Private Lender by AAPL by American Association of Private Lenders

A APL ANNUAL CONFERENCE PREVIEW

The Official Magazine of AAPL September/October 2019

LENDER LIMELIGHT

Ray Sturm

BUSINESS STRATEGY

Should You Invest in Out-of-State Markets?

LEGISLATION

4 Opportunities in a Green New Deal

SPECIAL FOCUS Technology and the Future of Private Lending

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CONTENTS

SEPTEMBER/OCTOBER 2019

06 BUSINESS S TR ATEGY

06 6 E x i t St r a tegie s f or M ul t i f amil y I nve s tor s by Maylis de L acos te

10 5 Ty p e s o f L oan s a H ar d M oney L ender Won' t Fund by Corey Ann D u t ton

18 L ook B e f or e You L eap I n to Far away Deal s by Edward B rown

22 LOAN SERVICING

Tur ning Pr oper t y I n to Pr os per i t y by Chr is Ragland

26 LEGISL ATION

26 4 Way s a G r een N ew Deal C ould Pr e s en t O ppor t uni t ie s f or Pr i v a te L ender s by J ef f Levin

30 G RC Up date: N ew J er s ey Pa s s e s L icen s ing L aw f or N onbank Ser v icer s by Melis s a Mar torella

34 A APL ANNUAL CONFERENCE PREVIEW 42 LENDER LIMELIGHT

Popping t he C or k on St ar t up s and E n t r epr eneur s hip wi th Ray St ur m

48 C A SE S TUDY

Reimagine d Mid - C en t ur y Ranc h

50 MARKET TRENDS

O ppor t uni t y Zone s: A r e T hey an O ppor t uni t y f or You? by N oah B rociuos

54 TECHNOLOGY

54 M ak ing t he Righ t Tec hnolog y Dec i s ion s by Ian J . Group

58 T he "Pla t f or mi f ic a t ion" o f Pr i v a te L ending by B ret t Crosby

62 MANAGE & LEAD

Ear ning Your Team's B u y - I n by K at Hunger ford

66 L A S T C ALL Finding t he Sil ver L ining wi th Paul Jack son

SEPTEMBER/OCTOBER 2019

PRIVATE LENDER

FROM THE CORNER OFFICE

This issue marks the ready-set-go for AAPL’s busiest time of year. It’s conference season! Each year, we host the nation’s largest private lending event, bringing together more than 45 speakers, 60 vendors and 500+ attendees to learn from each other, network and have more than a little fun in the country’s Party Capital—Las Vegas.

EDDIE WILSON CEO, AAPL

LINDA HYDE

Managing Director, AAPL

KELLY SCANLON Copy Editor

SPRINGBOARD CREATIVE Design

CONTRIBUTORS

Noah Brocious, Edward Brown,

Brett Crosby, Maylis de Lacoste,

Corey Ann Dutton, Ian J. Group, Kat Hungerford, Paul Jackson, Jeff Levin, Melissa Martorella, Caleb Olsen, Chris Ragland

COVER PHOTOGRAPHY Elizabeth Trujillo, BlushPix

Private Lender is published bi-monthly by the

American Association of Private Lenders (AAPL).

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

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This year will be our 10th year as the only national private lender association offering the industry a code of ethics, education and advocacy in the halls of Congress and state legislatures. While we’ve hit our stride during that time, I’ve never been one to rest on my laurels. I've also had to make some tough, and controversial, calls with the input of my staff and our membership. I’m speaking specifically of our recent legislative efforts to start conversations with members of Congress and inviting former congressman Barney Frank—of Dodd-Frank Act fame—to keynote this year’s conference. Why potentially gain the regulatory attention of legislators? Why host a congressman responsible for legislation that has had such wide-reaching impact on the business of private lending? As your association, it was one of the hardest calls we’ve had to make. But we believe it is one of the most important for the future of our industry. Our recent legislative battle in Florida—and the upcoming one in New York (see Melissa Martorella’s article on page 30)—have shown us that we must start having these conversations and be willing to listen to what the opposition has to say. As AAPL’s chairman, Eddie Wilson, has said: “As an association, we do not agree with many parts of [the Dodd Frank Act], but that is no reason for us to put our heads in the sand and not have a conversation about what we like and dislike. It is time we rally together and make our voices heard. Inviting Barney Frank to be AAPL’s keynote speaker says to legislators that we are open-minded and willing to have a conversation about how we can positively affect our industry, and that our voices deserve to be heard.” If you’re ready to be heard, we invite you to join the conversation at our 10th Annual Conference, hosted Nov. 7-9, at Caesar’s Palace, Las Vegas. See you there!

913-888-1250. Use of Private Lender content

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

LINDA HYDE

Managing Director, American Association of Private Lenders

SEPTEMBER/OCTOBER 2019

BUSINESS STR ATEGYÂ

EXIT STRATEGIES FOR MULTIFAMILY INVESTORS by Maylis de Lacoste

Your borrowers should have an exit strategy from the beginning to prevent problems later.

PRIVATE LENDER

An exit strategy is a plan that an investor uses to liquidate their position in a financial asset. Real estate investors should plan their exits from the onset of any deal. Here are six exit strategies that you, as a private lender, can suggest to real estate investors as they plan for the disposition of an asset.

SALE-LEASEBACK ARRANGEMENT A sale-leaseback arrangement, also known as a leaseback arrangement, is a real estate exit strategy that allows investors to rid themselves of their property and still maintain residence for an agreed period. Basically, the leaseback strategy provides the seller with capital, while the buyer makes money from the long or shortterm rental agreement that was assessed at closing. Another benefit of this arrangement is that it lowers the seller’s capital commitment—like tax costs and rates—without losing the use of the property. For example, let’s assume an investor needs financing to pay off some debt but was unable to access the mortgage market because of a poor credit score. The investor

can sell his property with an agreement that the property will be leased back to him for a certain period.

REPOSITIONING Repositioning is an exit strategy that allows the investor to convert the property into a different asset class of the real estate market. This type of strategy adds value to an asset by changing the usage of the property from a less demanding one to one with a higher demand and, therefore, a higher return on investment (ROI). For example, if a residential property is in a city where an office complex is in higher demand, the investor can reposition the property by modifying it to suit the market’s needs. The benefit of this exit strategy is that it raises the value of the property and increases the investor’s ROI. Another way an investor can reposition is to buy an underperforming asset and create value by renovating and refurbishing the property. The main point of this is to achieve the full potential of the asset and increase the rent. And if the investor decides to sell, he increases his ROI because he sells at a premium price.

CASH-OUT REFINANCE Cash-out refinance allows an investor to liquidate the equity on a property by applying for a loan that is beyond the existing lien against the property. Cashout refinance is different from traditional refinancing in that the traditional refinance option allows an investor to apply for a mortgage to pay for the existing lien against the property. Cashout refinance allows the investor to borrow more than the existing mortgage and receive the excess cash at closing. Another disparity is that traditional refinancing allows investors to renegotiate better terms and rates. The cash-out refinance option does not give the owner the chance to renegotiate for a better rate—but to pay more than the existing rate. One important thing to note is that the maximum amount of cash an owner can receive depends on several factors—the loan-to-value (LTV) ratio, the interest rate and credit score. For example, an investor has a property worth $200,000 but still holds a $50,000 mortgage on the property. If the investor needs cash, they can liquidate the equity they have in the property by applying for a cash-

SEPTEMBER/OCTOBER 2019

BUSINESS STR ATEGY

“It is advisable to work with an experienced real estate attorney to prevent entering into a legal obligation that may be regretted later.”

out refinance loan—applying for a higher mortgage than the previous one and receiving the excess as cash at closing.

RENT TO OWN (LEASE OPTION) Rent to own, also known as a lease option, is an exit strategy that allows a tenant to lease a property for a certain period with an agreement to purchase the property at the end of the lease term. This investment type involves two agreements—a traditional rental agreement and an option to buy the property. This exit strategy is beneficial to both the seller and the buyer.

PRIVATE LENDER

For the buyer, applying for a mortgage can be a bit tedious, because a good credit score and cash for a down payment is needed to qualify for this type of mortgage. However, with the rent-to-own exit strategy, the investor can enter a rental agreement while paying the down payment and building a credit score to qualify for a mortgage. On the other hand, this strategy offers the seller a stable source of income for the lease period, and the potential to be rid of the property at the end of the lease. Also, the owner doesn’t need to prep the property for listing. The prospective buyer has been in the property as a tenant and already knows everything about the property. Although this investment type is enticing and can attract buyers in less time, they do

need to be careful about the type of agreement entered into with the seller. It is advisable to work with an experienced real estate attorney to prevent entering into a legal obligation that may be regretted later.

seller and make installment payments for the remaining

balance. This strategy is best used in a buyer’s market to

entice buyers—where the sup-

ply is greater than the demand. One of the benefits of this

strategy is the potential for

SELLER FINANCING

both parties to save a substantial amount in closing costs.

Another is the ability to negotiSeller financing, also known as owner financing, is a strategy in which the seller provides the financing for purchasing the property. It means the seller serves as the mortgage lender and handles the mortgage process by providing the loan. When this strategy is used, the buyer is required to pay some sort of down payment to the

ate better terms, rates, repay-

ment schedule and other loan

parameters. On the side of the

buyer, there is no problem with having a poor credit rating.

Unlike with conventional mortgage firms, an appraisal may

not be required and the rules and regulations are flexible.

Conversely, although the real

and properly selling the asset

estate agreement is legally

when the market is stable.

bound, the buyer still doesn’t

HOLD AND SELL

have full ownership of the property. Until the buyer pays the debts, the property still belongs to the seller. Another con of this strategy is that the seller (who serves as the financial institution) will also likely face the risk of delinquent borrowers. If the seller doesn’t have employees who are experienced in man-

Hold and sell is similar to the rental investment strategy. The difference between the two strategies is that a rental property is held on a long-term basis, while the hold-and-sell

Choosing this exit strategy is

risky and it requires some cal-

culation and market analysis to determine ROI. New investors planning to use this strategy are advised to work with an

experienced agent and other experts in the field so they

strategy is for a short period.

don’t run into problems.

This investment strategy

One of the benefits of this strat-

involves an investor buying

aging assets and dealing with

an undervalued property or a

default borrowers, they will

property in an unstable market,

face the consequences.

keeping it for a certain period

ABOUT THE AUTHOR

egy is the stable income source that it offers when the investor

MAYLIS DE LACOSTE Maylis de Lacoste manages all investor relations and media/ communication at Lafayette.

is holding the property and the high ROI it is sold. ∞

SEPTEMBER/OCTOBER 2019

BUSINESS STR ATEGYÂ

PRIVATE LENDER

5 Types of Loans a Hard Money Lender Won’t Fund If borrowers give you grief about turning down their application, it's probably because they have these misperceptions about hard money lending. b y Corey Ann Dutton, MBA

Hard money lenders tend to see just about every type of loan request on the planet. The reality is that many of these loans have no prayer of ever getting funded. Most people simply don’t understand how hard money loans work or what a hard money lender will fund and will not fund. The following are the most common examples of loans that get an immediate decline.

LOANS AGAINST SOFT ASSETS Hard money lenders make loans against hard assets. The word “hard” in the term “hard money” implies that a lender makes a loan using a hard asset as collateral. By definition, a hard asset is a tangible, physical asset such as real estate. In contrast, a soft asset is an intangible asset such as a stock or a patent. A hard money lender just won’t fund a loan against a soft asset. Hard money lenders don’t do private equity, startup financing or seed capital. A request for private equity or seed capital is the most common loan request a hard money lender declines. Why? Because the collateral is stock, which is a non-physical asset. Hard money lenders issue debt, not equity.

LOANS WITH NO EXIT STRATEGY A loan with no viable exit strategy is another good candidate for an immediate decline. A hard money loan is short-term in nature and comes with a higher interest rate, so the exit strategy is very important to the lender. How will you get

paid back if a borrower has no real plan for paying you back? When a hard money lender asks a borrower, “What’s your plan for paying this loan back?” and the borrower has no viable exit strategy, the lender will certainly decline the loan. Why won’t a hard money lender give a loan to a borrower with no exit strategy? Would you make a loan to someone who had no viable way to pay you back?

100% LTV LOANS Although some governmentbacked loans require no money down, most lenders won’t lend at 100% loan to value. There is a well circulated myth out there that hard money lenders lend at 100% loan to value. The truth is, hard money lenders generally value properties more conservatively than traditional lenders. And often, hard money lenders require larger down payments as compared with the down payment requirements of traditional lenders. This generalization certainly excludes lenders on fix and flips, because fix-and-flip lenders lend on improved value, or future value. But even fix-and-flip lenders only lend at a certain percentage of the improved value, not 100%.

