SEPTEMBER 2019
THE OFFICIAL MAGAZINE OF GERACI
INDUSTRY SPOTLIGHT:
2019 Captivate Award Winners
WILSHIRE FINANCE PARTNERS Don Pelgrim
INSIDE: INVESTING IN FUNDS
S E CR ET
WEAPON SECOND’S
PITCH DECK GENEROSITY REPORT!
www.originate.report 1
2 Originate Report | September 2019
CONTENTS SEPTEMBER 2019
FEATURES 18 What Not to Do When Building a Pitch Deck
Ruby Keys, Geraci Media
20 A Truly Diversified Portfolio Sharestates Invests
in the Next Generation
Originate Report Staff
6
22 CFPB Proposes Changes to HMDA
Reporting Requirements That Will Benefit Lenders
Amy E. Martinez, Esq., Geraci LLP
24 Secret Weapon Second’s
Bob Eakin, JCAP Private Lending
14
30 Comparing Investing in Individual Deeds of Trusts
with Investing in Funds
Edward Brown, Pacific Private Money
Who To Know 6
Don Pelgrim - Wilshire Finance Partners
Charles Peckman, Originate Report
18
14 Industry Spotlight
2019 Captivate Award Winners
In Every Issue
22
11 Industry Job Watch 26 Cities To Watch
Baltimore, Maryland
Originate Report Staff
36 Lender Directory
30 www.originate.report 3
Revenue diversification
Fix N’ Flip, Bridge, Refinance, Ground Up & Small Balance Commercial
Think of it as a new product offering which results in the diversification of your potential revenue. All of this is well within reach, and much easier than you may think.
TODAY’S MARKET OPPORTUNITY: •
•
•
100 billion dollar non owner-occupied investment space SFR ’s 1-4 Fix N’ Flip, Bridge, Refinance, Ground Up & Small Balance Commercial Diversify product offering and add new revenue opportunities you may be missing out on Legally compensate your most prized relationships (Realtors) for referrals
The NON-O/O investment space is a 100 billion dollar industry that has come full circle since the last market downturn. Over the last decade private lending has been growing, and the comeback of property investors is at an all-time high. Here’s what it takes to do these types of loans and a good private lender will handle these things for your Brokerage…
WHAT TO LOOK FOR IN A BROKER + CAPITAL PARTNER RELATIONSHIP: • • •
Concierge across product offering with underwriting, training, service and support Dedicated call center for loan origination support and fund control Marketing materials provided including product tear sheets, pitch decks and web banners
• • • • • • •
Traditional Realtors and Mortgage Brokers have the misconception they need an NMLS license to be a lender in this product space. The main point in dealing with a private lender is while they primarily fund SFR’s, these loans are governed under commercial guidelines.
In today’s market, refinancings have limited availability and there’s not much new housing inventory to lend against. For mortgage Brokers, this means the obvious; there are a lack of transactions in the market to profit from. For shops that are only doing refinance or traditional mortgages, opportunities only come around every 5-7 years. You’ve got to have a big client base to have volume. With financial products across SFR ’s 1-4 Fix N’ Flip, Bridge, Refinance, Ground Up & Small Balance Commercial, the sales cycle is faster, there is significantly higher recurring business, and a few lenders have teams dedicated to helping you succeed.
BROKERS, PARTNER TODAY
Review and process loan applications Document collection Facilitate Appraisal Coordinate Title & Escrow Complete underwriting Facilitate Funding Pay you
Thus we are not governed under RESPA, TRID or TIlLA. These loans are funded only into business entities allowing 7-10 business day closings and can pay anyone under a Brokerage license a referral fee or commission on the HUD at closing. There are two avenues a Brokerage launching this type of product to Real Estate professionals can expect to see. You can be a Correspondent Partner (the lender would fund in your name)
http://triumph.capital/brokers
4 Originate Report | September 2019
or an Origination Partner (the client would see the lender’s name on the HUD). Most deals are funded under a single set of product guidelines allowing training, underwriting and servicing to be easily understood. CORRESPONDENT PARTNER (CP): You look and feel like the lender, a complete white-label product. ORIGINATION PARTNER (OP): Traditional Broker + lender relationship, lender shows on HUD. A full concierge service for Broker partners handling everything from A-Z is an entirely new model for private lending and Mortgage Brokers / Real Estate professionals. Working with a direct lender enables Mortgage Brokers to keep the lion’s share of the profit and have the potential to earn from the yield spread as well, all while monetizing on much more frequent lending transactions, instead of the normal 5-7 year customer lifecycle. There many private lenders chasing this strategy and it’s safe to be wary of who to work with. While choosing a partner, look for someone who understands the business and has a strong reputation for closing transactions. You’ll also need support with marketing materials. Having the right documents and product tear sheets (one-pagers) for conversations, trade shows, etc. is helpful in positioning the opportunity with your existing book of referral business from Realtors.
