensions, and the lender will not, or cannot, carry the loan in an economically feasible manner.

often difficult to inform a borrower that a loan will not be extended. Still, with careful, consistent communication, a mutually beneficial alternative is often within reach.

The lender must carefully analyze the current deal structure and communicate, educate, and guide the borrower through alternative exit strategies. If the project is complete, can it be refinanced? Is there enough equity in the project to consider additional short-term bridge financing? Has the borrower evaluated current market conditions and judiciously priced the property to sell? As the lender, it is

The lender has given an extension, or multiple extensions, and now the project is at a crossroads. The borrower’s original exit strategy has failed, or the project is still incomplete. The lender must do everything they can to educate the borrower and help create a new exit strategy to avoid as much financial pain as possible and, more important, a default, which can ultimately lead to a foreclosure.

PREVENTING A DEFAULT

FALL 2023

OPERATIONS

“

often does not mean the borrower is a “bad” rehabber.

YOUR GOAL IS TO ENSURE THE BORROWER IS EDUCATED, SUPPORTED, AND ABLE TO COMPLETE THE PROJECT IN A MANNER THAT IS SUCCESSFUL AND PROFITABLE."

What can a lender do to help a borrower mitigate losses? Some options may include: Cut Losses. Often the best option is to know when to cut their losses and move on. The lender can educate the borrower on their options, which often include selling the property as-is (often to another investor) and exiting the project. Even the most experienced rehabber can encounter problems. Like any endeavor in life, every setback should be viewed as a learning experience. Consider Rental and Refinance Options Until Things Improve. Market conditions may have made it difficult to sell a property. The lender can advise the borrower on several refinance options, which include refinance and debt-service coverage ratio loans (DSCR). Each situation is unique and depends on the current state of the project. Is it complete, or is it rented? Does the borrower have good enough credit and liquidity to qualify? It is the lender’s duty to help guide and navigate the borrower in these situations. Wholesale Options. The borrower may be able to sell to a wholesaler/investor that specializes in acquiring properties in these situations. The lender can educate the borrower on this process, but not necessarily refer them. 74

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Assist with Contractor Issues. If a borrower has been adversely affected by a less than stellar contractor, the lender can reach into their vast network and refer (without direct endorsement) to a reputable contractor who can move the project over the finish line. The difference between success and less favorable outcomes is often as simple as working with someone who is experienced, trustworthy, and willing to help. New Rehab Loan. The borrower’s original budget was inadequate, or unforeseen construction circumstances have vastly increased the funds needed to complete the project. If the borrower is qualified and there is sufficient equity in the property, it often makes sense for the lender to write a new loan with additional rehab funds that allow the project to be completed. This loan must be carefully underwritten to avoid another situation in which the project cannot be completed.

COLLABORATION FOR SUCCESS The relationship between the borrower and the lender in any rehab project is critical for success. For various reasons, a loan extension may become necessary during any project. These circumstances for a loan extension can be many, but it

The key to success is managing the timeline and completing and exiting the rehab in the timeframe given. As a lender, your goal is to ensure the borrower is educated, supported, and able to complete the project in a manner that is successful and profitable. Providing support and consistent communication can help the borrower maintain a proper exit strategy, even when things do not go as planned. The goal is to create customers for life, and this symbiotic relationship between borrower and lender is crucial for continued mutual success.

EVAN BRODY

Evan Brody is the controller at Rehab Financial Group. Before joining RFG,

he held several senior accounting and finance positions in the real estate

and lending industries. He also spent a significant amount of time with a large family office in New York .

Brody is responsible for all servicing and accounting functions, including tax and audit, loan servicing and draw management, budgeting, reporting, forecasting, cash

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OPERATIONS

What’s the Story with Ground-Up Lending Now? In the current high-interest rate market, there’s little room for deal error, so keep the Three Pillars in mind when deciding whether to fund a project.

KEN FRISBIE

ever let the truth get in the way of a good story.” Those are the words of great American writer Mark Twain. And his meaning is well taken. What do friends do when they are out to dinner, on a long road trip, or sitting by a roaring campfire? They tell tales. Some are actually based in fact, and others are, well, rather tall. But the listeners don’t care.

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They hang on every word because they

Underwriters are your first line of defense

want to be entertained. After all, who

against deal failure, so cold facts win the

doesn’t love a good story? Loan underwriters, that’s who. If a deal goes belly up, will company stakeholders be encouraged by a hopeful anecdote that

day in their world. The same is true for servicing and asset management, but by that point in the deal, a loan’s course is already charted. This puts a lot of pres-

made its way to the investment commit-

sure on the underwriting discipline to be

tee? Absolutely not.

nearly flawless.

THREE PILLARS

Everything else is just ambient noise.

With ground-up construction (GUC), there is even less room for error than your typical bridge loan for a transition property going through a rough patch toward stabilization. A soon-to-be rental property, apartment building, or mixed-use development is an exciting concept, but it’s still just a concept. It has no existing rent roll to fall back on, no established client base, and no quality craftsmanship already drawing the target demographic. It is especially critical, therefore, that the lender on any blank-canvas new build has institutionalized fact-based lending. From the first point of contact with a prospective borrower, your originators and underwriters should have blinders on for three pillars of any successful GUC loan:

Collateral. It is easy for a loan originator, in particular, to be caught up in how the opportunity with the subject property came to be. When you hear “you’re not gonna believe this,” it’s time to put your guard up. Maybe the subject was an eyesore for years and was finally rezoned once the municipalities cried “Uncle.” Perhaps it was once owned by the granddaughter of a famous industrialist. These days, it might even be rumored to have a surf park developer kicking the tires up the street.