SEPTEMBER/OCTOBER 2019

BUSINESS STR ATEGY

Why won’t most hard money lenders make 100% loan to value loans? These loans are just too risky for a hard money lender who makes lending decisions based primarily on the asset itself. Unlike a bank, which takes tax returns from a borrower to prove an ability to repay, a hard money lender can only rely on the asset to repay the loan in the event of a borrower default.

DREAMS No hard money lender will lend on just a dream alone. Unfortunately, this is all that many borrowers have to bring to the table—nothing more than a dream. Although a borrower’s dream may be inspiring, a dream on its own won’t get a borrower a loan. Hard money lenders often look at three primary criteria for loan approval, sometimes called “the three Cs”: collateral, cash and character. Although “collateral” seems obvious, “cash” refers to how much cash a borrower can bring into a purchase of a property, or how much cash a borrower already has into a property owned. Cash can also refer to how much cash a borrower has on hand, or the borrower’s liquidity.

PRIVATE LENDER

The third, “character,” generally refers to the borrower’s track record or a borrower’s specific experience with the particular property type being used as collateral for the loan. For example, a borrower may not have much cash, but could have good collateral and good character in the form of previous experience with the lender or experience with that specific property type. In this example, the borrower’s good collateral and character could offset the lack of cash and still gain a loan approval from a hard money lender. Or, a borrower may have good collateral but no cash or experience. Although less common, if the hard money lender is an asset-based lender, the good collateral could result in a loan approval despite the borrower’s lack of cash and experience. What if a borrower comes to a hard money lender for a loan and doesn’t possess any of these three criteria? In other words, what if a borrower has lousy collateral, zero cash and no prior experience? This is what a hard money lender calls a “dream,” in contrast to a real loan opportunity. Why won’t a hard money lender give a loan on just a dream? Would you lend to a borrower with lousy collateral, no cash and no character?

CONSUMER LOANS A consumer loan generally implies consumer purpose or “household use.” A residential property that is occupied by the borrower falls under the category of consumer. New consumer mortgage lending laws are cumbersome to comply with due to complex disclosures and other requirements. For this reason, even the big banks have turned their focus away from mortgages and have been funding other types of consumer debt instead. With tighter lending laws in place post-Great Recession, borrowers who can’t qualify are seeking other options for home loans. These borrowers quickly discover that there are very few options available to them from hard money lenders. This is because most hard money lenders simply will not make consumer loans because the regulatory compliance and licensing requirements of consumer loans is just too overwhelming for private lenders who have limited resources. There are a lot of myths and misperceptions about hard money lenders that don’t reflect reality. All lenders have been forced to adapt to the drastic changes in the lending environment in the

past decade. The hard money lenders that survived the last real estate crisis have certainly evolved and changed their business models. Despite the changes in private lending over the past decade, old perceptions tend to die hard. And until the perceptions about hard money start to change, hard money lenders will continue to receive loan requests that have no chance of getting funded. ∞

ABOUT THE AUTHOR

COREY DUTTON Corey Dutton is the founder of Private Money Utah, a

real estate lender that focuses on the Western U.S. Corey

lends primarily to real estate

investors to help them create successful real estate investments. She has funded

more than $150 million in

real estate loans since 2008. Corey is a licensed principal lending manager. She

obtained her MBA in 2005

from the Thunderbird School of Global Management.

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website to watch tutorials of how the software worked. Unlike mail merge, which required using different document sets for different loan scenarios, the software permitted a user to use conditions. For example, I could write a condition stating that if there was no text entered in the “Guarantor” question, then the document stack should not produce a Guaranty. Better yet, it would modify the recitals in other documents to remove any reference to a Guarantor. While this may sound easy, it was revolutionary. The software was dynamically changing sentence structures based on the conditions we were programming. We were beginning to build loan document automation software. From 2015 to 2017, we pushed the software to its limits. We hired outside consultants who coded our documents, including custom client conditions, directly into the loan documents We were able to keep our prices down and were delivering work product that was fast and high quality. In 2018 I read Tomorrow’s Lawyers by Andrew Susskind. The book discussed how to break most tasks into their most basic units and determine whether the task could be: (1) performed by software, (2) offshored to a non-attorney for almost no fee, (3) performed by a non-attorney, (4) per-

I was named partner at Geraci LLP in December 2015.

At the time, there were six attorneys on my team. A new

reality set in. Clients demanded that loan documents be produced cheaper, faster and with no errors.

formed by a remote attorney at a cheaper labor rate or, in the worst case scenario, (5) performed by an attorney on your payroll locally. He rightfully noted that clients would continue to push down fees, and lawyers would need to focus only on tasks requiring a high degree of skill: strategy, negotiation and tactics. Anything repeatable would not be done by an attorney; better yet, anything repeatable would not be done by humans at all.

complicated. We were dealing with complex entity struc-

I started to think about how these principles applied to my area of practice. To prepare a set of loan documents, I need to:

making basic automation useless. Instead of being 70%

O btain the terms from the client (could be done by software).

O btain documents from the client (e.g., operating agreements and title reports; could be done by someone who is skilled enough to understand what docu-

The problem was that loans were becoming exceedingly

tures and terms, multiple properties and multiple states, complete by the time we were done with the Excel file, we were at best 25%.

I remembered a conversation with a client about the

automation software he was using. I went to the company’s

PRIVATE LENDER

ments are necessary and also able to read through the documents to understand if there are deficiencies). 3.

nalyze the documents provided to determine signaA ture authority, what form of title policy is correct, what types of title endorsements the loan should have and whether the loan was compliant from a regulatory and statutory perspective (needs a highly skilled attorney or someone trained by an attorney).

I nput the terms into software to generate the documents (could likely be outsourced to a cheap labor source).

P roduce the documents using software.

eview the documents to make sure they are complete, R compliant and match the client’s desires (requires a highly skilled attorney based on complexity).

Up to this point, we had attorneys performing all six tasks. We immediately hired several loan processors, purchased best-in-class automation software and began furiously coding and re-engineering the way we practice law. I started breaking down the time and expertise required and stopped thinking about the preparation of loan documents as a single task that cost around $1,000. Instead, it was six distinct tasks, and we needed to be able to allow clients to pick and choose which ones they wanted us to perform, so they could control costs.

Now I spend most of my time focusing on advancing automation. Most days I am working with web developers, internal and external document coders and workflow consultants. We built a best-in-class nationwide online loan document solution that produces thousands of loan documents per month. But what about modifications, forbearances, loan sale agreements and other loan-related agreements? What about private placements, litigation pleadings and all other legal documents? If it’s repeatable, it’s automatable. What about you? Do you repeat any task daily? Do you manually update a Word document when issuing a letter of intent? Are you the only person who is technically trained to perform every task that you perform at work? If not, you’re fighting for your survival as well. We are just scratching the surface of what software can produce. If you are not harnessing technology and breaking every task into its basic units, you are on the wrong side of history. Technology is great. It lets us perform tasks in less than an hour that used to take 6-8 hours. But here’s the thing: Someone with technical skills is looking at your job right now and figuring out how to do it cheaper, faster and better. Maybe Anthony wasn’t so crazy after all. ∞

GER ACI’S FULLY AUTOMATED S YS TEM

The Real Estate Finance Group at Geraci LLP is

We built a fully automated online loan documentation sys-

with the law firm.

tem. A client can go online and instantaneously receive the same loan documents that we would have produced using

managed by Nema Daghbandan, Esq., a partner Daghbandan’s practice entails all facets of lending matters across the country, including but not

our software. The transactions can have multiple borrow-

limited to the preparation of loan documents and addenda in all

impounds, complex entity structures, construction, mem-

secondary market documents, including loan sales and participation

ers, properties, prepayment penalties, interest holdbacks, bership pledges, collateral security agreements and a myriad other complex drafting features and yet be produced

instantly. We offer this as a standalone service for as little as $200 per loan file.

50 states, loss mitigation efforts, preparation and negotiation of agreements, line of credit/warehouse facilities, hypothecations

and securitizations. Daghbandan advises financial institutions on

various lending matters, including licensing, usury and foreclosure.

Daghbandan is also an expert in default management and leads the firm’s nonjudicial trustee group.

SEPTEMBER/OCTOBER 2019

BUSINESS STR ATEGY

Look Before You Leap Into Faraway Deals Assessing the risks of low-rent/high-cap rate investments in out-of-state markets. b y Edward Brown

any investors,

premier locations within luxury

previously seen over the past

out property producing CAP

primarily

areas in the Bay Area, CAP rates

few years have diminished.

rates above 5% in order to make

those in

have been known to drop below

The real estate market is still

a prudent investment.

California,

2%. With interest rates at 4+%

strong, however, especially in

have investigated purchasing

or more, negative cash flow is

desirable locations, and there

In addition, the debt service

rental property in states they

a certainty unless the buyer

does not appear to be a reces-

would have previously not

is putting down a tremendous

sion in the immediate future—

considered. The reason? The

amount of cash or the rents are

or so say the experts.

low capitalization rates in

unreasonably low and the buyer

California compared to Mid-

can raise them to market levels.

Most investors put as little down

down payment or look for

as possible, or do not have the

property with a higher CAP

coverage ratios imposed by most banks have crept upward of 1.35. This forces the investor to either put up a much larger

west and Southern states.

Foreign buyers were one of the

wherewithal to put large down

rate. Since most investors do

There is so much money in Cali-

reasons that prices increased

payments on investment real

not have the extra cash to put

at a rapid pace. Many of those

estate. Many banks will lend

down, they have looked to

home that prices of real estate,

buyers, however, are faced with

up to 70%-75% for the right

other, less historically stable

whether apartments, houses or

their own country’s financial

property and a solid borrower.

rental markets such as Indi-

even commercial, have sky-

restrictions on investments

With borrowing rates still sub-

ana, Georgia, the Kansas City

rocketed to the point where

outside of their home country.

5% in many circumstances, the

metro area and Tennessee.

CAP rates have plummeted. In

As a result, the multiple offers

buyers of real estate must seek

Promoters of rental real estate

fornia looking for an investment

PRIVATE LENDER

in these states boast of CAP rates exceeding 8%. Some have even suggested that properties producing 10% CAP rates exist.

BASIC QUESTIONS TO ASK

management headache out of the equation. Many promoters will often sell the real estate to the investor [either from their own inventory or “double escrow” a sale]. Or, the promoter may just act as a broker

California investors and other investors who are far from the real estate they are purchasing need to carefully analyze all aspects of owning real estate, including, but not limited to weather, real estate taxes, turnover costs and management. A CAP rate of 10% can be very enticing, especially if the promoter claims to also take the

and charge a commission for the purchase of the property by the investor. The promoter also may act as the management company attempting to alleviate the investor’s worry of finding a tenant to rent the property. The investor needs to

your property as com-

of turnover. This is where a

also be managing?

expensive area may be more

pared to others they may

lower CAP rate property in an

H ow are repairs and main-

prudent than a low-rent, high-

tenance issues handled?

W ill the management

company have some

discretion as to what is needed and when?

I f the unit is vacant, is a fee

still owed to the manager?

THE COST OF TURNOVER

consider a few things: W ill the management com-

pany try to get a tenant for

CAP rate location. The reason is that many expenses do not vary much from state to state, particularly materials. Carpet is the easiest material for making this point. Let’s say, a 1,500-square-foot unit in a good area of San Francisco rents for $3,500 per month. This similar unit in Memphis, Tennessee, might rent for $1,200. Once the tenant moves

One of the biggest expenses most overlooked is the cost

out, the unit may need certain items fixed or replaced. SEPTEMBER/OCTOBER 2019

BUSINESS STR ATEGY

Because tenants are usually

required to make large deposits, one could argue that the

San Francisco house is more

conservative for the investor, as the larger deposit should

cover a significant portion of

what may need to be replaced or repaired. Just because the

tenant is paying $3,500 in San Francisco compared to the

other paying $1,200, does not mean that the appliances or

carpet are necessarily much

different. Most landlords are not going to put in high-end

furniture, appliances and so on in any rental.

Carpet from Home Depot, for example, costs 60 cents per

square foot for a specific Traf-

ficMASTER Dockside pattern.

This same carpet costs 62 cents per square foot in the San

Francisco Bay Area. A washer

and dryer set from Home Depot costs exactly the same in Ten-

nessee as it does in California. Thus, the rate of return from an expense side of replacement favors the California landlord.