For more information call
877-450-9741
ROB JENNINGS robert@triumph.capital
GEORGE O. FLINT goflint@triumph.capital
CEO Geraci LLP ANTHONY GERACI Anthony@Originate.Report Vice President Geraci Media RUBY KEYS Ruby@Originate.Report Editorial Director MAX BERGER Max@Originate.Report Art Director LYNDA HIGHT L.Hight@Geracillp.com CONTRIBUTORS Max Berger • Edward Brown Amy Martinez • Charles Peckman Ruby Keys • Bob Eakin
Letter
from the
Editor Welcome to our September Edition of Originate Report!
“Opportunities don’t happen. You create them.” -- Chris Grosser
Welcome to the September Edition of Originate Report! We hope you had an enjoyable, productive summer. And thanks to those of you who attended our 3rd annual Captivate Conference! It was our biggest and best event to date, and it couldn’t have been done without you.
FOUNDING UNDERWRITERS
MARK HANF President, Pacific Private Money
ORIGINATE WEBSITE www.originate.report
This month’s quote was chosen because its message clearly resonates with our featured lenders. Our cover story, Don Pelgrim with Wilshire Finance Partners, has never been the type of person who passively waits for opportunities to fall into his lap – learn more about his remarkable career and unyielding perseverance in his article on the next page. The same qualities can be ascribed to this month’s industry spotlights, the winners of the 2019 Captivate Awards! Read on to learn why they were chosen by the private lending community and what sets them apart.
GERACI LAW FIRM www.geracilawfirm.com
To Opportunity,
MEDIA WEBSITE www.geracimediagroup.com
Max
CONFERENCE WEBSITE www.geracicon.com
Max Berger
Originate Report Editorial Director www.originate.report 5
PROFILE
“We have a talented team at Wilshire representing different disciplines; including, banking, finance, law, accounting, portfolio management, and the acquisition and disposition of real estate.”
WILSHIRE FINANCE PARTNERS DON PELGRIM
E
on
a
career
real estate finance law at Brobeck, Phleger & Harrison, LLP and Rutan & Tucker, LLP. He received his Juris Doctorate from Loyola Law School of Los Angeles and his Bachelor
By Charles Peckman, Originate Report mbarking
practiced corporate, real estate, and
present from early on in his career.
in private lending is no
of Business Administration from Hofstra University.
easy feat. Cultivating an
In his current position as the head of
innovative industry leading business
Wilshire, Pelgrim oversees the WFP
is a different story all together. No
Income Fund, WFP Income Fund
one knows this better than Don
REIT, and WFP Opportunity Fund
Pelgrim, an owner, a director, and the
– which are the internal funding
CEO of Wilshire Finance Partners.
platform used to deliver fast, efficient
he outlined some of the important
Between a banking job during the
small-balance bridge loans from
factors that allowed the private
day, law school at night, and starting
$1,000,000 to $7,000,000 secured
money space to prosper – and what
a family, Pelgrim’s perseverance and
by multifamily and commercial real
sets Wilshire apart from the rest of
all-around can-do attitude was a
estate.
the pack.