1. Good collateral 2. A clear takeout 3. A worthy sponsor

All these stories are very interesting, but they are not germane to the project at hand. What is the collateral, by itself, right now? Is it located at the corner of Main and Main, with established traffic patterns, in a primary market? Or, is it just outside the loop, in a secondary market?

If you end up with it, what are you really ending up with? Assuming the location is good, what was used to determine “as-is” and “as-complete” values? Was it an independent appraiser (hopefully) or a drive-by and some Zillow comps (hopefully not)? Is a feasibility study warranted? If so, was it secured by a reputable firm? In the event of foreclosure, can the subject be easily repurposed? A lender cannot be too careful in determining what the collateral is today, what it’s truly worth, and how flexible its use is. Takeout. Because the loan exit strategy is the last thing to happen chronologically, a not-so-seasoned lender might let if fall to the bottom of a prequalifying checklist. It is the second pillar mentioned in this short list of three, but it could just as well be first. “Bridge lending,” by definition, has a destination in mind. The loan will take the project from point A to point B, so consider the endgame as early in the process as possible. Is the buyer under contract for the finished product, with earnest money in escrow? How many backup buyers are queued up? Or is it being built on spec (gutsy!)? Admittedly, sometimes the loan exit plan changes for valid reasons (e.g., buyer default, availability of materials, a pandemic). As long as there is a clear plan to begin with, adjustments can be made for reasons outside your control. If you’re taking your family on vacation, you can adjust the route or mode of travel, but you probably wouldn’t pack everybody up and hit the road with no idea where you’re going, right? A lender must know the destination to which their loan is taking all the parties involved. You should update and maintain the certainty of takeout just like you guard against prohibitive LTV—with your life. FALL 2023

OPERATIONS

Sponsor. The sponsor is the driving force that will take the collateral (Pillar 1) to the “takeout Promised Land” (Pillar 2). This individual, or team of co-sponsors, will make or break any deal. How much equity do they have invested in the project? Are they trying to claw most of it back with their first couple of draws, or is it truly committed? How many projects of comparable size have they successfully exited? Is their general contractor vested in the project, or are they a third party? What does the sponsor’s REO portfolio look like? It might sound crazy, but there can actually be a little wiggle room with the sponsor pillar, as long as collateral and takeout are rock-solid. For example, if they’ve done several smaller GUC projects and this is their first time managing multiple parcels, that’s not a huge leap. If collateral and takeout pass muster, this could be a great opportunity. Even if the sponsor has failed at one time or another, they can still buy your confidence by showing what they learned and how it changed the way they do things. If they don’t come from a long construction background, that’s not a deal-killer as long as they’ve mobilized a strong team of experts and garnered the municipal support necessary to see the project through.

OTHER GUC FACTORS There are several operational factors unique to ground-up deals that are worth mentioning, as long as the Three Pillars are maintained: Construction Plans and Budget. If you don’t have a robust department for this already, have a third-party consultant verify the architectural plans and corresponding budget to ensure everything has been addressed. 78

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Draw Maintenance. After plans and budget are verified, agree on draw frequency and what the process looks like for the sponsor. Some firms manage this inhouse, but several reputable third-party platforms exist as well. Bonds. The bigger the project, the more important completion and performance bonds are to have in place. You can’t have too many assurances and redundancies. Insurance. Depending on the geography and the nature of construction, insurance should include certain coverages that should not be overlooked. Pay close attention to the declarations and exclusions.

STANDARDIZE FOR SUCCESS So, how do you institutionalize the Three Pillars to prevent being swayed by just another compelling story? To succeed over time, this troika should be prominent throughout the organization. Originators, for example, can be kept between the lines by hard-coding requirements in your CRM and by eliminating certain property types from being options at all. If you force adequate prequalifying by your front-line sales team, it safeguards against poor decisions and also aligns them with underwriting. As for your underwriters, they must be able to recite the boilerplate requirements in their sleep. Even the owners should sign a blood oath to set the right example and not force exceptions into the pipeline simply because they played golf with the owner of a “diamond in the rough.” At every chance, celebrate loan redemptions with the team and draw attention to the standards that were maintained prior to funding. The best teachable moments come with loans that required a lot of

discussion about a shortcut that was denied. For example: “The originator really wanted to fund this loan, but we held off until the takeout plan was defined in greater detail. Because we held to a high standard, everybody has another skin on the wall and funds to redeploy.” In the current financial market, where interest rates have risen to forgotten heights, developments still need financing. Marginal projects may have moved to the backburner, but market by market, it is business as usual for builders and developers who are sitting on hallmark projects. With institutional sources taking a hiatus, this is the perfect scenario for well-capitalized private lenders. Every business has a story to tell. Stick to the fundamentals, and your story will be spectacular.