ADDITIONAL CONSIDERATIONS Other issues to consider include the distance of owning property far from where the investor lives. Competent management is very important, as the investor will not want to spend a lot of money on travel chasing the rent [or eviction if necessary]. Owning property within 90 minutes of where the investor lives can be advantageous if problems arise. Another aspect to think about is the perceived profile of a higher paying renter. One might presume that a tenant paying $3,500 per month is more likely to be more careful with the unit than a tenant

“There is a reason why many savvy investors tout location, location, location.” 20

PRIVATE LENDER

paying $1,200. This is not

Also, looking at the increase in

always the case, of course, but

real estate values, the Cali-

more likely than not, tenants

fornia market has increased

willing to pay a significant

much more than the rest of

amount of rent [as compared

the nation. If one has used

to their wages as well as pure

leverage, this increase rises

dollar amounts] are usually

exponentially. Could it be that

aware of the consequences of

many of the buyers of low-

not respecting the landlord’s

CAP rate California real estate

property. In the previous exam-

have bet on this fact? Are they

ple, on average, rent in San

willing to forgo current cash

Francisco compared to rent in

flow for an expected increase

Memphis is significantly more

in the market value of the real

as a percentage of wages—as

estate, which would dwarf the

high as 48% in San Francisco

cash flow they did not get on a

versus 35% in Memphis.

monthly basis?

In summary, out-of-state real estate investments may potentially yield a good current rate of return, if no significant problems arise. But, should the unforeseen happen and expenses become a major factor, or if the economy starts to slow down or go into a recession, stable markets would most likely outperform in the long run because many inexpensive areas are the first to see large decreases in real estate. Thus, there is a reason why many savvy investors tout location, location, location. ∞

ABOUT THE AUTHOR

EDWARD BROWN Edward Brown is in the

public relations department of Pacific Private Money, a private lending company

based in Novato, California.

SEPTEMBER/OCTOBER 2019

LOAN SERVICING

PART 5 OF A 6-PART SERIES

TURNING PROPERT Y INTO PROSPERIT Y The better you become at loss mitigation and REO disposition, the better positioned you’ll be to gain prosperity through property. by Chris Ragland

THIS IS THE FIFTH ARTICLE IN A SIX-PART SERIES THAT COVERS ASSET MANAGEMENT AND THE DISPOSITION OF DISTRESSED LOANS.

PRIVATE LENDER

It’s not ideal, but it’s all too common. You just wanted to be a private lender, providing capital to real estate investors, a relatively hands-off proposition. But something went wrong, and here you are—the proud owner of a property that your borrower, for whatever reason, couldn’t complete.

Throughout this article

series, we’ve discussed every way possible to avoid ending up in this position—from

proper underwriting to loan servicing, collateral moni-

toring, up to and through the

now responsible for the most important part—disposing of the asset. But can you sell it? Your investors are probably asking the same question.

THE ASSET

foreclosure process.

If you were unable to take advantage of an internal

or external loss mitigation

process and had to develop

the property yourself, you’re

Much of your ability to sell the property is really “built in” to the home itself. From the outset of the original loan, you should have had a good idea of what

value could be achieved, given

During the finish out of the

the property’s location, char-

property, it’s wise to keep a few

acteristics and build out. Upon

things in mind. First, the work

foreclosure of the property,

must be up to par—meaning the

hopefully you evaluated the

appropriate quality of materials

stage and quality of construc-

and craftsmanship were used.

tion to determine if the bor-

These standards should have

rower followed their original

been laid out in the budget

plans and budget. And if they

detail during the underwriting

cut corners, by now you should

of the loan. In other words, if

have course-corrected, so the

the budget called for granite

finished home can fetch the

countertops and the borrower

price it needs to be profitable.

installed laminate, that’s a prob-

SEPTEMBER/OCTOBER 2019

LOAN SERVICING

lem. Correcting “oversights” like

to blend with the surround-

this before the home hits the

ing neighborhood, make sure

market may cost you additional

that your property maintains

capital up front, but it will make you money at the sale. You need to understand the architectural style of the neighborhood. If your property is surrounded by craftsman-style bungalow homes and you build a house with modern

stylistic consistency throughout. Don’t take prospective buyers on an architectural tour through time; again, you’ll have difficulty selling a house that doesn’t make sense.

MARKET WINDS

architecture, you might have a hard time selling it (and you

Understanding conditions and

might tick off the neighbors).

trends in the market will help

Whichever style is appropriate

you anticipate the outcome

PRIVATE LENDER

of the REO disposition. But it doesn’t start when you get ready to sell. Throughout the process of developing the property, be aware of a number of things that will affect your ability to sell it, as well as how much you can expect to sell it for. Before you continue construction on the property, get a Broker’s Price Opinion (BPO) or have an appraisal done. That way you know where the property value stands and what you need to do to build the appropriate value into the home.

Conducting price comparisons of similar properties in the area that have sold in the past few months will provide an additional point of reference. It will also give you some direction as you work toward completing the project, so you’ll have the best chance of achieving your target after repair value. Your local board of realtors or other real estate organization probably tracks metrics like median home values, days on market, months of inventory, etc. The more you know about your spe-

“Even if you’re accustomed to reporting regularly to your investors, reporting on REOs is very different from what you’re probably used to.” cific area, the better equipped

as you’re able to thoroughly

or, in a best-case scenario, the

closure, before you make a single

you’ll be to mitigate your losses better chance you’ll have to

turn an REO property into a

evaluate the property post-fore-

movement on the project, before you do absolutely anything

an opportunity to be transparent and show your investors that you can be agile and accountable when a problem arises.

about you and your money. If

Your communication with the

more likely it’s about your inves-

impacted by any foreclosure

the project and understanding

brutally honest every step of

Finally, when you are about to sell the property, let your investors know that you are about to pay them back, fulfilling your mandate as a private lender. You can’t always control whether a loan goes into default, but the way you handle yourself and the situation when it does, speaks volumes about you and builds investors’ confidence in your ability to be successful.

you achieve a better outcome,

development, let your investors

THIS IS NOT THE END

cate more intelligently with

anxiety. If there’s a setback, let

even if you’re accustomed to

be ready to present them with a

investors, reporting on REOs is

obstacle may be.

If you’re a private lender dealing with REO properties, you’ve had to become an operator, a market strategist and an investor relations specialist. But the skills you acquire from learning to dispose of distressed assets will put you a step ahead of many other private lending operations in the industry.

successful project.

INVESTOR COMMUNICATION Remember, this isn’t all just

else, you must allay the fears of

your investors. Start by putting together a pro forma outlining your plan for disposition and

forecasting the favorable outcome you hope to produce.

you’re a private lender, then

investors who are potentially

tors and their money. Knowing

should be reliably regular and

your market will not only help

the way. If there’s a positive

it will allow you to communi-

know quickly to relieve their

your capital providers. And,

them know even quicker and

reporting regularly to your

plan to overcome whatever that

very different from what you’re

Whenever there’s a problem

probably used to.

with a project, the frequency

Once a loan defaults and your

of communication with your

you can expect them to start

too often, lenders cease commu-

they should be. So, it’s in your

to work through an issue. But

a master communicator. As soon

you work to rectify a problem is

investors begin missing returns,

investors should increase. All

lighting the torches. And, well

nication when they are trying

best interest to quickly become

communicating frequently as

lation of these distressed loans bubbling up to the surface. All lenders have them, big banks and small shops alike. They just may not be out in the open yet. The more adept you become at loss mitigation and REO disposition, the better positioned you’ll be to turn a property into prosperity. ∞

ABOUT THE AUTHOR

CHRIS RAGLAND Chris Ragland is the chief

operating officer of Noble Capital, a private invest-

As the next few years unfold, the private lending industry will begin to see the accumu-

ment firm specializing in real estate. He is responsible for

the day-to-day operations of Noble Capital, as well as for

spearheading the expansion of

existing and new business lines for the company. He hosts The

Noble Capital Radio Hour, a talk radio show produced by Noble Capital. Chris spent 15 years

building firms that specialize in loan servicing, loss mitigation, full service brokerage,

insurance, management,

maintenance, rehabilitation and REO disposition.

SEPTEMBER/OCTOBER 2019

LEGISL ATION

4 Ways a Green New Deal Could Present Opportunities for Private Lenders The GND can create opportunities for private lenders to make money while playing a role in rebuilding and renewing the country’s vital infrastructure. by Jeff Levin

uspend disbelief

when first taken up at the fed-

and imagine

to Social Security, Medicare,

for a moment

the Green New

Deal (GND) somehow has

passed into law, despite the fractured government in

Washington. What would it mean for private lenders?

It all depends on who’s definition of a GND we’re working with. In fact, today’s GND proposals are more of an elastic set of goals as opposed to concrete proposals. Before setting it aside as a pipe dream, remember that all landmark social programs were pipe dreams 26

PRIVATE LENDER

eral level. At first the obstacles Civil Rights, the Environmental Protection Agency and

marriage equality becoming

law seemed insurmountable; however, after some heavy lifting, they became law.

GREEN ORIGINS The genesis of a GND began

more than a decade ago with an opinion piece from journalist Thomas Friedman. Environmental groups around the

world picked up on it, and versions of it were a major plank for the Green Party in the U.S., including for their 2016 presidential candidate Jill Stein. The common goal was to support the U.N. climate panel’s report, which calls on all nations to reduce carbon emissions to prevent a further 1.5 degrees Celsius of global warming. The GND rose to national prominence earlier this year when freshman Representative Alexandria Ocasio-Cortez and Senator Ed Markey sponsored a pair of resolutions. Permutations of the bill were discussed,

each designed to address both climate change and economic inequality. It proposed to transition the U.S. to 100% renewable, zero-emission energy sources in 10 years and included investments in electric cars and high-speed rail to help get us there. It would implement the carbon tax that was sidelined after the Obama administration left office and set out to eliminate greenhouse gas emissions from the agricultural sector and create “clean manufacturing” facilities. The GND was heavy on social programs. It proposed to

would create jobs to repair, upgrade and expand our country’s roads, bridges, energy grid and water systems. Last year the federal government spent over $150 billion on infrastructure and other physical capital projects, according to the Congressional Budget Office. Much more is needed. The kind of infrastructure projects that could come about in some modified GND may include expanding light rail systems, replacing lead pipes in municipal and rural water works, upgrading the nation’s electricity grid, adding smart technology to support wind and solar power, remodeling stormwater systems, and restoring wetlands and other natural buffers to reduce flooding. guarantee employment and retirement security; provide universal health care, housing, economic security; ensure access to clean water and air, healthy food and nature; invest in better education and subsidized college tuition; and reduce corporate monopolies. With inclusion of such quasi-socialist talking points, it was considered by many scientists and the majority of both parties to be more of a political stunt than a serious resolution. Further derision ensued after “frequently asked questions” documents released

by Ocasio-Cortez staff went to even greater extremes, enabling critics to decry that the GND would ban air travel and eliminate all carbon emissions in 10 years, which were false. Republican Senate leadership swiftly killed it with a vote allowing no hearings, but the congressional upstarts were successful in their aim to make the GND part of the national conversation.

NEXT GREEN THING Whether you think the GND was an audacious call to put a man

on the moon or a self-serving and unrealistic socialist manifesto, it’s prudent to examine which aspects of the GND could generate bipartisan support and potentially become law. The most realistic portions are those dealing with infrastructure. Since the beginning of the Trump administration, both political parties held out hope of passing major legislation to fund the renewal of America’s infrastructure. This has yet to happen, but among the concepts espoused, the GND infrastructure renewal is the most realistic. Such legislation

PRIVATE/PUBLIC PARTNERSHIPS While there has been talk about federal direct-lending to support GND—ideas floated included a World Bank-style undertaking—it would be difficult to find an appetite for that in Washington. Any federal direct lending would be contentious, given previous failures like the defaulted loan guarantees made under the Obama administration to solar panel maker Solyndra, which eventually went bankrupt. SEPTEMBER/OCTOBER 2019

LEGISL ATION

In lieu of direct funding mechanisms, federal funding would have to come indirectly. Federal money could be directed through state and local governments, while other projects could involve private/ public partnerships. For private lenders, public/private opportunities hold promise. Today’s housing market offers plenty of case studies of public-private financing already at work. Lenders to new starts and renovations of single-family and multifamily projects frequently use loan guarantees from Fannie Mae, Freddie Mac, HUD and other agencies. However, GND projects suitable for public/private finance are diverse and go well beyond the construction sector. The following are four opportunities for further consideration:

OPPORTUNITIES FOR “LIQUIDITY” The first example is water systems that connect water utilities with their customer—the pipes. The costs to upgrade the nation’s pipes are staggering. By one estimate, U.S. water systems need to invest $1 trillion over the next 20 years. Local governments are

PRIVATE LENDER

“ Whether you think the GND was an audacious call to put a man on the moon or a self-serving and unrealistic socialist manifesto, it’s prudent to examine which aspects of the GND could generate bipartisan support and potentially become law. The most realistic portions are those dealing with infrastructure.” not particularly good at knowing which pipes and sewer lines actually belong to them versus state, county or private landowners. Since some underground pipes may be as old as 100 years, ownership of such assets is not well documented. Several states have passed legislation that allows towns to sell their water systems at “fair market value,” passing the costs of repairs, maintenance and billing to the new owner. Of course, for private lenders to participate in the water utility sector, they’d need clear title to underlying collateral. Establishing a mechanism to properly title water pipes and pumps is a critical first step to opening up financing. Assuming that gets figured out, this is an area ripe for lending because the income stream for water systems (no pun intended) is very reliable and low risk. Most communities have access to only one water supplier. Pension funds,

insurance companies and other long-term institutional investors have balance sheets with large and growing long-term liabilities, which they need to match with long-term assets. So, public-private partnerships can get waterworks projects going, and follow-on institutional investment can come in later as a means of refinancing. Can private lenders add value here? Absolutely. Our industry’s speed and flexibility represent an important capability for the early part of the value chain. This is a high-risk phase. Unexpected events are likely due to the complexity of infrastructure projects. Default rates are relatively high. Initial commitments by debtholders must extend far beyond this stage, as a project does not generate cash flows in this phase. We can be nimbler with local projects than banks, and operators can refinance later for a lower interest rate and lengthier tenor from institutional investors who need long-term returns. If projects

are structured properly, the efficiency gains from private sector involvement can easily outweigh additional funding costs.