6 Originate Report | September 2019
As an attorney, Pelgrim
When
Pelgrim
sat
down
with
Originate Report to discuss the company’s origins, as well as the triumphs and obstacles of his career,
also
opportunities
to
purchase
of multi-billion-dollar community
distressed properties through the
banks. In those roles, I managed
foreclosure process, short sales and
and was involved in a number of
other means. The problem was that
functions; including, mergers and
banks were not making loans and
acquisitions, secondary marketing,
the capital markets were seized up.
strategic
The original founders of
Wilshire
assets. In 2008, Kevin asked for my
recognized that financing gap and
legal assistance in the formation of
the significant need in the market
Wilshire and the creation various
for fast and efficient debt capital
legal
to capitalize on the opportunity to
initially
purchase those distressed properties
business. The original founders of
– so, Wilshire Finance Partners was
Wilshire were Kevin DeMeritt and
formed.
Thom O’Bryon.
alliances,
documents used
in
and
that their
special
Wilshire lending
A couple of years
after its formation, Kevin contacted OR: How did your background, and
me to let me know Thom was very
the circumstances of the company’s
ill and to ask for my assistance –
founding
he wanted me to run Wilshire as a
prepare
you
for
your
current position?
partner. After looking at the market
DP: My background is banking, law
Thom’s ownership interest in the
and the possibilities, I acquired
and finance. Right out of college, I Originate Report (OR): Can you describe the company’s background, and how you reached your current position of CEO?
worked with the President of a bank owned by the Dreyfus Corporation in New York to create mortgage programs marketed in eight states along the eastern seaboard. When I
Don Pelgrim (DP): Wilshire Finance Pastners was founded in 2008 and I am the second CEO of the company. If you recall that timeframe, the
moved to California in the mid-1980’s I worked and became friends with Kevin DeMeritt, an individual who eventually became one of the original founders of Wilshire. While working
financial crisis was in full swing
as a Vice President for a bank during
and banks, federal regulators and
the day, I went to law school in the
servicers were dealing with problem
evenings, passed the bar and went
assets,
reduced
into private practice with a large
liquidity, bank failures and foreclosed
law firm. At that time, my practice
properties. At the same time, there
focused on corporate and real estate
were opportunities for buyers to
law, with an emphasis in real estate
acquire distressed properties (or
finance.
I was enticed back into
REOs) held on the balance sheets
banking
and
of banks and the FDIC. There were
Administrative Officer for a couple
eroding
capital,
became
the
Chief
company and became the CEO and a director of Wilshire. Unfortunately, Thom passed away a few years later. Out of that tragedy an opportunity was created and that’s how I became involved with Wilshire. It gave me the opportunity to be involved with a growing business in an emerging market. OR: Can you describe the onset of that market? What do you think caused borrowers and lenders to seek capital outside the traditional realm of banking? DP: Private lending has been around for millennia. Before there were banks, people bartered for goods and services and bought items with cash. Don Pelgrim: Continues on pg. 8
www.originate.report 7
Don Pelgrim: Continued from pg. 7
Lending occurred between people who knew each other. Although private lending is nothing new, the creation of banking systems and the capital markets in many ways eclipsed private lending, but never fully replaced it. But as I mentioned earlier, what really triggered the resurgence of private lending on the scale we see today was the financial
the last decade on fixed income
we consider, we lend on office, retail
instruments caused private lending
strip centers, warehouse, industrial,
to catch the attention of investors.
senior
living,
student
Additional capital looking for yield
housing and self-storage.
We do
has helped to fuel the growth and
not lend against land, development,
assist in maturing the industry.
major
assisted
rehabs
construction. OR:
Can
Wilshire’s
you
talk
platform
more for
about funding
consider
or
ground
up
However, we will
value-add,
stabilization
and repositioning loans.
We lend
multifamily and commercial real
in primary and secondary markets
estate bridge loans?
and will consider tertiary markets if the market and the transaction
crisis – traditional lending sources
DP: Wilshire started to focus on
dried up, so real estate professionals
make sense.
multifamily and commercial real
needed
the
$1,000,000 to $7,000,000, but many
estate loans soon after I joined the
“traditional” realm to secure capital.
of our loans are below $3,000,000.
company and the formation of our
That
private
funds in 2013 solidified the funding
The vast majority of the loans we
lending to the forefront. It was one of
platform we needed to engage in
the most consistent forms of capital
that business.
during that time, and some would
focus is on multifamily (5+ units)
argue that it helped the recovery
and commercial real estate bridge
in certain sectors of the market.
loans nationwide.