KEN FRISBIE

Ken Frisbie is senior vice president at Caz Creek Lending in Dallas,

Texas, where he manages all direct

and indirect originations and helps

commercial real estate investors see their projects over the goal line for a

broad spectrum of development types.

Ken has more than 20 years’ experience in alternative finance and private equity turnarounds, all of which contribute

to his problem-solving approach to a wide range of CRE finance scenarios.

KNOWN NATIONALLY LOVED LOCALLY. Growing our footprint in local markets and looking for top tier talent to bring the Renovo Experience to more local investors. For more information contact James Gaskin: james@renovofinancial.com

FALL 2023

OPERATIONS

SFR Due Diligence and Risk Does your budget add up to your ARV?

RODNEY MOLLEN

n residential private lending, we often say the asset is everything. When it comes to renovation loans, however, the truth is more complicated and includes the asset, the budget, the market/neighborhood, and the vision. At its core, renovating real estate has been proven to create value throughout various economic cycles, in both downturns and upturns, since investors can increase asset values above and beyond the costs to purchase, renovate, carry and complete the 80

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project. We have all seen this successfully executed in up markets and down markets, and it’s a key reason why renovation loans have been a reliable core of private lending for decades. Although it can be profitable and fun, renovation lending can carry significant risk beyond a straight bridge loan, DSCR rental loan, or traditional long-term mortgage. In fact, the minute an investor starts swinging a hammer, your underlying asset value actually decreases below the original As Is Value

(AIV) before reaching its projected After Repair Value (ARV). And if that project goes sideways or “south” during mid-construction, or worse, right after the demolition phase, a lender faces significant risk in taking back the property in its new deconstructed state. The key is to identify critical risk factors before you end up in a tough situation. It’s true that a lender cannot avoid all risk on every deal if they expect to keep operating and lending, but it’s also true that many of the “worst” projects lenders had to deal

After reviewing thousands of projects and renovation budgets, we found there are three key areas you should investigate prior to funding a loan. Performing diligence in these areas has resulted in our clients experiencing fewer servicing problems and/or deep REO situations compared to lenders who did not apply the same level of rigor. Let’s take a look at each of the three items.

1. DOES THE RENOVATION BUDGET ADD UP TO THE TARGET ARV? This question requires lenders to first understand the budget and its proposed spec level, finishes, and materials. To help evaluate, it is useful to bucket the proposed project based on both renovation level and quality level. For renovation level, Figure 1 provides three buckets that can be helpful.

with might have been avoidable with deeper diligence into some key factors.

to make poor decisions or mismanage their projects.

First, let’s understand the dynamic of the industry. The level of experience and sophistication of borrowers vary greatly. That’s why many successful lenders underwrite their borrowers and track records as a key part of their diligence. However, even experienced borrowers can face pressure in their career, causing them

Because “desperate people do desperate things,” lenders cannot solely rely upon trust and assume a borrower is a good one. Rather, they should conduct consistent diligence on each and every project to ensure quality isn’t slipping, or worse, desperation isn’t about to hijack your next project.

In addition to these buckets, it’s important to understand the proposed quality level associated with the budget. You can use the appraisal standards if you’re familiar with those (Q1-Q6, http://bit.ly/appraisal-standards), or you can use a set of descriptive categories such as rental grade, basic, standard, upgraded, premium, luxury and elite.

Once you identify the renovation level and grade, you will be in a fantastic position to scrutinize your ARV estimate on hand and

FIGURE 1: RENOVATION LEVELS MINIMUM REMODEL This is often similar to what folks call “rent ready,” which represents addressing all deferred maintenance and making sure the property is financeable for a traditional retail buyer, without focusing on cosmetic upgrades.

PARTIAL REMODEL This level adds some selective upgrades to the property. It can include installing new countertops, painting existing cabinets, finishing a bathroom (but not all bathrooms), and refinishing hardwood rather than replacing flooring. The spectrum of renovations in this category can vary by locale and neighborhood.

FULL REMODEL This generally includes a new kitchen, appliances, bathrooms, and flooring and will often address elements like windows, baseboards and trim, lighting and other features. As with a partial remodel, the level of renovation can vary greatly by locale, product type, and neighborhood.

FALL 2023

OPERATIONS

determine whether your renovation budget “adds up” to your target ARV. Different lenders have different approaches to determining ARV, which could include using internal valuations, obtaining a full appraisal, or ordering an alternative valuation such as the Renovation Analysis reports RicherValues provides. In all cases, make sure the market comparables used to determine ARV actually represent a comparable level and quality to the proposed budget. In many cases, traditional appraisers and other valuation professionals who do not have the renovation experience fail to conduct the budget analysis just described. Using market comparables that are renovated at the top of their market and that may not actually be representative of the subject property’s proposed project level and budget may lead to unintentional errors. For example, we pulled a Renovation Analysis for a property in Fayetteville, North Carolina, whose target budget aligned with a minimum remodel (C3.5) based on our team’s assessment (see figure 2). Here you can see how using the wrong comps for ARV can lead to implications of a $235,000+ ARV versus comps using the correct match for the target condition and lead to implications around $185,000 ARV. This is a $60,000 swing, or roughly 30% in this market. That 30% swing is likely to represent the entire pro forma profit margin for an investor. If their entire profit margin is wiped out or was “phantom profit” to begin with, then this project would be at high risk for falling to REO or servicing default down the road. Catching these mistakes upfront can prevent a huge amount of risk. Quite often, the investors themselves might be working from false information they obtained from professionals who 82

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FIGURE 2: COMP MISMATCH EXAMPLE SUBJECT PROPERTY: 1,516-square-foot 4+2 in Fayetteville, NC

SUBJECT PROPERTY: BUDGET REVIEW COMMENTS Subject property is older than 95% of homes in the current market. Subject property is in Maintained condition. The proposed budget primarily addresses some deferred maintenance and refurbishing. It excludes standard items such as kitchen and bath upgrades. Budget aligns with a Minimum Remodel.