ELECTRICITY IN THE AIR Another major concern of the GND is America’s aging electricity grid. As of this writing, blackouts triggered by surging demand in summer heat have blackened parts of the northeastern U.S. With higher industrial and consumer demands on voltage than ever before, significant improvements are needed to make the nation’s electrical grid more reliable. The major transmission networks don’t need private lending. They are usually managed by utilities, and some networks are managed by entities known as Independent System Operators (ISOs) or Regional Transmission Organizations (RTOs). Most of them access capital through bonds or the equity markets. Where private lending can come into play is with smaller scale complex projects aimed at making the grid more efficient. For example, storage technologies need to be improved and built to allow electricity to be saved for high demand peaks, particularly important for renewable

energies like wind and solar. More advanced meters such as self-programming thermostats in multiuse and mixed commercial real estate need to be deployed to provide for better data collection leading to better demand management. More smart charging stations are needed to connect electric cars to the electric grid. Private lenders cannot only help to provide financing for such projects, but also help to ensure that the project is run efficiently. If contracts are designed properly, private investors have an incentive to see that an infrastructure project is executed efficiently— because it increases the likelihood that their investment is safe and as profitable as expected.

RENEWING RENEWABLES Distributed energy projects, like solar panels on individual homes, add to the total electrical output in the country. Investments made by consumers (e.g., purchasing energy-efficient appliances, constructing more energy-efficient buildings and putting in more insulation) save money and utilize energy more efficiently. At the state level, programs like the clean-energy loan-financ-

ing system supported by the Energy Department, known as PACE, already leverage private-public financing. It’s easy enough to imagine the expansion of such public/ private programs at a much larger scale, and one that would involve nonbank lenders. Projects might start with hard money loans and then transition to Fannie Mae or Freddie Mac support once the energy project is completed. Every participant in the construction industry should consider how to integrate renewable energy sources like wind and solar into new builds, because indirect federal support for such programs could stem from some future GND, causing demand for them to grow because operators benefit from reduced expenses. Private lenders need to educate themselves about the costs, asset liquidation value and exit strategy for hard money loans that support distributed energy projects.

BANDING TOGETHER Because of the relatively higher risk profile for infrastructure projects, bank loans are generally extended by a syndicate of banks rather than a single bank. Syndicated loans diver-

sify the risks of a single project across a group of banks. Nonbank lenders should consider collaborating to approach infrastructure lending in a similar fashion. A lead lender can manage the origination, documentation and servicing of an infrastructure hard money loan. In the unfortunate event things go south and the borrower defaults, the lead bank can manage loss mitigation efforts, while the risk and recovery are spread fairly across the syndicate of nonbank lenders. This approach can allow hard money lenders to start to gain experience in GND-related projects without betting the ranch. The GND may be a political fever dream. Or it may serve as political cover for the congressional rank and file on the left to get on board with mainstream Democrats and the Republicans on massive infrastructure legislation. The aspects of such legislation that are most likely to come to fruition are future public/ private financing opportunities where private lenders can add value because of our speed and flexibility. If it all comes to pass, and we step out of our box a little bit, the GND can represent important opportunities to make money and feel great that we are helping rebuild and renew the country’s vital infrastructure. ∞

ABOUT THE AUTHOR

JEFF LEVIN Jeffrey Levin is a bestselling author and the founder and

president of Specialty Lending Group (SLG), a boutique private real estate lending

company servicing the Washington, D.C., metro area.

Prior to launching SLG, he

was the co-founder and CEO of iWantaLowRate.com and

Monument Mortgage. Levin is a recognized authority on real estate investing

and a frequent lecturer and panelist. He is a member of

the American Association of

Private Lenders and serves on its Education Advisory Com-

mittee. He is the author of the

Amazon best seller “The Insid-

er’s Guide to Private Lending,” which details his experiences in private lending and advice for individuals looking to get into the business.

Levin earned a bachelor’s

degree from the American

University in Washington, D.C.

SEPTEMBER/OCTOBER 2019

LEGISL ATION

GRC UPDATE: NEW JERSEY PASSES LICENSING LAW FOR NONBANK SERVICERS New Jersey is but one state where challenges to private lending are occurring.

AAPL’s Government Relations Committee (GRC) is constantly scanning nationwide legislation to review for current changes to the law that could affect private lenders. Once the GRC is aware of a potential issue facing our community, we serve as a voice to make sure private lenders are represented in decisions that affect them.

by Melissa Martorella

together its first position piece,

attempt to reduce competition

Disclosure Act (HMDA) and

The GRC immediately sprang

tackling the Home Mortgage

other consumer-based pieces of legislation that affect busi-

ness purpose loans. The full

position piece can be found at aaplonline.com/government.

FLORIDA CHALLENGES

from private lenders in the state. into action, sending several

parties to Tallahassee to speak in front of the legislative com-

mittee voting on the bill. Nema Daghbandan, Esq., of Geraci LLP, and Edwin Epperson, a

private lender based in Florida, were among the instrumental

The GRC was born after a Day on the Hill in Washington, D.C., when several leaders in the industry met with members of Congress to discuss the various federal legislation that affect private lenders. After a day of lobbying and internal discussion, the group put

PRIVATE LENDER

Shortly after, the GRC met

players representing the GRC’s

for the third year in a row,

licensing bill. The GRC also

gage licensing laws to require

country that lend in Florida

business purpose loans to

opposing passage of the bill.

another challenge. Florida,

position against the mortgage

attempted to change its mort-

had private lenders across the

private money lenders making

send petitions to the legislature

become licensed in the state.

All this effort led the Florida

ested parties in Florida as an

version of the bill that did not

The bill was backed by inter-

lawmakers to pass a different

include the mortgage licensing law changes. The strong

opposition led by the GRC and

the private lending community was essential to protecting the industryâ&#x20AC;&#x2122;s interests.

NEW YORK BILL TARGETS FIX-AND-FLIP LOANS Currently, the GRC is peti-

tioning New York legislators

who are trying to pass a new

bill that would affect private lenders (and their borrow-

ers) within New York City. If

passed, New York Senate Bill

3060-E will eliminate the ability of private lenders to fund fix-and-flip loans within the

city limits. Upon the sale of a

property, if an owner has held the property for less than two years, there is up to a 20% tax to be assessed upon the sale. Assessing huge tax penalties for short-term ownership will prevent borrowers from making a living by purchasing homes to rehabilitate and then selling them for a profit. In turn, many private lenders who help these borrowers by funding their loans will need to direct their money elsewhere, essentially eliminating short-term fixand-flip projects within the city. Ultimately, this harms New York consumers, who are already in dire need of housing. The GRC learned of this proposed legislation early in

the process. There is still

The new legislation introduced

passing, and you can do your

servicers to be licensed and to

time to prevent the bill from part by reviewing the GRCâ&#x20AC;&#x2122;s

position on the bill and signing our online petition at

aaplonline.com/petitions.

NEW JERSEY LICENSING REQUIREMENTS

in New Jersey mandates loan

obtain a $100,000 bond before operating in the state. The law passed April 29 and went into effect July 28, 2019.

The New Jersey Mortgage Servicers Licensing Act

also specifies additional obligations and responsibilities

Sometimes there are changes

of licensed servicers, such as

nity as a whole, but a small

reports and specific disclosure

For private lenders in New

Some banking institutions and

consumer purpose loans, New

the rule, as are already-licensed

that may not affect the commu-

record keeping, filing annual

subset of our private lenders.

requirements.

Jersey that make and service

credit unions are exempt from

Jersey has recently enacted

legislation that will change

your licensing requirements.

New Jersey mortgage lend-

ers. To act as servicers, these

already-licensed entities must

SEPTEMBER/OCTOBER 2019

LEGISL ATION

follow the surety bond require-

To obtain a license, individuals

ments of the law and carry

will need to fulfill the follow-

errors and omissions coverage

ing requirements:

as specified under the Act.

Identify a qualified individ-

Moreover, entities that service five or fewer residential mortgage loans per year are also exempt from the provisions of the law. The state requires that those entities needing a license must register with the Department of Banking and Insurance. The main office and each branch office of the applicant require separate licenses.

ual for the main office and a branch manager for any

branch office; each of these must have at least three

years of experience in the mortgage servicing busi-

ness within the five years

preceding the application. D emonstrate that within

the preceding seven

years, the applicant, the

D o n ’ t M i s s Op

qualified individual, control persons and branch managers have no felonies for which they been convicted, pleaded guilty or nolo contendere to, in a domestic, foreign or military court, or any crime related to fraud, dishonesty, etc. D emonstrate the financial

responsibility, character and general fitness of the applicant, managers, officers, qualified individuals and control persons so as

t! h g i N g en i n

American Association of Private Lenders’

VIP RECEPTION at our 10th Annual Conference

7:30PM Thurs, Nov 7 • AAPLCONFERENCE.COM FREE for sponsors & AAPL members • $149 tickets • RSVP REQUIRED

PRIVATE LENDER

to warrant a determina-

tion that they will operate according to the provisions of the Act.

M eet the requirements

to post a $100,000 surety

bond (per office location),

a fidelity bond, and secure errors and omissions cov-

erage (see next section for more information about the bond requirement).

C omplete a license appli-

cation on a form provided by the Commissioner.

M ake sure no material

misstatement has been made in the application.

P rovide information con-

cerning the identity of the applicant, control persons, the qualified individual and branch managers.

“New Jersey’s law is not new. It is just the latest of a string of states that are beginning to require licensing for nonbank mortgage servicers.”

ABOUT THE AUTHOR

M eet any other require-

ments determined by the Commissioner of Banking and Insurance.

Pay an initial license

fee of $1,000.

The first of these applications will expire at the end of the year for which they have been issued, unless issued on or after Nov. 1. Licenses issued after Nov. 1 will expire at the end of the following year. In the year in which the license expires, they will need to be renewed between Nov. 1 and Dec. 31. The renewal fee is $3,000, which is higher than the stand-alone license because it is valid for three full years. The Act also lists specific prohibited activities that would result in a servicer being penalized or losing their servicing license. The $100,000 bond requirement guarantees a servicer’s compliance with the provisions

of the Act. It is further conditioned on a servicer’s performance of all agreements and commitments they have with mortgagors and mortgagees. It will encompass all funds received in their capacity as a servicer, regardless of where those funds originated. Any servicer that violates such an agreement or fails to perform per the terms of a contract, thereby causing damage to a mortgagor, subjects themselves to a possible claim against the surety bond. If a claim is filed against a servicer’s bond, an investigation will ensue, and the surety company will confirm the claim is valid. If it determines the claim is accurate, it may extend compensation to the claimants for up to the full amount of the surety bond, depending on actual or future damages. New Jersey’s law is not new. It is just the latest of a string of states that are beginning to require licensing for nonbank mortgage

servicers. Pennsylvania passed a law that requires nonbank servicers to get licensed and bonded by June 2018. That law also establishes a minimum net worth criterion for which servicers must comply. For most mortgage servicers, the licensing process is handled by the Nationwide Multistate Licensing System (NMLS), and they must submit their full application and supporting documents via the NMLS website. ∞

MELISSA MARTORELLA Martorella joined Geraci

Law Firm as an associate

attorney in the banking and finance section in August

2015. Martorella’s experience

includes representing lenders and brokers, preparing commercial, residential and con-

struction loan documents, as

well as drafting assignments, extensions, modifications and subordination agree-

ments. She also has experience assisting with negotiating the

terms of transactions, drafting custom language and closing

loans. Martorella has prepared loan documents for transac-

tions all over the country and adheres to the compliance of state-specific laws.