Persistently low interest rates over
the commercial real estate collateral
to
reach
dynamic
outside
brought
Today, our primary
With respect to
We fund loans from
make are first liens that are placed in our WFP Income Fund. Through our WFP Opportunity Fund we are able to provide higher leverage and deliver more creative structures using lending tools like second liens, split notes, participating loans and joint ventures. Generally, our loans are just outside the banker’s “credit box” and the typical repayment strategy is the sale or refinance of the property once its stabilized or the issues requiring a bridge loan are seasoned. OR: With that said, why are some of the reasons brokers and borrowers use Wilshire? DP: As a balance sheet lender we have discretionary capital to lend and hold the loans on our balance sheet from the time they are originated until the time they are paid off. They are not sold or securitized. Because of that platform, we can provide greater
8 Originate Report | September 2019
speed,
efficiency,
flexibility
and
into
running
service – which leads to certainty
Wilshire with more
of execution.
efficiency?
Because we are the
capital source, communication is more robust, and brokers and their
DP: I would like
clients are dealing directly with the
to think that all
decision-makers.
of
All of that helps
the
different
with the ease of the transaction - it
experiences
I’ve
makes the experience more crisp and
had contribute to
easier to get to a final decision.
the position I’m in now. The collective
OR: What would you say is a primary
experience of being
differentiator for Wilshire in the
a banker at a Wall
market?
Street firm out of college,
working
DP: Ease. We have a talented team
on large, nationally
at Wilshire representing different
syndicated credits
disciplines;
banking,
as a lawyer, and
finance, law, accounting, portfolio
bidding on failed
management, and the acquisition and
banks through the
disposition of real estate. Our people
FDIC
are
process
including,
receivership crisis
attended law school at night, worked
decades of experience in multifamily
gives you a tremendous amount of
at a bank during the day, had a
and commercial real estate lending.
experience and prospective. I believe
young son, and a daughter along the
Combined with our capital platform,
that helps Wilshire in a number of
way. It’s one of those things where
our team has the ability to scope,
ways.
That includes assisting on
it takes a lot of mental fortitude
structure and close multifamily and
one-off transactions that may be
and determination as well as the
commercial real estate loans quickly
more complicated to the creation of
support from the people around you.
and efficiently. Even challenging
strategic relationships with brokers
My family and friends were very
transactions become easier because
and other partners. I get a kick out of
supportive of what I did, and that
of the knowledge, experience and
creating strategic relationships with
gave me a lot of latitude because there
service levels of our team. With
brokers and other parties where we
were missed holidays and missed
the broker’s access to deals and our
can leverage our collective strengths.
vacations due to the tremendous
OR: I can imagine the difficulty of
matter how challenging it was for
seasoned
professionals
with
in
the
financial
funding platform we can get a lot accomplished.
going to law school at night while OR: Getting back to your career, how
also trying to jump-start your career.
has your background helped in your
Can you speak about the challenges
current position? With experience
associated with doing this?
in both lending and the law, does that breadth of expertise translate
DP: It was pretty interesting – I
time commitment.
However, no
me, didn’t have to look very far to see a single mother or someone else in my class with greater challenges buckling down and getting it done. That’s a pretty good motivator. Don Pelgrim: Continues on pg. 10
www.originate.report 9
Don Pelgrim: Continued from pg. 9
For people who are starting out in the real estate business, I would offer up that the people who are successful in this space are the ones who treat it as a profession. What I mean is that real estate is not always a “9 to 5” job, and you need to put the time in. I have some pretty good experience and that experience helped get me to where I am today, but I am also learning something new every day. One of the first things to do when thinking about a career in real estate is picking out a path – and, there are a number of paths you can take. I believe it’s also crucial to find a mentor or someone who can take you under their wing. There are formal and informal mentorships, and I think it is important to take advantage of both. At Wilshire, in addition to our training programs, we
are also looking to expand our
been partnering with each other
reach through additional strategic
for years. For example, while the
OR: As the marketplace changes
partnerships with other companies.