SUBJECT PROPERTY: INCORRECT (SUPERIOR) TARGET CONDITION Condition Rating

Full Remodel – C2

Sale Price

$265,000

With Adjustments

$236,016

FIGURE 3: COMP MATCH EXAMPLE (CORRECT TARGET CONDITION) Condition Rating

Minimum Remodel – C3.5

Sale Price

$205,000

With Adjustments

$187,680

Figures 2 and 3 contain an incomplete sampling of photos from the subject comparisons.

are evaluating the “comps” without having matched them to the true proposed budget.

Evaluating whether a budget is sufficient is an important step.

2. IS THE BUDGET SUFFICIENT TO COMPLETE THE PROJECT?

3. IS THE BUDGET EXCESSIVE OR TOO HIGH FOR THE PROJECT OR THE AREA?

The next area of diligence is a budget analysis to determine whether the proposed renovation with all its line items is feasible at the proposed cost level. Sometimes, a situation might involve borrowers who run their own construction firms or provide labor to their projects at discounted or no costs, as part of their setup as an investor. Although this may be feasible and result in successful projects, as a lender, it’s important to understand what your exposure might look like if you had to take back the project. After all, it might not be realistic to assume you would be able to line up subcontractors at discounted labor rates to help complete a stalled project.

This third area can be a huge warning sign for fraud that potentially awaits in the weeks and months post-closing.

The quality and depth of budgets, particularly in residential renovation, fix-and-flip lending varies greatly, which presents its own challenges. Just as with valuations for ARV, lenders have different approaches for evaluating this budget risk, and these methods can include having internal staff with construction expertise review each budget before approving, hiring an outside firm to conduct a project feasibility study, or using the same Renovation Analysis reports from RicherValues they ordered to evaluate ARV (and come with their own budget analysis). Remember, none of these approaches is guaranteed. There will always be project and execution risk associated with every residential and renovation loan. At the same time, you must do your best to conduct the level of diligence necessary to minimize risk wherever reasonably possible.

We have found, based on informal discussions with our clients, lenders who dig deeper elect to pass on the majority of these loans. Further, they believe that eliminating this risk is significant to their long-term success. What’s surprising is that most standard project feasibility reports generally do not include this level of analysis; therefore, this fraud risk often goes unnoticed— until it emerges in the worst form.

For our diligence process, we developed the five risk categories shown in Tables 1 and 2, based on data from more than 3,000 budgets that exceeded expected costs over the past 12 months. Of these 3,000 budgets, 3.2% of them fell into the Major Risk category. In our opinion, this is a large number. Although it doesn’t mean for certain there is fraud risk, it is an important flag signaling the lender to dig deeper. It could just mean the expected costs for the project are incorrect. Or, it could mean the investor and/ or contractor is trying to pull funds from one project to pay for another project that’s going south. Worse, it could be true fraud with intent to simply pull the construction budget and not perform the work.

Identifying this risk requires having a decent metric as you start estimating a range of expected costs to conduct the proposed renovation, in its market, and at its quality level and market price point. Once you arrive at that renovation estimate, run a comparison as a simple multiple of proposed budget divided by expected costs. In addition, proposed budgets should be evaluated in context of the estimated ARV (as you determine the ARV, not as the borrower states). Table 1 provides some ballpark metrics to gauge risk level by comparing the proposed budget with expected budgets and ARV levels, when the proposed budget is above the expected costs.

TABLE 1. FIVE RISK LEVELS: PROPOSED BUDGET COMPARED TO EXPECTED BUDGET AND ARV LEVELS RISK LEVEL

MINIMUM REMODEL

PARTIAL REMODEL

FULL REMODEL

Safe

Within $10k

<= 1.25x

<= 1.15x

Light

Within $15k

< 1.50x

<= 1.50x

Moderate

$15k+ over

> 1.50x

> 1.50x or > 70% of ARV

Medium

$30k+ over

> 1.75x

> 1.60x or > 80% of ARV

Major / Potential Fraud

$50k+ over

> 2.00x

> 1.75x or > 90% of ARV

FALL 2023

FUND MANAGEMENT

As mentioned, these are not hard-and-fast rules indicating there is definite fraud or risk. These are simply guideposts that can be helpful to identify situations that may need to be investigated further.

Although renovation lending will always

Using our data over the past 12 months, Table 2 presents how the budgets were distributed across these category flags, which varies by renovation strategy. With potentially 3%-4% of your loans requiring greater investigation, isn’t this something you might want to be keeping an eye out for?

issues at the outset is often the most

include risk, these three areas can help

RODNEY MOLLEN

you avoid or restructure deals that might result in significant headaches and/or financial losses. Identifying potential

important way to ensure your long-term stability, profitability, and performance. Reach out with any questions and

continue protecting your capital so you can keep on lending with confidence!