The GRC strives to protect the interest of the private lending community. From its Day on the Hill to reviewing New Jersey licensing, the GRC is committed to updating AAPL’s members on the issues that affect them.

If you have questions regarding mortgage licensing requirements or other lending

compliance questions, please reach out to Martorella at

m.martorella@geracillp.com.

For more information regarding

the GRC and its activities, please go to aaplonline.com/government.

SEPTEMBER/OCTOBER 2019

N O V E M B E R 7- 9, 2 0 19 C A E S A R S PA L A C E , L A S V E G A S

AAPL CONFERENCE the N AT I O N â&#x20AC;&#x2122; S L A R G E S T P R I VAT E L E N D E R E V E N T

featuring B A R N E Y F R A N K as keynote speaker

PRIVATE LENDER

EVENT OVERVIEW A KEYNOTE FROM FORMER CONGRESSMAN BARNEY FR ANK In honor of our 10th anniversary, this year features a keynote presentation from former congressman Barney Frank, whose legislation— for better or worse—has arguably had one of the largest impacts on our industry. This is a once-in-a-lifetime opportunity to get inside the mind of one-half of the Dodd-Frank Act duo during a targeted presentation and Q & A. “After observing the evolution of the Dodd-Frank Act, it is a better time than ever to be able to talk face-to-face with those it has impacted. What better opportunity could there be than to present at the American Association of Private Lenders Annual Conference.” - Barney Frank

CONFERENCE SESSIONS With three session tracks interspersed with main stage presentations, the 10th Annual Conference gives attendees the ability to choose from more than 45 top-of-their-field experts. Sessions feature topics tailored to private lenders and ranging from legal and compliance issues, to data analytics, market trends and forecasts, business strategy and more.

NET WORKING OPPORTUNITIES T H U R S , N O V. 7 7: 3 0 P M

V I P R EC E P T I O N | To celebrate our 10th anniversary, we’ve rented out the OMNIA Nightclub in Caesar’s Palace. Take in views from the terrace overlooking the Las Vegas Strip while enjoying cocktails and hors d’oeuvres. The reception is complimentary for conference sponsors and A APL members, and available for guest purchase during online conference registration. RSVP required.

F R I , N O V. 8

S PE E D N E T WO R K I N G | This fun, fast-paced hour will put you on a first-name basis (if you can remember

5:00PM

them all!) with nearly everyone at the conference. Come prepared with a stack of business cards!

F R I , N O V. 8

A F T E R- H O U R S R EC E P T I O N | Continue conversations at this after-hours networking reception, where

5:30PM

attendees, sponsors and speakers can enjoy complimentary hors d’oeuvres and the happy aftereffects of two drink tokens following the first full day of sessions.

A A P L D E S I G N AT I O N C O U R S E S A APL offers its members two certifications: Certified Private Lender Associate (CPL A) and Certified Fund Manager (CFM). These full-day courses, held Thursday, Nov. 7, offer comprehensive overviews and learning. Members who pass the final exam may use the official A APL designation and corresponding emblem in marketing and promotion.

SEPTEMBER/OCTOBER 2019

TITLE SPONSORS GO WITH THE FLOW THE ALPHAFLOW In 2015, in a small, windowless office in the least expensive temporary space available just outside of San Francisco, the founders of AlphaFlow began building the foundation of their new, tech-driven investment platform. Six months later, their first fund was live. Today, AlphaFlow partners with private real estate lenders who provide 6- to 12-month bridge loans on single-family and multifamily properties, buying their loans and growing their businesses. AlphaFlow was the first company to make the fix-and-flip industry available to institutional investors at scale and quality. They put technology and data at the forefront of their strategy—streamlining workflow and finding simple and straightforward solutions to the unique challenges that lenders in the industry face. Just like the work they do, the AlphaFlow team is streamlined and efficient. With a staff of fewer than 25 former lenders and software engineers, they attract and keep great borrowers, underwrite loans with skill and help clients quickly recycle their capital back into their businesses. AlphaFlow has seen its strategy succeed time and time again. At the end of the day, they gauge success by the clearest sign out there: When each party involved has made more money—plain and simple. And this has become a trend they’re accustomed to seeing.

T R A N S F O R M I N G O B S TA C L E S I N T O O P P O R T U N I T I E S R I S I N G U P W I T H R E S I D E N T I A L C A P I TA L PA R T N E R S The unforgiving economic environment immediately following the 2008 financial crisis was one in which nearly everyone in the housing industry—from lenders and investors to flippers and contractors—had to find and secure new footing. So, in 2009, when Residential Capital Partners, LLC opened its doors, they focused on building a strong foundation right out of the gate—and merged it with a desire to manufacture thoughtful and creative financial tools on behalf of their borrowers. “Our firm was born out of the global financial crisis,” said Paul Jackson, principal of Residential Capital. “With roots in the commercial real estate investment and development business, we turned our attention to buying distressed debt during the downturn and underwrote every asset type offered by the major banks during that period.” With a focus on hard, thoughtful, client-centered work, Residential Capital quickly made a name for itself in the years following the global economic downturn. They entered the industry offering innovative solutions to help customers weather the storm with bridge rental products, specifically a hard money, fix-and-flip solution and a rehab-to-rental solution, both of which positively benefited the industry upon launch. Both solutions have been tailored and tweaked over the past 10 years to maintain efficiency as the economy evolves.

PRIVATE LENDER

2019 SPONSORS P L AT I N U M S P O N S O R S

S I LV E R S P O N S O R S

BRONZE SPONSORS

WIFI SPONSORS

EXHIBITORS Activist Legal

Kennedy Funding

Scotsman Guide

Bridge Loan Network

LaRocca Hornik Rosen & Greenberg LLP

Secured Investment Corp

Carolina Capital Management

Mediknox

Sharestates Toorak Capital Partners

Cherrywood Mortgage, LLC

Private Lender Link, Inc.

Chetu

Private Mortgage Fund

Total Lender Solutions

Elmsure Insurance Agency

ProDeal

Velocity Mortgage Capital

Equity Trust

REI Loans

Western Technologies

Evergreen Note Servicing

Roc Capital Holdings, LLC

Group

Househacker Pro

Scheer Law Group, LLP

Zinc Financial

SEPTEMBER/OCTOBER 2019

MEET YOUR HOSTS OUR ANNUAL CONFERENCE IS THE S I N G L E L A R G E S T P R I VAT E L E N D I N G E V E N T OF THE YEAR, AND THIS YEAR WILL BE BIGGER AND BETTER THAN EVER. J o i n A A PL a s we c e l e b r a t e 10 ye a r s o f p r ov i d i n g t h e i n d u s t r y 's o n l y C o d e o f E t h i c s a n d s e r v i n g a s t h e p r e m i e r s o u r c e f o r p r i v a t e l e n d e r e d u c a t i o n , e t h i c s a n d a d vo c a c y. O ve r t wo a c t i o n - p a c ke d d ay s , yo u â&#x20AC;&#x2122;l l l e a r n f r o m m o r e t h a n 4 5 s p e a ke r s a n d n e t wo r k w i t h m o r e t h a n 50 0 a t t e n d e e s . Re g i s t e r t o d ay a t a a p l c o n f e r e n c e.c o m .

MEET YO U R HOSTS

D Cha I E W irm an I L S O N &C EO

PRIVATE LENDER

Man N D A ag ing H Y D E Dir ec to r

K AT

Proj e

H ct D U N eve G E l op R F O RD me nt Ma nager

AWARD NOMINEES 2 0 19 E X C E L L E N C E A W A R D S N O M I N E E S As your association, A APL is pledged to champion the private lending industry as a viable alternative to conventional finance and to promote the industry’s reputation and future growth. We believe, as part of that mission, that it’s crucial to recognize those in the industry who look beyond the bounds of their own businesses and elevate the private lending profession. Our Excellence Awards showcase peer-nominated members who have leveraged their resources to solve problems, advance the industry and professional performance, kick-start innovation and improve their communities. Each year, we gather nominations for Lender Member of the Year, Service Provider Member of the Year, Rising Star and Community Impact Awards. We’ll announce winners—by popular vote—at our 10th Annual Conference. Check out the nominees below.

R I S I N G S TA R Rising Stars are members who have accomplished outstanding growth in their companies over the past year. PA R K E R C ROC K E T T | PeerStreet “Parker has risen through the ranks to become one

C A M I LO N I Ñ O & R I C A R DO U R I B E | LV Lending

of our top senior analysts. He started out as an

“As founding partners, they have led the firm

many of our process improvements and piloting

profile transactions, including Tyler Perry’s former

product lines. He’s a top performer, a mentor to his

a current servicing portfolio of $171 million, and

intense deadlines.”

than $331 million via 460 loan transactions in

intern and has moved through the company, driving

to represent some of the region’s most high-

a program that is now one of our most important

production studio in Atlanta. The company has

colleagues and highly collaborative in the face of

since starting operations in 2013, has closed more

— Rebekah Jack, PeerStreet

A B H I GO LH A R | Summit and Crowne “Abhi is a wealth of knowledge in the real estate

Florida and Georgia.”

— Jennifer Becker, LV Lending

JACO B T H E R R I E N | Bridge Loan Network

space, whether investing or lending. His willingness

“Jacob has been a major factor in the company’s

industry trends sets him apart. He is fast making a

space this year. Bridge Loan Network now has 251

host, speaker and writer.”

He’s worked diligently to ensure users understand

to educate others and stay at the forefront of

expansion and evolution in the private lending

name for himself as a nationally syndicated radio

active lenders and close to 2,000 active brokers.

— Carmen Fields, Think Realty

everything the platform has to offer.” — Erica Sikoski, RCN Capital

SEPTEMBER/OCTOBER 2019

AWARD NOMINEES MEMBER OF THE YEAR This award goes to one lender and one service provider based on their deep expertise, unique value, and strong commitment to clients and growing the industry.

LENDERS

SERVICE PROVIDERS

BO B E A K I N | Jcap Private Lending

N E M A DAG H BA N DA N | Geraci LLP

“Bob has been in the lending industry since the

“Nema’s commitment to the private lending

has started a video series to share his experience

conferences to representing AAPL in front of

‘80s, has mentored many people in his career and with everyone from up-and-comers to seasoned

professionals. He is also committed to partnering

with nonprofit organizations around the world, with projects in Vietnam, Peru, India and local urban youth programs.”

— L aurie Medina, Jcap Private Lending

M A R K FOSS E LL A | Summit Capital “Mark has helped Summit Capital see 100% growth year over year as an up-and-coming company that made $20 million in loans in 2018, with goals of $35 million for 2019.”

— Summit Capital employee

C H R I S R AG L A N D | Noble Capital “This year, more than ever, I have seen AAPL

his passion for the industry demonstrates his commitment to advancing its interests.” — M elissa Martorella, Geraci LLP

B R E W J O H N SO N | PeerStreet “Brew’s work as a founder of PeerStreet has

been instrumental in solving a crucial problem

for private lenders—access to capital. Providing a platform that connects lenders to investors around the country has materially improved

the mortgage finance ecosystem for lenders, investors and borrowers.”

— R ebekah Jack, PeerStreet

M I C H A E L T E D E SCO | Appraisal Nation “Michael brings a passion and expertise that is

leadership, this year Chris has been one of those

on in the industry, bringing his one-step-ahead

unique variable pieces in the puzzle that has

propelled the organization’s value to its members, brand awareness and overall significance.” — Romney Navarro, Noble Capital

PRIVATE LENDER

the Florida mortgage licensing legislative battle,

succeed in getting its message out. Though credit is due to the effectiveness of the association’s

industry is unmatched. From speaking at

contagious. He’s at the forefront of what’s going insight to his clients and colleagues and providing a much-needed service to private lenders and their business processes.”

— Valley Matlaga, Appraisal Nation

C O M M U N I T Y I M PAC T This award honors dedicated and innovative professionals and their commitment to bettering their local and/or private lending communities through volunteering, community development programs or civic/legislative efforts.

E DW I N E PPE R SO N |

Vertical Mortgage Fund

N AT H A N S H I N D E R | PeerStreet “Nathan led the charge in opening up a new loan

“Edwin was absolutely instrumental in fighting—

product that has a direct impact on borrowers’

legislation, volunteering hundreds of hours to the

available for rent. The widespread impact in

hearings and meetings with legislators.”

— Rebekah Jack, PeerStreet

and winning—the Florida mortgage licensing

ability to purchase and make more properties

cause and showing up personally to committee

communities is palpable.”