banks are highly competitive when
and the role of technology expands
Some of those partnerships include
originating
exponentially, what is Wilshire doing
companies who are private lenders.
once the loan is on their balance
to “stay on its toes” not only in terms
We don’t view those companies
sheet, they have collegial, strategic
of changing technology, but the
as “the competition,” rather we
partnerships with other banks for
services offered by the competition
view them as potential allies. In
trading, selling, participating and
as well?
fact, I did presentation for the
servicing loans. Some of that is by
American
Private
necessity to meet capital, liquidity
DP: We are investing in technology
Lenders (AAPL) in August of this
or concentration requirements, and
and we are building out some
year on this exact point – the
some of that is part of an overall
platforms to benefit our strategic
market share once dominated by
strategy. By looking at our business
partners.
things
banks has been partially eroded
the same way, we can view other
we’ve been working on include a
by different technology platforms
lenders, brokers, and bankers in
technology-based
that
and other parties; including, credit
the marketplace as potential allies
provides real time updates to our
card companies, Wal-Mart offering
and create relationships with them
brokers as well as other information
deposit products to their customers,
leverage our collective strengths.
to help facilitate transactions. We
and alternative lenders. Banks have
For example, leveraging our capital,
have mentor-mentee relationships.
Some
of
the
backbone
10 Originate Report | September 2019
Association
of
loans
in
the
street,
marketing and technology with their
discussing the partnerships that
evolved in our business.
distribution
make
you have made at Wilshire, and the
industry has continued to mature the
sense to facilitate the growth of each
partnerships that you plan on in the
timing is now better and if Wilshire
of the respective businesses.
future. Do you think that mindset is
can be one of the catalysts to help
an important differentiator?
that occur, it would be fantastic.
associated with the ever-changing
DP: I think so. Sharing a page from
OR: Continuing that thought, where
nature of technology?
the banker’s playbook, it is great
do you see Wilshire moving in the
to
in
future? Is it more-so focusing on
DP: Every day! As an entrepreneurial
the marketplace and that is never
emerging technology or facilitating
company, growing pains come with
going to go away. When you get
growth in other ways?
the territory. It’s not just technology;
into the c-suite, however, and you
it’s everything associated with being
are also looking other avenues and
DP: I see us growing in many
a business owner and manager. The
approaches to grow and manage the
different ways – both vertically
“game” if you will is facing those
business. If you shut down potential
and horizontally – assets under
challenges head-on and adapting
partnerships as an option you are
management and additional products
to them – as opposed to being
also shutting down that opportunity
and services. The key driver remains
reactionary, being proactive.
to grow. When I started in this sector
the relationships we will develop. We
of the lending business 2011, it was
are actively seeking new strategic
OR: It seems as though many c-class
non-existent or done in discrete
relationships with Brokers and other
executives are apprehensive about
transactions on a small scale. While
Lenders, developing new products
mentioning strategic partnerships
there are a few platforms that have
and technology.
with other companies, so I was
tried to take a run at it, I still believe
opportunities with our capital is
surprised to hear you so open when
that type of approach hasn’t fully
exciting.
channels
may
As this
OR: Are there any growing pains
have
healthy
competition
Combining those
CONTACT: dpelgrim@wilshirefp.com | https://wilshirefp.com/
INDUSTRY JOB WATCH Commercial Mortgage Credit Analyst - Newport Beach, CA
LOOK WH
O ’S
HIRING!
Looking to fill a posit Originate ion? Adve Report’s rtise it Industry of thousa Jobs to g here in nds of qu et it in fro alified ca nt ndidates Contact . us at (94 9) 629-3 961.