Rodney Mollen is the founder and

CEO of RicherValues, a software and

valuation services provider that delivers the high-quality, comprehensive

intelligence for lenders and investors on any residential asset nationwide.

Mollen's years of experience include

TABLE 2. BUDGET RISK MATRIX BY RENOVATION STRATEGY

acquiring, managing, renovating, and

selling over $1.2 billion in REO and NPLs

RISK LEVEL

MINIMUM REMODEL

PARTIAL REMODEL

FULL REMODEL

VALUE ADD EXPANSION

TOTAL

Safe

86.0%

62.8%

71.5%

85.7%

73.2%

Light

6.8%

18.7%

14.2%

11.0%

14.2%

Moderate

3.8%

8.9%

5.4%

1.1%

5.3%

Medium

2.1%

6.0%

4.7%

0.8%

4.0%

Major

1.3%

3.6%

4.2%

1.3%

3.2%

nationwide from 2008-2013 as COO of an Arizona-based investment firm.

From 2001-2006, as a consultant with Sibson Consulting in Los Angeles,

California, Mollen worked with small cap to Fortune 50 companies. From

2005-2009, he acquired and managed his own private real estate deals

for infill residential redevelopment both in California and in Arizona.

Mollen earned master’s and bachelor’s

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degrees in economics from UCLA, graduating summa cum laude.

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ANNUAL CONFERENCE PREVIEW

h t 14

THE NATION'S LARGEST PRIVATE LENDER EVENT The American Association of Private Lenders was established in 2009 at our first event in Caesars Palace Las Vegas, in company of a small caucus of industry leaders with the foresight to know the private lending profession would not flourish without guidance, oversight, and ongoing support. Fourteen years later, we still meet annually at Caesars Palace, but our gathering has grown to well over 700 strong. #AAPLANNUAL is where executives meet to take the pulse of the industry and plan pivotal business dealings. Beyond the conference, your attendee and sponsorship dollars drive key initiatives year-round. These projects safeguard your business’s future and provide you with tools and resources. We love a good win-win, and there is no better opportunity than with AAPL’s Annual Conference.

M E E T YO U R H O S T S

ANTHONY GERACI Vice Chairman

EDDIE WILSON Chairman

LINDA HYDE Executive Director

KAT HUNGERFORD Digital Project Manager Executive Editor

SHAYLEE HENNING Marketing Manager

CHRISSY SPENCER Administrative Assistant

ANNUAL CONFERENCE PREVIEW

ACTIVITIES

#AAPLANNUAL is lauded by the industry’s Who’s Who as the single-best event for private lender education and networking.

CONFERENCE SESSIONS Featuring main-stage presentations and three congruent session tracks totaling more than 15 presentations and panels, the conference offers attendees multiple options to learn from more than 45 top-oftheir-field experts. Sessions are video-recorded, offering attendees the opportunity to revisit key moments and watch breakouts they couldn’t catch in person.

PRIVATE LENDER ROUNDTABLES Participants will divide into groups according to their stage of business to discuss strategies and operational tactics while creating a lasting network of like-minded cohorts.

AAPL DESIGNATION COURSES AAPL offers members two certifications: Certified Private Lender Associate (CPLA) and Certified Fund Manager (CFM). These carefully curated full-day courses are held Sunday, Nov. 12. Members who pass the final exam may use the official AAPL designation in their marketing.

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NETWORKING OPPORTUNITIES: PRE-, DURING, AND POST-CONFERENCE AAPL Annual Conference App // Connect and chat with attendees. Our “shake to connect” feature allows you to quickly exchange contact information with anyone, anywhere who is also actively using the feature.

SUNDAY, NOV. 12, 7 PM VIP Reception at the OMNIA // Enjoy cocktails and hors d’oeuvres while catching up with VIPs from across the country, all overlooking the gorgeous Las Vegas Strip from the OMNIA’s private deck. This exclusive reception requires an RSVP.

MONDAY, NOV. 13, 7:30 AM Networking Breakfasts, Breaks, and All-Day Coffee // If the cooler is networking central at the office, food and coffee are the conference watering holes. This year, Andelsman Law helps you stay fueled with food, and The Mortgage Office and Center Street Lending are managing caffeination.

MONDAY, NOV. 13, 6 PM After-Hours Reception // Continue conversations at this after-hours networking reception where attendees, sponsors, and speakers can mingle while enjoying complimentary hors d’oeuvres and two drink tokens.

FALL 2023

ANNUAL CONFERENCE PREVIEW

TITLE SPONSORS

PLATINUM

GOLD

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SILVER

EXHIBITORS Andelsman Law

Kennedy Funding

Olympia Financial

Bridge Loan Network

La Mesa Fund Control & Escrow Inc.

PMF

Center Street Lending

LendingDocs

Duner and Foote

Lima One

SBS Trust Deed Network

FCI Loan Services, LLC

Mortgage Automator

Granite Appraisal Group

MOVE

Ignite Funding

Mr. Zianni Custom Italian Suits

Superior Loan Servicing

iVueit

NuBridge Commercial Lending

Verivest

Jcap Financial Group

Obie

White Stone Developments

Servicing Pros Sitewire

WOMEN IN PRIVATE LENDING LUNCHEON Apex Closing Services, LLC.