— Nema Daghbandan, Geraci LLP

SEPTEMBER/OCTOBER 2019

LENDER LIMELIGHTÂ WITH R AY STURM

Popping the Cork on Startups and Entrepreneurship

PRIVATE LENDER

Ray Sturmâ&#x20AC;&#x2122;s life

and business lessons by Caleb Olsen

SEPTEMBER/OCTOBER 2019

LENDER LIMELIGHT WITH R AY STURM

“In the early days of a company, nothing happens unless you make it happen.” Ray Sturm learned this pillar

HR group—it all starts from

of entrepreneurship quickly

scratch, and it was a tremen-

in his career. It was 2009,—

dous way to learn.”

years before he co-founded

Six years later, Sturm took

AlphaFlow, one of the private lending industry’s leading techdriven investment managers. Sturm and a friend had just ventured into the wine

those lessons and put them to work.

A SPARKLING STARTUP

industry, providing the Bay Area with their own style of pinot noir under a label called Maristany. Meanwhile, Sturm worked his day job in investment banking. “Coming from i-banking, which is full of rules and formats, starting the label was a great release and chance to be creative, while learning more about the wine world and business,” Sturm said. “It’s hard to see in a huge company, but in a small business, there are a lot of little things that you have to know how to do. The infrastructure behind everything, from finding an office space and hiring people, to having an

PRIVATE LENDER

In 2015, Sturm co-founded AlphaFlow with his friend and business partner, Bogdan Cirlig. Sturm says that with AlphaFlow, he has found his niche in the private lending industry. “We partner with private real estate lenders around the country to buy their loans and help them grow their businesses,” Sturm said. “As CEO, I take primary responsibility for establishing partnerships with institutional investors. It’s incredibly fun and fulfilling to one day work on setting a

to one of the world’s largest

makes AlphaFlow a fun place

asset managers and teaching

to work,” he said.

them about the private lending

Sturm is a natural in a role that

industry. I can’t imagine a job I’d rather be doing.”

relies so heavily on making new connections around the mar-

And it doesn’t hurt that at

ket. He’s developed remarkable

a Bay Area tech-based and

interpersonal skills through

forward-focused private lend-

years of pushing his own

ing startup, no two days are

limitations and expanding his

ever the same.

comfort zone. A few years ago,

“Every day in a tech startup

for example, he spent a month

is unique. Whether we’re working on technology or under-

traveling solo—something he believes everyone should try at

writing for partnerships and

least once—around Argentina.

nology leadership team, and

institutional investors, there’s

“I wanted to clear my head and

spend the next day pitching

always a lot going on, and it

get a fresh perspective,” he said,

product vision with our tech-

THINK YOU KNOW R AY S TURM? THIS OR THAT

COMEDY OR DRAMA? PENCIL AND PAPER OR TABLET AND STYLUS? LAPTOP AND EVERNOTE

CROSSWORD, SUDOKU OR WORD SEARCH? WORDS WITH FRIENDS

DOG OR CAT? BOTH! FICTION OR NONFICTION?

FAVORITES

“and to be gone long enough to finally stop feeling that phantom smartphone buzz in my pocket. It was a great chance to take a break, and I now have friends from around the world who I talk to all the time.” The thought of traversing a foreign country alone may be daunting, Sturm admitted, but he has a tip for those who might be willing to try it. “It can be scary the first day, but if you walk into a hostel with a big bottle of beer and sit down, people will join you.”

PHYSICAL ACTIVITY? CAMPING AND HIKING

THE WELL-BALANCED LIFE When he’s not spending time building new relationships, Sturm relaxes. “When I’m not working, I’m usually hiking or cooking,” he said. “On weekends, there’s nothing like barbequing with a cold beer after a nice, long hike and, fortunately, where I live in the Bay Area, I have lots of amazing trails close by. On workdays, I try to leave the office early enough to get home and cook dinner,

ALBUM? SAM'S TOWN, THE KILLERS SPORT? COLLEGE FOOTBALL BOOK FOR FUN? BARBARIAN DAYS: A SURFING LIFE, BY BILL FINNEGAN

BOOK FOR BUSINESS? THE HARD THING ABOUT HARD THINGS, BY BEN HOROWITZ

PLACE YOU'VE TRAVELED? YOSEMITE GUILTY PLEASURE? OREGON PINOT NOIR SEASON? AUTUMN HOLIDAY? CHRISTMAS MOVIE? THE GODFATHER: PART 11

SEPTEMBER/OCTOBER 2019

LENDER LIMELIGHT WITH R AY STURM

which is an incredible

allowing negative experiences

Sturm’s signature blend of

replacing it with what gave him

destressor for me.”

to affect the bottom line.

realism and optimism is more

personal satisfaction.

Sturm doesn’t like to understate

“Running and building a

than a simple sun-soaked view

“What I learned early in my

the importance of maintaining

business can be stressful and

a healthy work-life balance. He

sometimes overwhelming. It’s

believes that a clear and focused

helped me to realize that there

vision is crucial for long-term

may be bad conversations or

professional success. That’s why

bad hours, but rarely is there

he’s become proficient at sep-

a truly bad day. There are

in the enlightened, but all-too-

arating the bad from the good,

gut-wrenching moments, but

rare, act of letting go of what

or make a big salary, and took

taking things in stride and not

they’re just that—moments.”

he thought he wanted and

ownership of my own path, I felt

PRIVATE LENDER

of the lending industry. It’s an equation—a tried-and-true formula—that he chose, consciously and without regret. His professional outlook matured

career helps me today, but in those days, I was too focused on achievement instead of fulfillment,” he explained. “Once I let go of the need to work somewhere with name recognition,

gym and come into work with

“What I learned early in my career helps me today, but in those days, I was too focused on achievement instead of fulfillment. Once I let go of the need to work somewhere with name recognition, or make a big salary, and took ownership of my own path, I felt much more fulfilled, which has been a huge motivator for me.”

energy, feeling refueled and reloaded.” Sturm uses the podcasts to absorb as much information as possible. And, like his desire to build new relationships with people from around the globe, he’s constantly on the lookout for new and unique practices he can bring to the workplace. “Something I’m working

Is it formatted the right way?

You can get caught in paralysis by analysis. You can’t get to perfect without being done

first, because your customers are going to give you more

insight than you could ever

produce on your own. The real accuracy is getting it out there and getting customer feed-

back—that’s the most accurate thing in the world.” ∞

on right now is making room for leadership styles that diverge from mine,” Sturm said. “A great part of my job is getting to meet successful business owners around

ABOUT THE AUTHOR

the country with their own approaches and philosophies. I learn lessons from each one of these entrepreneurs, and I’m opening myself up to seeing the benefits in every style, and how I can put a piece of that into my own toolbox.”

THE SOMMELIER’S SECRET

much more fulfilled, which has

and clarity through his morn-

been a huge motivator for me.”

ing gym routine.

Sturm’s motivation shines

“The gym is a great place for

through his accomplishments,

me to clear my head, focus and

which allow him time to

get my thoughts aligned,” he

explore more aspects of his

said. “I start most days listen-

tion of inspired entrepreneurs?

life, discovering the things that

ing to a podcast. Right now it’s

make him the best version of

either ‘The Twenty Minute VC,’

“Done is better than perfect,”

himself. In addition to traveling

by Harry Stebbings, or ‘Invest

the world and spending free

Like the Best,’ with Patrick

time outdoors, Ray finds peace

O’Shaughnessy. Then I hit the

What words of wisdom does Sturm have for the next genera-

CALEB OLSEN Caleb Olsen is a freelance

writer, master’s student and comedian living in Kansas

City. His work has been published in newspapers, magazines, radio, TV and more.

Find Caleb on social media,

calebolsen.com or by emailing calebwolsen@gmail.com.

he said. “When starting a new business, you do a lot of guessing: Does the product work? Is the marketing channel correct?

SEPTEMBER/OCTOBER 2019

CASE STUDYÂ

REIMAGINED MID-CENTURY RANCH

A mid-century modern ranch located in Atlantaâ&#x20AC;&#x2122;s upscale Buckhead residential district gets a stylish makeover.

ight investors purchased and renovated a 4,615-squarefoot ranch style home in the desirable Buckhead's Haynes Manor neighborhood of Atlanta, Georgia.

The five-bedroom, four-bathroom home had not been updated in more than 15 years and required extensive renovation. Renovations included: A brand-new kitchen featuring marble countertops,

new stainless-steel appliances and custom cabinetry

A n updated master suite with a new bathroom, complete

with frameless shower and soaker tub

A new patio with built-in fire pit and babbling creek

The investors planned to sell the property once renovations were completed, anticipating a 40% return on investment.

PRIVATE LENDER

Lender // RCN Capital Location // Atlanta, Georgia Architecture Style // Ranch Originally Built // 1954

BEFORE

Square Feet // 4,615 Loan Amount // $1,016,900 LTV // 52% LTC // 86% Credit Score // Met 600

FICO Requirementâ&#x20AC;&#x201D; Investors had scores in mid-700s

Borrower Experience //

AFTER

New Investors

Interest Rate // 12% Length of Loan // 12 months Rehab Costs // $376,900 Summary of Opportunity //

While this property required a significant amount of money and rehab to get it to a marketable condition, the home is in a desirable neighborhood where property demand and values are increasing.

BEFORE

The project has been completed, and the property is currently listed for sale. The investors expect this home to sell quickly and anticipate a solid return on their investment.

AFTER

SEPTEMBER/OCTOBER 2019

MARKET TRENDSÂ

PRIVATE LENDER

OPPORTUNIT Y ZONES: ARE THEY AN OPPORTUNIT Y FOR YOU? Opportunity Zones can be a complicated subject for beginner and expert alike. by Noah Brocious

pportunity

subject, this one will help break

times referred

standable bits so you can easily

Zones—some-

to as OZs—are

a hot topic with real estate and investment profes-

sionals. They’re a popular

discussion for good reason.

If you are an investor in the right situation, these zones (and funds) offer some very advantageous tax benefits. While one article won’t make you an expert on this complicated

down the topic into underexplain what happens to your money when you invest in an Opportunity Zone.

PROGRAM To encourage development in low-income communities throughout the U.S., approximately 8,700 Opportunity

Zones were created as part of the 2017 Tax Cuts & Jobs Act.

In a 2018 article on Forbes.com,

writer Steven Bertoni described

efits won’t begin for five years after your initial investment in a qualified property (or fund).

the event as this: “An unlikely

Tax basis step-ups // As long

ticians quietly inserted a gen-

your share in the OZQF—that

to lure big dollars into areas

original investment—up to 15%

group of billionaires and poli-

as you don’t sell or exchange

erous new tax break designed

is, you don’t remove your

known as Opportunity Zones.”

of the original gains invested

But how do investments in these zones and funds actually work?

BENEFITS When an investor sells a property (stock, business, etc.) and

will still be tax deferrable when finally claimed, along with any accrued interest. Depending on the size of your project, the tax benefits alone could add up to a sizable savings. Invest outside of OZs too //

that sale results in an increase

If your money is being

proceeds are called capital

90% of the money in that fund

recently acquired this type of

located in Opportunity Zones.

reinvesting those monies in an

of the fund’s total can still be

Fund, a collection of money

non-Opportunity Zone proper-

erties located in these lower

could include investments in a

in capital for the investor, those

deployed through an OZQF,

gains (CG). Perhaps you have

must be invested in properties

income and are wondering if

However, the remaining 10%

Opportunity Zone Qualified

allocated for investments in

used for rehabilitating prop-

ties and endeavors. Examples

income communities (OZQF), or a property located in an

Opportunity Zone, might be

the right opportunity for you. Lower your tax liability //

new business, the acquisition of an existing business, or the expansion of an existing business or businesses. These opportunities qualify as well.

There are major tax benefits

Sound good so far? Let‘s exam-

your earnings into one of these

ments, such as important time

you’re in it for the long game.

will ultimately determine

for long-term holds. Tax ben-

out on this opportunity.

to be realized from reinvesting

ine some additional require-

zones or funds—but only if

limits for reinvestment, which

Opportunity Funds were set up

whether you profit from or lose

SEPTEMBER/OCTOBER 2019

MARKET TRENDS

REQUIREMENTS 180 days // Whether you choose an Opportunity Zone Qualified Fund, or a property within an approved zone, you’ll have no more than 180 days to choose where to reinvest your gains. Go “all in” // While your initial investment can be held back for other purposes, all your capital gains must be reinvested in order to qualify. For example, if you realized $20,000 in profit on Sept. 1, 2019, you must reinvest all $20,000 in a qualified fund within the 180 days mentioned above, or no later than Feb. 1, 2020. 52

PRIVATE LENDER

Substantial improvement of the property // 100% of the purchase price must be

invested into the renovation and development within 30

months of the acquisition. For example, if you buy a prop-

erty for $1,000,000, you must

invest another $1,000,000 into improvements in the first two and a half years. Although

“Opportunity Zones and funds are still a new concept, with more guidance and clarification to come.”

an existing structure can be purchased and renovated, for the most part, investors/funds

EXAMPLES

taking advantage of Opportunity Zone investments will be seeking “shovel ready” land that they will build out and hold, and then sell in five, seven or 10 or more years.