Wilshire Finance Partners is a growing balance sheet lender and manager of several real estate debt funds. Our internal funding platform provides debt financing and equity capital secured by apartments/multifamily and commercial real estate throughout the United States. We seek a motivated and detail oriented individual with 3 or more years of experience as a Commercial Mortgage Credit Analyst or Commercial Mortgage Junior Underwriter to join our Newport Beach team. The Commercial Mortgage Credit Analyst will work closely with the underwriting and origination team and is responsible for processing, analyzing and facilitating loan requests secured by apartments/multifamily and commercial real estate. The Credit Analyst will obtain and review reports, documents and information; assist with processing and underwriting; assist loan closings; drive the management of post-funding loan covenants, draw requests and disbursements; assist with loan portfolio management; and assist with regulatory reporting For more information, please visit the Careers page at www.WilshireFP.com
www.originate.report 11
Inc. Magazine Unveils Its Annual List of America’s Fastest-Growing Private Companies—the Inc. 5000 For the 3rd Time, Geraci LLP Appears on the Inc. 5000, Ranking No. 1861 with Three-Year Revenue Growth of 271% NEW YORK, August 14, 2019 – Inc. magazine today revealed that Geraci LLP is No. 1861 on its annual Inc. 5000 list, the most prestigious ranking of the nation’s fastest-growing private companies. The list represents a unique look at the most successful companies within the American economy’s most dynamic segment—its independent small businesses. Microsoft, Dell, Domino’s Pizza, Pandora, Timberland, LinkedIn, Yelp, Zillow, and many other well-known names gained their first national exposure as honorees on the Inc. 5000. “On behalf of everyone at Geraci LLP, I am truly honored that we have been selected as an Inc 5000 award winner for the 3rd year in a row. Building our foundation on client service and market responsiveness have allowed us to emerge once again as one of the fastest-growing law firms in the United States,” said Anthony Geraci, CEO, Geraci LLP. “We would like to thank our clients, because without them, we could not have achieved this great honor. We continue our commitment to serve their needs in whatever capacity necessary and are looking forward to our future growth.” Not only have the companies on the 2019 Inc. 5000 (which are listed online at Inc.com, with the top 500 companies featured in the September issue of Inc., available on newsstands August 20) been very competitive within their markets, but the list as a whole shows staggering growth compared with prior lists. The 2019 Inc. 5000 achieved an astounding three-year average growth of 454 percent, and a median rate of 157 percent. The Inc. 5000’s aggregate revenue was $237.7 billion in 2018, accounting for 1,216,308 jobs over the past three years. Complete results of the Inc. 5000, including company profiles and an interactive database that can be sorted by industry, region, and other criteria, can be found at www.inc.com/inc5000. “The companies on this year’s Inc. 5000 have followed so many different paths to success,” says Inc. editor in chief James Ledbetter. “There’s no single course you can follow or investment you can take that will guarantee this kind of spectacular growth. But what they have in common is persistence
Lesley Boyd | Marketing Director | Geraci LLP | 949-379-2600 12 Originate Report | September 2019
PRESS RELEASE
and seizing opportunities.” The annual Inc. 5000 event honoring the companies on the list will be held October 10 to 12, 2019, at the JW Marriott Desert Ridge Resort and Spa in Phoenix, Arizona. As always, speakers include some of the greatest innovators and business leaders of our generation. More about Geraci LLP A full-service law, media, and consulting firm, the Geraci team is at the forefront of the ever-changing non-conventional lending space and caters to non-conventional lenders worldwide. Our legal departments include Banking & Finance, Corporate & Securities, and Litigation/Bankruptcy, while our recently-formed Geraci Media Group not only organizes conferences, but also provides a full array of media services to help raise your brand awareness.
More about Inc. and the Inc. 5000 Methodology The 2019 Inc. 5000 is ranked according to percentage revenue growth when comparing 2015 and 2018. To qualify, companies must have been founded and generating revenue by March 31, 2015. They had to be U.S.-based, privately held, for profit, and independent—not subsidiaries or divisions of other companies—as of December 31, 2018. (Since then, a number of companies on the list have gone public or been acquired.) The minimum revenue required for 2015 is $100,000; the minimum for 2018 is $2 million. As always, Inc. reserves the right to decline applicants for subjective reasons. Companies on the Inc. 500 are featured in Inc.’s September issue. They represent the top tier of the Inc. 5000, which can be found at http://www.inc.com/inc5000. About Inc. Media Founded in 1979 and acquired in 2005 by Mansueto Ventures, Inc. is the only major brand dedicated exclusively to owners and managers of growing private companies, with the aim to deliver real solutions for today’s innovative company builders. Inc. took home the National Magazine Award for General Excellence in both 2014 and 2012. The total monthly audience reach for the brand has been growing significantly, from 2,000,000 in 2010 to more than 20,000,000 today. For more information, visit www.inc.com. The Inc. 5000 is a list of the fastest-growing private companies in the nation. Started in 1982, this prestigious list has become the hallmark of entrepreneurial success. The Inc. 5000 Conference & Awards Ceremony is an annual event that celebrates the remarkable achievements of these companies. The event also offers informative workshops, celebrated keynote speakers, and evening functions. For more information on Inc. and the Inc. 5000 Conference, visit http://conference.inc.com/.