Liquid Logics

Spiegel Accountancy Corp

Constructive Capital

Rehab Financial Group

The Mortgage Office

Geraci LLP

Roc Capital

ALL OTHERS AAA Lenders Inc.

Allure Security

Apex Closing Services

NVMS

Rehab Financial Group FALL 2023

ANNUAL CONFERENCE PREVIEW

EXCELLENCE AWARDS As champions for the private lending industry’s reputation and growth, it’s crucial for AAPL to recognize those who look beyond their own business to help our mission.

RISING STAR

Rising Stars are members who have accomplished outstanding growth in their companies during the past year.

Cort Chalfant, Nexus Private Capital “Exemplifying visionary leadership and unwavering dedication, Cort

Our Excellence Awards showcase peer-nominated members who have leveraged their resources to solve problems, kick-start innovation, and improve their communities. Member of the Year and Rising Star winners are decided by popular vote, and AAPL evaluates Community Impact nominees. Here are your 2023 Nominees. Winners will be announced at the annual conference.

consistently elevates business excellence.” —Natalie Luneva, Kohezion

Michelle Esparza, Apex Closing Services “Michelle works harder than anyone I have met in the title and closing space. She is an advocate not only to her company for their products and services but really invests in partnerships, which I appreciate deeply.” —Dana Georgiou, Streamline Funding “Michelle is a true professional. Her follow up and attention to detail are the best I have experienced in the business. I highly recommend her company and services.” —Michael Knapp, OneClick Commercial Funding

Wade LaRouche, Housemax Funding “Wade is the epitome of hard work and the old school hustle culture. He’s one of the top originators in the country for a reason: He outworks everyone.” —Doug Roberts, HouseMax Funding

Avalon McLeod, McLeod Capital Fund “Avalon has moved from being a rookie in 2018, just learning the business, to starting his own company in 2020. Since then, he’s originated millions in volume in both business-purpose and consumer mortgages and has attracted a vibrant network of investors, private lenders, and developers. Avalon is very active in the lending community, even winning Largest Deal of the Year from the National Alliance of Commercial Loan Brokers in 2022.” —Yvette Carpel, McLeod Capital Fund

Tommy Nigro, North Oak Investment “I nominate Tommy for his dedication to his team and for striving to help them succeed.” —Natalie Luneva, Kohezion

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EXCELLENCE AWARDS MEMBER OF THE YEAR This award goes to an AAPL member who demonstrates deep expertise, unique value, and strong commitment to clients and growing the industry.

Rocky Butani, Private Lender Link "Rocky’s continued and unwavering commitment to excellence, industry education, and client success makes him the No. 1 industry influencer and leader. Rocky provides true knowledge and content that continues to push the industry forward!" —Sam Kaddah, Liquid Logics

Ben Fertig, Constructive Capital “Ben is an A+ leader who has demonstrated deep expertise, unique value, and strong commitment to clients and growing the industry.” —Benn Jackson, Constructive Capital

Eddie Gant, Jet Lending, LLC “Eddie Gant has spent 23 years educating and improving the industry, making sure he is available for any investor, company, or business to improve their knowledge base and productivity.” —Alexander Buriak, Jet Lending

Dana Georgiou, Streamline Funding “Dana is always willing to help and shares her knowledge with others. She participates at all the conferences and is a pleasure to everyone she knows.” —Michelle Esparza, Apex Closing Services

Kendra Rommel, FUTURES Financial “Kendra is a role model, a source of inspiration, and a driving force behind our organization's achievements. Her dedication, leadership, positive attitude, professionalism, service to others, and positive impact make her the best candidate for this prestigious award.” —David Rosenberg, FUTURES Financial

John Santilli, Rehab Financial Group “John joined Rehab Financial Group four years ago and has had a tremendous impact on both RFG and the private lending space. He is an active member of the AAPL Education Committee and shares his knowledge with members of the industry through webinars, podcasts, and appearances. He works tirelessly to improve the private lending space and to reach out to RFG’s peers to build long-lasting and sustainable business relationships.” —Susan Naftulin, Rehab Financial Group

FALL 2023

ANNUAL CONFERENCE PREVIEW

EXCELLENCE AWARDS COMMUNITY IMPACT This award honors professionals who improve their local communities or our industry through volunteering, development programs, or civic efforts.