So, when might investing in an Opportunity Zone, or an Opportunity Fund, make the most sense for you as an investor? If you’ve realized capital

gains in the past six months

(or expect to in the future) and fall into one of the following two categories:

01 You’re an investor who is willing to purchase, renovate and hold a

property located in one of the designated census tracts for as long as 10 years before declaring your gains. If this is you, an Opportunity Zone property might be a good fit.

02 You prefer a more

passive investment role but are still comfortable leaving your gains to accrue (or not accrue) over the long term. If this sounds more up your alley, an Opportunity Zone Qualified Fund investment may be the better option for you.

Either way, if you’d like to explore a few real world examples, check out www.OpportunityDb.com for some good ones.

A FEW PRECAUTIONS Little to no historical data // Available information on past projects may be minimal due to several factors. Opportunity Zones are too new to have recordable data from which trends can be derived. Many of the homes or buildings selected by funds may still be in the construction or remodeling phase—if the project has been identified at all. Although

there has been a lot of buzz surrounding the program, and hundreds of millions of dollars have been raised by Opportunity Funds, most of these funds are still in the process of discovering projects and deploying the capital. Strict setup and accounting requirements // While a passive, long-term investment role with deferred taxes on gains may sound idyllic, there are stringent requirements for the set up and ongoing accounting. Depending on the size of an individual deal, these legal and accounting expenses may be cost prohibitive or a major drag on returns. Additional guidelines to come // Something else investors will want to be mindful of are changing IRS guidelines. Clarification on existing tax laws/regulations were recently released, with more anticipated in the future. What this means is that some of what we have learned and the guidelines that are in place now may be subject to change. Due diligence // Although an excellent opportunity for the right investor in the right situation, we are by no means advocating investment in Opportunity Zones without encouraging everyone to do their own research on the

topic. We believe it would be unwise to consider invest-

ing in a property or project

ABOUT THE AUTHOR

merely for the tax benefit, or solely because it is located

in an Opportunity Zone. All

development projects should

be vetted and underwritten the same, regardless of location, with importance placed on

whether the real estate project

has enough value and viability to stand on its own. Projects

should only be developed if the numbers work without considering the tax benefits.

NOAH BROCIOUS Noah Brocious is an Arizona native who attended Scottsdale Christian Academy

and later California Lutheran University, where he

graduated magna cum

From 35,000 feet or down in

laude with a BS in business

Zones can be a complicated

He moved back to Arizona

the trenches, Opportunity

administration.

subject for beginner and

to immerse himself in the real

expert alike. Remember that

Opportunity Zones and funds are still a new concept, with more guidance and clarifi-

cation to come. While there are risks—as there are with any investment—there are

countless projects to be found when investing your money

in real estate. Always consult

with an expert (your attorney, a certified public accountant, or other professional) to get

more information. After doing your due diligence, if you find

estate industry. Beginning with land development,

Brocious transitioned to a

development manager for Panattoni Development. Brocious is currently the

president of Capital Fund I, LLC, a licensed mortgage

bank that specializes in shortterm private money loans for real estate projects.

CFI serves real estate inves-

tors, builders and developers by providing asset-based residential, commercial,

construction, land and lot acquisition loans.

investing in these funds is not for you, perhaps you can still speak intelligently about the subject next time you are at

a cocktail party and the topic is discussed. ∞

SEPTEMBER/OCTOBER 2019

TECHNOLOGY

Making the Right Technology Decisions Integrating your business with technology is key to avoiding disruption of its future. by Ian J. Group

TODAY’S LANDSCAPE: THE RISK OF DISRUPTION Unlike other industries turned upside down at the hand of technology, private lenders have yet to see a true disrupting force change their landscape.

PRIVATE LENDER

Disruption is not a matter of if

30%. In the first half of 2018,

but rather a question of when.

global fintech investment hit a

Let’s look at the data. Technology platforms are making it easier for borrowers to find money and close transactions. In the last decade,

record high at just under $60 billion, with heavy hitters like JPMorgan that have committed to spend just over $11 billion in 2019. In May, Bloomberg

online mortgage lenders have

reported that Spain’s Banco

seen annual growth at around

Santander SA will invest $22

billion into digital transformation and information technology in the next four years. We can expect to see much more of this in the coming years. Consumer behavior is also driving commercial tech adoption. According to a 2013 study across 10,000 millennials, almost 75% of millennials expect technology to overhaul the way banks work. That same group would also rather handle their financial services needs through technology companies like Google, Amazon, Apple, PayPal or Square. With a clear shifting tide in both the future of lending and

a generation of future business decision makers, the private lenders who realize that adopting technology is the key to their future will be well placed to avoid disruption. As a private lender, you might consider that without the resources, funding or expertise of the large financial institutions, getting started may be impossible. But that does not have to be the case.

GETTING STARTED Often, the inspiration to future-proof your company

might lead to grand ideas of

solution, you may have a wide

platform. Step one here is to

software as a service (SAAS).

building out an entire custom get a strong understanding of your company’s goals. If

you’re a lender, you are origi-

nating loans and your goals are likely to include closing more

transactions. Stay focused and ask yourself: “What prob-

lem are we trying to solve?”

Chances are that your prob-

lem has already been solved

(i.e., someone in the industry has already used software to achieve a similar goal).

If you do discover that you’re in a situation in which someone else has already found a

variety of solutions, such as SAAS is a market-based

solution, meaning that SAAS

companies are not only selling to a specific segment of the market but their product

research and feedback is also

coming from the segment into which they are selling. Rather

than building or buying custom

extend beyond the confines of a small or mid-sized business. When you use SAAS, you can avoid the heavy customization in home-grown technologies that are difficult to scale. SAAS offers scalable, crowdsourced innovation at a predictable price.

EVALUATING TECHNOLOGY

tools, buying SAAS gives you

the ability to leverage the best

people in the world focused on addressing your issues.

SAAS product development is

also based on an overwhelming number of data points that

Assuming you are now in the market for a new SAAS solution, how do you best evaluate your options? Given that every company is different, you may need to add or subtract from the

SEPTEMBER/OCTOBER 2019

TECHNOLOGY

framework below. It is designed to not only help you stay focused but also to be a more educated and informed buyer.

01 Frame the problem //

Before you investigate the landscape of what technology is on the market, think about your business’s needs. Some lenders want a CRM to manage pipeline. Others want a tool to manage the closing process. End-to-end solutions will likely give you more features than you want and fail to deliver on what you need for your business. The more focused you are, the better off you will be.

02 G ather requirements //

Now that you know the problem, think about what you need to fix it. These fall into the categories of nontechnical success criteria, such as cost or time savings, or technical requirements, like the ability to integrate with your existing technology. Keep in mind that any good vendor will work to under-

PRIVATE LENDER

stand your requirements to align to your needs. To sell a solution, vendors need to ensure that it is solving your problems. If it does not, they either will not close the sale or the product will quickly become shelfware.

03 R esearch // In the same

way you underwrite a loan, do your due diligence on the options. The best way to find technology is to ask colleagues or industry peers. Attend trade shows and read industry publications, all of which are filled with the latest in technology trends and vendors. A simple Google search will also bring up company websites and blogs discussing a variety of tools.

04 R egroup // Now that you

know what is out there, how did the options stack up against your framework? Did they check all the boxes? Did you add any requirements you didn’t initially have? Measuring twice and cutting once gives you the ability to review everything at once to make the right decision.

“Stay focused and ask yourself: ‘What problem are we trying to solve?’” 05 E ngage // You’ve decided to use technology, hooray! Time to get going!

As your business evolves, it is critical to partner with vendors that have flexible and extensible platforms. The premise of the previous list is staying focused, but you will inevitably look to technology to grow and scale other parts of your business. Keep in mind that being locked into a rigid platform hinders business growth and destroys innovation.

IMPLEMENTING TECHNOLOGY Now that you have successfully navigated the vendor process, the next step is making sure your company uses your newly acquired technology. The following tips are aimed at avoid-

ing the pitfalls of a difficult technology rollout.

01 Take baby steps // The

approach here is the same as when you initially framed your problem: You started with a narrow focus. Implementing one solution at a time gives your team the mental bandwidth to learn a new platform and formulate new habits while continuing to focus on their dayto-day responsibilities.

02 Mandate // Mandating that

all employees use new technology is vital. Fifty percent of IT projects fail. At the end

they do not need to be fixed. With clear trends and lots of available solutions to take your business into the next generation, how will you think about future-proofing your company? â&#x2C6;&#x17E;

ABOUT THE AUTHOR

of the day, there cannot be a middle road. If you waiver on buy-in from everyone, the time and money you spent investing in technology will be wasted.

03 E ngage with your

employees // Whether it is once a week or once a quarter, ask your employees for feedback on the effectiveness of the technology. Understand whether they like it or if there are additional pain points. It is possible that there are limitations of functionality or your employees might not fully

understand the extent of the product offering. Your engagement will lead to better business decisions.

04 F orm a digital transfor-

mation committee // Take engagement with your employees a step further by forming an internal committee. Compile a mix of business and technical stakeholders in your company so that you are hyper-focused on the right solutions. This will allow you to address business challenges or operational goals versus making technology procurement

decisions in a vacuum void of checks and balances.

05 Lean on your vendor(s) // Most technology vendors provide onboarding ser-

vices as well as additional

training services. You have

limited time as it is, and you bought SAAS because you

wanted experts in your field. Lean on them for insights

and hands-on work for your team. It will pay dividends.

PARTING THOUGHTS

IAN GROUP Ian Group is the head of

customer success at ProDeal, where he works directly with private lenders looking to

implement ProDealâ&#x20AC;&#x2122;s transaction management platform.

Group has worked with hun-

dreds of organizations and has implemented more than $35 billion transacted across the ProDeal platform.

Prior to joining ProDeal, Group was an associate in the global real estate group at Hunton & Williams LLP where he repre-

sented institutional lenders and developers in large commercial

It is easy to take the approach that if things are not broken,

real estate transactions. He can be reached at ian@prodeal360. com or on Twitter (@iangroup).

SEPTEMBER/OCTOBER 2019

TECHNOLOGY

THE “PLATFORMIFICATION” OF PRIVATE LENDING by Brett Crosby

Technology is ushering in a new generation of private lenders armed with the tools to drive growth and achieve scale.

PRIVATE LENDER

eer-to-peer

lending may

have exploded

with the advent

of the internet, but savvy

private investors have long existed as alternatives to

traditional bank lenders for borrowers seeking loans, particularly where real estate is concerned.

Historically, private lending offered investors the potential for higher returns than other investment vehicles, but the nature of the business often limited its scale. Private lenders tended to operate within a small local radius, and many were constrained by a lack of resources and funding relative to their traditional banking counterparts. Today, innovation is ushering in a new generation of private lenders, and advances in technology are lifting many of the constraints that made it difficult to scale a successful business. Armed with new platforms, bigger networks and better data, these growth-oriented business owners are transforming the private lending industry for the digital age.

OPENING DIGITAL DOORS TO NEW SOURCES OF CAPITAL Traditionally, many private lenders turned to a limited circle of investors as capital sources. Connections to capital were often correlated directly with a lender’s relationships to investors, which were often defined by personal or business ties. Friends, family members, business contacts and, in many cases, the lender’s own personal wealth provided the funding for issuing loans to borrowers.

“Today, innovation is ushering in a new generation of private lenders, and advances in technology are lifting many of the constraints that made it difficult to scale a successful business.”

floodgates to a more robust capital pipeline. Digital

platforms and online market-

If the lender’s business grew faster than their network of capital sources, they generally had no choice but to pump the brakes—or to seek financing from other sources. Establishing connections with hedge funds or large sovereign wealth funds required a significant investment of time and resources—hiring securities attorneys, drawing up operating agreements and more. Seeking a line of credit from a bank was another option, but shorter track records or limited personal wealth made it difficult for some private lenders to qualify with banks’ stringent requirements.

places connect private lenders

Fortunately for the new generation of private lenders, technology has opened the

primarily on deal-making

with the global capital markets, which offer access to a vast

number of investors and capital sources—affording lenders more long-term funding

and, most importantly, heightened liquidity.

STREAMLINING OPERATIONS AND BOOSTING EFFICIENCY In private lending, advances in technology allow for a

more systematic approach

to loan origination. Where

private lenders may have relied

These “turnkey” originations allow private lenders to more quickly deliver documents to borrowers and close deals, helping drive increased deal volume. In today’s competitive lending marketplace, speed is a critical differentiator. Experience and instinct remain valuable tools for private lenders, but technology allows them to standardize operations. Instead of approaching each loan origination as a “gut-

feeling” deal, they can rely on a repeatable data-driven pro-

cess that not only drives speed and growth but also facilitates specialization. Successful lender teams often have several in-house specialists, whether it’s the real estate expert, the

instincts honed over years

of experience, technology is

driving a shift to a more standardized model.