www.originate.report 13
SPOTLIGHT SPOTLIGHT
INDUSTRY SPOTLIGHT 2019 Captivate Award Winners FUTURE IS BRIGHT
Recognizes an outstanding young professional who is already making a mark on the industry (under 35 years old)
WINNER! Rachel Croessmann, PeerStreet
INNOVATIVE IMPACT Recognizes a product or service that has led to
success through innovation and technology
WINNER! ProDeal 360
INDUSTRY INFLUENCER Recognizes an industry leader and overall role model
WINNER! Gary Bechtel, Money 360
14 Originate Report | September 2019
INNOVATIVE IMPACT AWARD WINNER
PRODEAL 360 Winner: ProDeal 360 Reason: ProDeal is the only lightweight platform that streamlines due diligence tracking and deal closing by combining communications, data storage, and workflow into a single source of truth while also adding a layer of security and automation to your deals. Key Features & Benefits: • Real-time notes • Robust document storage capabilities • Mark docs as final and deliverable’s as complete • Assign team responsibilities with due dates • Automated daily recaps of deal activity • Export final documents to Smart Closing Binder • Export Smart Checklist PDFs Fun Fact: The CEO (Mike Bebon), who was the brains behind the ProDeal platform, literally came up with the concept by writing it on a napkin while out with some friends. www.originate.report 15
FUTURE IS BRIGHT AWARD WINNER
RACHEL CROESSMANN, PEERSTREET
Winner: Rachel Croessmann, Director of Business Development Reason: Rachel is an invaluable member of the Business Development team who continues to grow the ecosystem of lenders at PeerStreet at an unusually fast pace. She consistently receives glowingly positive feedback from her lender clients. Rachel is an excellent ambassador for PeerStreet at industry events and she works diligently to improve the lender experience for all PeerStreet lenders. Fun Fact: She attended University of Miami Law School and worked as a commercial real estate in-house counsel and acquisition specialist for a firm in Miami. 16 Originate Report | September 2019
INDUSTRY INFLUENCER AWARD WINNER
GARY BECHTEL, MONEY 360 Winner: Gary Bechtel (Money 360) Reason: Throughout his 33 years in the industry, Gary has closed over $10 billion in commercial debt transactions and touched on every aspect of the commercial real estate process from origination to underwriting and restructuring. At Money 360 his leadership has led to incredible growth for a young company closing more than $1.5 billion in commercial real estate transactions as the company continues to gain momentum and expand throughout the US. Gary is known by all as a respectful and charismatic leader, who is always ready to work alongside his team to troubleshoot problems and find solutions. Fun Fact: Gary is an avid fisherman and takes trips all over the world on fishing boats. Whenever he returns from fishing trips, he brings back fresh cuts of fish for his colleagues, processed and packaged for everyone to enjoy with their family for dinner. www.originate.report 17
FEATURE
What Not to Do When Building a Pitch Deck By Ruby Keys, Geraci Media
A
your ideas are. Take advantage of the templates that PowerPoint and other presentation-building tools offer, and be sure to add custom touches, like your company’s logo and simple graphics. If you want to go above and beyond, hire an agency
pitch deck is a slideshow
business’s industry. Avoid using
or presentation – created
technical jargon that will confuse
on PowerPoint, Keynote,
your audience. Stick to simple
Prezi, or a similar software – that
words, animations, and transitions
presents your company, goods, and
to convey complicated ideas. Create
services to an audience. Creating
your presentation so that even
an effective pitch deck that keeps
someone with little knowledge of
investors engaged and helps you
your industry and company could
achieve your business goals takes
understand it.
time and effort.