Steve Corliss, 1892 Capital Partners "Steve’s local roots, dedication to growth, and ability to effect real change are a testament to the profound role private lending can play in addressing complex societal challenges. One of the standout projects Steve and 1982 Capital Partners spearheaded is the Heron Apartment Building, an 82-unit apartment complex in Tacoma, Washington. 1982’s short-term bridge loan enabled the Low Income Housing Institute to provide 50 apartments for formerly homeless individuals and 29 for affordable workforce housing.” —Cyd Hatch, Corliss Management Group

Mike Hanna, Investmark Mortgage LLC “Mike Hanna has led one of the best private lending businesses in Texas for more than 15 years. He built a team that represents his core values, and they have done an amazing job of benefiting their local real estate markets. It is absolutely unbelievable how amazing they are. He is a model businessman and community leader.” —Tony Sicilian

Scott Ward, Caz Creek Lending “Scott has demonstrated outstanding leadership, education, and mentorship of young and upcoming entrepreneurs.” - Xavier Edokpa, Reimenn Capital Group "Not only is Scott a major contributor to the private lending community, the work he does in youth sports in Frisco, Texas, is incredible. He consistently gives his time to kids in coaching and mentoring as well as provides insight for parents on how to navigate everything from NCAA information to scholarships and branding. He is making a huge impact in his community, and Texas and Frisco are lucky to have him." —Dana Georgiou, Streamline Funding

Lisa Alberti, Ruby Boulanger, Karey Geddes, and Kristina Sawyer; Women in Private Lending “The Women in Private Lending Group has done an exceptional job at elevating female professionals to be seen, heard, and valued! WIPL has truly raised the bar, creating a platform for women to come together to network, inspire each other, collaborate, and solve issues. While the four founders hail from different companies and disciplines, together they built a much-needed and much-appreciated addition to the private lending industry.” —Lesley Boyd, Geraci LLP

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LEARN. DIFFERENTIATE. GROW. We now offer our signature Certified Fund Manager and Certified Private Lender Associate courses online, so you can earn your AAPL-backed certified status from the comfort of anywhere — and promote it everywhere. CPLA Modules • Intro to Business-Purpose Lending • Legal Documentation • Underwriting • Loan Servicing • Workouts • Intro to Securities CFM Modules • Pros, Cons, & Considerations • Structure • Creation & Launch • Administration

AAPL Certifications are members-only. Enroll online at aaplonline.com/courses for $349.

FALL 2023

VENDOR GUIDE

VENDOR GUIDE If you’re looking for a service provider who has real experience working with private lenders, the Private Lender Vendor Guide is your starting point. In each issue, we publish a cross section of specialties. These providers do not pay for inclusion. Instead, we vet them by reviewing their product offerings and talking to private lender references. AAPL members can access all service providers online at aaplonline.com/vendors. If you’re not a member, keep an eye on this publication for future updates. Then consider joining AAPL to support this and other initiatives!

SPRING

SUMMER

Accounting

Appraisers & Valuations

Funds Control

Development Cost Estimates

Business Consultants

Capital Providers

Investor Reporting

Education

Default & Loss Mitigation

Data & Metrics

Loan Origination Services

Fund Administration

Legal Services

Environmental Services

Loan Servicing

Insurance

Warehouse Lenders

Lead Generation

Loan Underwriting

Marketing

WINTER

FALL THIS ISSUE!

Note Buying/Selling

DEVELOPMENT COST ESTIMATE

EDUCATION

EDUCATION (CONT.) IMN https://www.imn.org (212) 224 -3987

Granite Risk Management www.GraniteRiskManagement.com Secondary Specialties: Funds Control, Fund Administration Products & Services: National end-to-end full residential and commercial construction management. Streamlined one-to-one process. Draw management, project feasibility studies, contractor reviews, discounted title and escrow services. Partner Engineering and Science, Inc. https://www.partneresi.com (800) 419-4923

If you are an industry vendor, nominate your company for this guide here:

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American Association of Private Lenders https://aaplonline.com (913) 888-1250 Products & Services: Annual conference, quarterly Private Lender magazine, online and classroom-style certified private lender associate and certified fund manager courses, webinars, compliance and legal resources, downloadable guides and templates, and more.

LendIt Fintech Digital https://digital.lendit.com (646) 971-1645

FUND ADMINISTRATION

Geraci Conferences www.geracicon.com (949) 379-2600

High Divide Management

Products & Services: Networking, raising capital, deal flow, education for private lenders, lead generation.

(816) 807-4039

National Lending Experts https://nationallendingexperts.com (619) 865-3177

Products & Services: Maintain general ledger (i.e., bookkeeper), prepare financial statements and footnotes, support audit process, calculate partner allocations and waterfalls, manage LP reporting.

https://www.highdividemgmt.com Secondary Service: Accounting

Indicates AAPL Membership

FUND ADMINISTRATION (CONT.)

INSURANCE (CONT.)

MARKETING

Geraci Media

Socium Fund Services, a Suntera Global Company

Liberty Title & Escrow

www.geracimediagroup.com

https://www.sociumllc.com

www.libtitle.com (401) 529-4773

(949) 379-2600

(973) 241-3300 Products & Services: fund launch consulting, portfolio system access 24/7/365, comprehensive portfolio reporting and UDFs, fund accounting and admin, fee calculations, investor services, electronic subscription processing, tax and compliance, OID and PIK calculations.

Secondary Service: Legal Services Products & Services: Title service in all 50 states, closings and fundings.

Go Media

INSURANCE National Real Estate Insurance Group https://nreig.com (888) 741-8454 Anderson Agency www.andersonagency.group (812) 887-0443

Products & Services: Pitch deck, website development, logo design, content creation, email management, SEO, social media marketing, company brochure, branded PowerPoint presentation, event planning, video marketing.