SEPTEMBER/OCTOBER 2019

TECHNOLOGY

ABOUT THE AUTHOR

BRETT CROSBY Brett is the co-founder and

COO of PeerStreet, a platform for investing in real estate-

backed loans. He crafts the

company’s strategy, product

marketing expert, the credit expert or others. Having more scalable and institutionalized processes frees up mindshare for these experts to focus on doing what they do best—or allow teams that do not have such clear roles to focus on developing them. When originations happen smoothly and efficiently, team members can focus their time and energy on other activities like marketing, underwriting and packaging loans.

SEIZING THE “BIG DATA” OPPORTUNITY In addition to illuminating new sources of capital and streamlining the loan origination pro-

PRIVATE LENDER

cess, technology offers private lenders a wealth of valuable, actionable data and analytics. Strategic business owners in the industry are leveraging all the data they can capture to serve a variety of purposes, from more focused marketing efforts to better-informed property valuations. For example, private lenders can use technology to explore targeted lending opportunities according to property type, size, geographic location and other key attributes. When it comes to evaluating individual lending opportunities, publicly available records that are easily accessible online can be a valuable tool. Lenders can approach a deal already armed with pertinent details such as the property’s title relationships, outstanding

debt, knowledge of whether the property is distressed or in foreclosure, and more. In addition, there are several online valuation tools that use hightech automation to determine a property value and facilitate a faster lending commitment. For the new generation of private lenders, these advances are only the beginning. As artificial intelligence evolves, it may introduce opportunities for massive efficiencies that today we cannot begin to fathom or calculate. For entrepreneurs who are just getting started, as well as seasoned lenders looking to scale their successful operations, there has arguably never been a more exciting time to be in the business of private lending. ∞

and messaging.

Brett was previously the

director of product marketing at Google, where his 10-year career spanned many of

Google’s most prominent

products. Most notably he

co-founded Google Analytics, helped start Google’s mobile advertising business, ran the founding product marketing

team that launched Google+ and more recently ran the global marketing teams

responsible for the dramatic growth of Chrome, Gmail, Docs and Drive.

Before Google, he co-founded Urchin Software Corporation, a web analytics business

acquired by Google in 2005. Brett advises and invests in

startups and is an active real estate investor.

Combining strengths to bridge industries. DEEP INDUSTRY CONNECTIONS. Weâ&#x20AC;&#x2122;re partnering to help you build relationships across the REI landscape. A WEALTH OF EXPERTISE. Looking for a leg up? We have the answers that will catapult your business. EXPANSIVE MARKET REACH. Step into the spotlight with media that reaches tens of thousands weekly.

Join today at aaplonline.com/presidents-circle.

SEPTEMBER/OCTOBER 2019

MANAGE & LEAD

Earning Your Team’s Buy-In Strategies for breaking down barriers that stifle projects, progress and profits. by Kat Hungerford

Whether you’re the Big Kahuna or middle management, you wake up every morning knowing the buck stops with you at the crossroad of Leadership and Management in your own little metropolis of Boss Town. At times, this puts you in the uncomfortable position of being the rope in a game of tugo’-war. You’re torn between the needs and wants of those whom you manage and the push for profits (which, by the way, are earned through the hard work

which allows them to move in

lockstep and with greater efficiency and effectiveness. You

have your best-case scenario of

join Team Boss. Take a look at some of the common barriers—and what you can do about them.

the unavoidable potholes that

Determine where your team

Sounds Like // “I’m the

project, pivoting direction, or

and asking questions with

company’s purpose?

motivation. After you have a

what’s a leader to do to mitigate

what all this can mean for your another matter entirely.

come with launching a new

is by listening to their feedback

engaging employees in your

an ear toward underlying

Unfortunate metaphor mashup aside, what you need is your

can’t be a softy. And you can’t

When you have buy-in, it looks

PRIVATE LENDER

page for reaching the goal,

project—but getting there is

team’s “buy-in.”

lenge. Your team is on the same

tion—you want them to want to

BARRIERS BASED ON EGO

of those same employees). You be an authoritarian either. So,

readiness to meet the chal-

like excitement, curiosity and

handle on why a team member is dragging their feet on

drinking the Kool-Aid, work

subject matter expert/team lead/authority in this area. Why wasn’t I consulted as

part of the preliminary deci-

sion-making process/before you talked to the group?”

on removing the barrier. No,

C onsider // Not talking

trying to silence the opposi-

caused problems/delays by

not with brute force. You aren’t

to them sooner potentially

moving in the wrong direction or undermined their authority with the team. D o // Own the oversight, get their input and rework the plan accordingly. Support their authority with the team moving forward and look for opportunities to help them reestablish lost ground. Sounds Like // “This is grunt work; my time is better spent elsewhere.”

C onsider // For what

you’re paying them, they should be doing higher-level tasks, and it makes sense to outsource the “grunt work” less expensively.

o // Move tasks where it D makes sense. For the rest, let them know you understand where they’re coming from. Stress that the goal is important, and you need them to roll up their sleeves with the rest of the team. A note on ego // If, in hindsight your employee’s response is valid, that’s one thing. But what if it’s a case of Big Head Syndrome? You don’t want to encourage future challenges to your authority from an employee who possesses an overinflated or fragile ego, but neither can you afford dissention. How can you earn buy-in without admitting

non-existent fault or sup-

porting “me first” behavior? C onsider // The thing

you dislike in this instance may be what allows your employee to do their job well. It does have its time and place—just not this time and place. D o // Listen actively to what

they have to say and rephrase it back to them to ensure they know you understand where they’re coming from even if you don’t agree with them.

D o // Ask for their buy-in for the project. A direct ask for

support can soothe egos and put your employee back on

track toward achieving the common goal.

BARRIERS BASED ON FEAR Sounds Like // “I’m not sure I’m professionally ready to take on this responsibility.” onsider // Is it is a trainC ing/experience issue or a confidence issue? o // Provide additional D training or mentorship, along with assurance that you know they’re stepping out of their comfort zone. o // Schedule regular D one-on-one meetings to

SEPTEMBER/OCTOBER 2019

MANAGE & LEAD

check progress and provide feedback and guidance where needed. Sounds Like // “I don’t think I can fit this into my current workload and still do my job well.” onsider // Is your team at C risk for burnout or overwork? What is your minimum viable product from a resource allocation perspective? o // Shift or deprioritize D certain responsibilities to make room in their work-

load. Consider hiring or

outsourcing work that is still operationally essential

but too much to fit into your team’s workload. Sounds Like // “I have

concerns about what this

goal will mean for my role with the company.”

C onsider // The project,

while making things better

for the company, may nega-

tively impact the individual employee. If you’re hearing pushback on a goal with-

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PRIVATE LENDER

out a clear reason, it may be because your employee fears demotion, downsizing or drastically changed job responsibilities. o // Alay their fear of D the unknown by outlining possible outcomes and assure them that you have their best interests in mind. If the employee’s concerns are valid, earning buy-in may not be a possibility. Your employees have a right to self-interest too. A note on fear // Taking steps to alleviate the root of a fear-based barrier, regardless of your feelings on its validity, should earn you the buy-in you need. But what if it keeps cropping up, or it’s not something you can solve? onsider // Whether time is C needed to show the employee their concern is unfounded, and how likely it is that the employee’s fear will impact their portion of the project and/or the rest of the team. o // Be willing to wait D the employee out if time can solve the issue for you without damaging the project. If not, watch for opportunities that allow you to demonstrate there is nothing to worry about.

BARRIERS BASED ON APATHY Sounds Like // “This means I have to do more work/learn

something new/change how I do things.”

C onsider // Resistance to

change is not always a sign of laziness. Your employee may thrive on routine and stabil-

ity or need other motivation. D o // Verbalize to them that you know this changes their routine and that you appre-

ciate the work involved with

that change. Where possible, give them time to acclimate

to the idea, provide feedback and let you know what they need to meet the goal.

D o // Find out what moti-

vates your employees. Can you provide incentives for reaching the goal before

deadlines, under budget, etc.? Sounds Like // “I truly don’t think the project will work/ further our company mis-

sion/should be a priority.” C onsider // The employee

may need more information to bring them on board. If

they have a solid understanding but still have reserva-

tions, a “devil’s advocate”

can provide crucial checks

and balances to a project that would otherwise run amok with too many “yes” people. D o // Provide additional

context and detail until you’re sure they fully understand, but just don’t agree. Recognize the difference of opinion and ask them to continue to provide their ideas on how to make the

C onsider // An apathetic team member can impact

others’ motivation. You will need to factor this impact

into your potential success

or failure and mitigate where you are able.

D o // Watch for opportunities to find out what moti-

vates the employee and be

project better while following

willing to try something new.

through on the goal and sup-

D o // Watch for signs that

porting their team members.

the team member’s attitude

A note on apathy // Apa-

is having a negative impact

overcome, because there

employee about the impact

thy can be the hardest to

are only so many ways you

can try to make an employee care. You may not be able to gain buy-in right away.

on others. Speak with the

they are having and create consequences as needed.

Earning buy-in from your team can be a leader’s most difficult

goal. It involves recognizing and meshing sometimes wildly differing personalities, motivations and concerns in order to give your project its best chance for success. You are working to utilize your most important resources to their fullest ability and greatest potential. This may require that you revisit and re-earn buy-in throughout the project, but the rewards are worth the time. You’ll also find that the more you endeavor to gain buy-in from your employees, the more they’re predisposed to give it to you. By intentionally seeking support from your team, you’re showing them that you buy-in to their abilities, needs and wants as valued individuals. ∞

ABOUT THE AUTHOR

KAT HUNGERFORD Kat Hungerford is project

development manager at the American Association of Pri-

vate Lenders. She specializes in operations, project manage-

ment and marketing. Hungerford acts as secretary for the

association’s Government Relations Committee, which serves

as AAPL’s advocacy arm in state and federal legislatures.

SEPTEMBER/OCTOBER 2019

L AST CALL WITH PAUL JACKSON

n March 2008, our firm closed on a multifamily development site in Uptown Dallas—one of the hottest submarkets for development in the city.

The hallmark of our firm’s investment strategy was to acquire value-add real estate investments with existing cashflow to support the carrying costs associated with developing real estate. This would be our saving grace in the months to come. Shortly after closing on the Uptown site, Bear Sterns announced that it was selling to J.P. Morgan for 1% of the firm’s value, or $2 per share. The global financial crisis had begun.

FINDING THE SILVER LINING b y Paul Jackson

PRIVATE LENDER

the credit markets. Many hard money lenders evaporated in the financial crisis, and most banks were sitting on their hands,

afraid to make a credit decision until the smoke cleared.

So, we turned our focus from buying dis-

tressed debt to originating hard money loans for real estate investors across America.

We started our first fund in August 2009 with both a hard money discipline and

what we referred to at the time as a “rehabto-rental discipline.”

Market research told us that our hard

money product would not be compelling to investors unless we could marry it with a

Our firm immediately began looking for ways to survive the coming years, knowing that our banks and investors would be weary of new investments.

rental loan on the back-side. So, we went to

Like most other CRE firms, we turned our attention to buying distressed debt, and we underwrote every asset type offered by the major banks during that period as they took on TARP money and sold off bad assets.

and overall economy were still improving.

We underwrote defaulted mortgages, second mortgages, auto and credit card paper, small-balance consumer loans, esoteric consumer offerings and more. The only problem? We were not alone.

We experienced significant growth

We competed against midmarket and major Wall Street investment firms alike, and we lost more than our share of defaulted mortgage bids over the next two years.

rental business.

The silver lining? In the process of underwriting the mortgage pools, we became acquainted with fix-and-flip investors across the country. We discovered a void in

ing industry that continues to thrive. We

market with both products.

Through 2010 and 2011, our loan volume picked up, a sign that the credit markets

However, it wasn’t until 2014 that we really

hit our stride. By then, we’d spent five years

in business working to marry capital, underwriting, systems, marketing and operations. through 2014 and have been growing ever

since. Today, our focus is to serve custom-

ers in the single-family fix-and-flip investment business as well as the single-family It’s been an amazing journey to see the private lending industry rise from the

depths of the financial crisis to a burgeonlook forward to continuing to serve the

single-family fix-and-flip and single-family rental industry. ∞

EXECUTIONDESIGNEFFICIENCY Geraci media is a national marketing and design agency specializing in brand development and growth strategy for private lenders and real estate professionals, nationwide. LOGO DESIGN PITCH DECK

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SEPTEMBER/OCTOBER 2019

PRIVATE LENDER