Products & Services: Residential Insurance for owner occupied, non-owner occupied, renovation and vacant property; commercial insurance.

www.trygomedia.com (470) 878-2000 Products & Services: Marketing, campaigns and sales funnels, web design and development, graphic design, video production. Special packages available for AAPL members.

Products & Services: Property, flood, REO, and lender-placed insurance.

Apex Closing Services, LLC ApexClose.com (915) 525-6699 Secondary Services: Data & Metrics, Default & Loss Mitigation Products & Services: Purchases and refinances, construction and renovation, fix-and-flip, portfolios (single or multiple state properties), DSCR loans, non-US owner/foreign transactions, REO services/ deed in lieu of foreclosures/default, reverse mortgages, commercial, LLCs and trusts, national signing services, national recording services, property and foreclosure reports.

Ross Diversified Insurance Services, Inc.

iFocus Marketing

http://rossdiv.com

https://ifocusmarketing.com (913) 578-8521

(800) 210-7677 Products & Services: Nationwide property insurance: lender-placed insurance for commercial and residential, REO insurance for commercial and residential, insurance monitoring, investment insurance for 1-4 units, including rentals and rehabs.

Products & Services: Ad targeting services: household, geofence, retargeting. KallistoArt www.kallistoart.com

BSP Insurance

(813) 563-5321

www.bspinsurance.com (203) 237-7923 Realprotect www.realprotect.com (800) 579-0652

KC & CO Communications KCCOPR.COM (202) 630-3215

FALL 2023

LAST CALL

Mastering a New Path ERIC ABRAMOVICH

launch the world’s largest hedge fund raise initially post-crisis at over $1.3 billion. I thought my future was solidly in the hedge fund space, but for various reasons, we were forced to return our capital because we only delivered flat returns to our investors (we didn’t lose them money!).

t’s been nearly a decade since my partners and I launched Roc360. I’ve been reflecting a lot recently on the changes in the private lending industry as well as my own path within the space. The two points that stand out most for me are (1) it is always possible to restart and reinvent yourself, and (2) if you reinvent yourself, choose a space that will appreciate your talents and is ripe for change.

to be the swimming instructor for the person who ran one of the most successful portfolio management teams on Wall Street was hired for a parttime gig while still in school. When my classmate became overwhelmed with the workload, he suggested I apply for a part-time role as well. The three of us are partners and co-founders today, but our transition from hedge funds into private lending was a leap of faith.

As is the case for most people, a few serendipitous events brought me to where I am today. I went to business school because I was really good at math in high school. I got accepted to NYU, and a classmate who happened

During the great financial crisis, we were forced to spin out of our employer Deutsche Bank because of newly enacted regulations, in spite of our positive performance in a severe market. Making the best of the situation, we were able to

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Then came some more serendipity. While we were trying to figure out what to do next, we stumbled upon fix-and-flip lending by way of personal investments made through a close acquaintance. That led to a pitch that seeded a novel idea. We saw that private lenders had no institutional capital, and we felt we could be the conduit because of our finance and hedge fund experience. There were a lot of old-school mortgage lifers in the space, and we hardly knew what a loan was at the time. Nevertheless, the opportunity was calling. Close to half of today’s roughly $50 trillion in housing stock is 40 years old or older. We are in a major supply crunch as we’ve been underbuilding for close to 15 years now. There simply aren’t enough houses, which begs the question: Why is the fix-and-flip market only $50 billion annually? Why are mortgages still paper processes? Why can’t houses be bought and sold like stocks? There is a world of opportunity in the world’s largest asset class—U.S. housing. If you just find the right industry, you too can reinvent yourself and ride the wave as the industry flourishes.

OUR SERVICES CORPORATE & SECURITIES LAW FIRM & CONFERENCES

WE PROVIDE PEACE OF MIND Geraci LLP is a full-service law firm and conference line specializing in representing non-conventional lenders. CONNECT WITH US (949) 379-2600 90 Discovery Irvine, CA 92618 https://geracilawfirm.com/ https://lightningdocs.com/ https://geracicon.com/ https://geracilawfirm.com/originate-report/

• Securities Offerings and Compliance • Entity Formation • Corporate (Governance, M&A, Capital Markets) • Mortgage Licensing

LITIGATION & BANKRUPTCY • Judicial Foreclosure • General Business Litigation (Partnership, Investor, and Vendor Disputes) • Creditor Representation in Bankruptcy • Other Mortgage Loan Litigation

BANKING & FINANCE • Foreclosure/Loss Mitigation • Nationwide Loan Documents • Nationwide Lending Compliance

LIGHTNING DOCS • Fully Automated, Customizable Loan Documents • Documents are Constantly Updated and are Capital Market Approved • Covers All 50 States • No Redraw Fees or Contract Period

OTHER SERVICES • Conference Line • Originate Report Magazine • Lender Lounge Podcast FALL 2023

FUND MANAGEMENT

3 DAYS

50+ SPEAKERS

70+ VENDORS

700+ ATTENDEES

Join us for the 15th year as we bring together owner-operators, executives, and decision-makers for the industry’s premier education and networking conference. AAPL Certification Courses | VIP Nightclub Reception | Networking Breakfasts 15+ Sessions & Panels | Packed Vendor Hall | Networking Reception | After Party

NOV. 10-12 2024 | LAS VEGAS | AAPLCONFERENCE.COM

100

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