It is important to note, however,
Anyone can throw together some
that there is a chance your audience
slides in a matter of hours, but
may be knowledgeable about your
consider this: for every 100 pitches
industry.
an investor hears, he or she will
is paramount to this point, as
fund only 10 of them, which means
oversimplifying your presentation
most pitches get lost in the crowd.
may appear as though you are
Here are 10 things to avoid to
talking down to your audience.
hook them at the beginning to
2. Use old-fashioned design
the end of your presentation.
Preliminary
research
more advanced software, such as Adobe Photoshop or InDesign. 3. Get off to a slow start Even if your business idea is incredible, if you can’t capture your audience and keep them engaged, your deck will get lost in the crowd. A strong, memorable introduction will keep investors wanting to know more about your company and how they can benefit from their investment in you. After all, they’re trusting you with their money; ensure they stay with you through
ensure that your pitch deck is at the top of investors’ minds.
who can make your pitch deck in a
You don’t need to be a professional designer, but you also don’t want
4. Give a lengthy pitch
presentation
to
Show respect for investors’ time
Chances are, your investor does
Your
not know the ins and outs of your
forward-thinking
1.
Overcomplicate
the
18 Originate Report | September 2019
present deck
plain should
white
slides.
convey and
how
modern
by
finishing
your
presentation
well before your meeting time is
up. You don’t want to make your
when their investment pays off!
return on investment. One of the
audience antsy about missing their
Make your business story relatable
best ways to get their attention is
next appointment, and you’ll leave
and weave it throughout your deck
to show them how high their ROI
time for any follow-up questions.
for
presentation.
will be in a few years. When you
You can shorten your presentation
However, be careful not to overdo
present a good exit strategy, you’re
time by shortening or altogether
it – make sure your story relates to
showing investors that you’ve done
omitting your startup’s history or
your overall business model.
your homework, you’re credible,
a
compelling
and their money is in good hands.
founders. Keep them wanting more 8. Involve disclosures and NDAs
– share details later.
You know your ideas are worth a
10.
5. Fudge the numbers
lot, which is why you’re protective
proposition
It can be tempting to bluff data in
of them. Many people think that the
At the end of your deck, your
your pitch deck, but it’s important
best way to avoid having their ideas
audience should be able to answer
to resist this temptation. This is a
stolen is by asking investors to sign
the following questions: Why are
very poor business practice that
an NDA before pitch presentations.
you better than your competitors?
misleads
wastes
The hard truth is that investors have
What makes you special? Why
everyone’s time. Getting caught
probably heard a variation your
should they invest in your company?
exaggerating in your pitch can
idea before. Legitimate investors
Your value proposition should be
ruin your reputation and lead to
who receive pitches all the time
relevant to your business’s market,
lawsuits down the road. Before you
will rarely sign an NDA. For best
present
even pursue funding from angel
practice, have an attorney who
problem, have tangible and specific
investors and venture capitalists,
specializes in your space review
benefits, and differentiate from
gather concrete data that supports
your pitch deck to make sure it’s
your competition. Focus on your
your business case. They’ll come
legally compliant.
product’s benefits, not its features,
knocking at your door!
Remember that investors aren’t
and use your value proposition to
your competition. They’re not going
craft your story.
to invest in multiple competing
As you’ve read, there’s a lot that
because
businesses. So while you may be
goes into building a successful pitch
investors can see that their ideas
intimidated by the fact that they
deck. If you want to earn investors’
are great, but their founders lack a
have the money and resources to
funding and respect, focus on your
compelling vision. When pitching to
build a better product than you,
story, stick to the facts, and explain
investors, your goal is to convince
resist the urge to ask for an NDA.
your value. If you are looking for a
investors
and
6. Leave out your mission Many
startups
fail
Leave
a
off
clear
your
solution
value
to
a
marketing team to help build your
them that they’re going to make it big by investing in you, and there’s
9. Forget about your exit strategy
pitch deck, Geraci Media is your
no better way to do that than
This one might be counterintuitive.
expert in the private lending space.
selling them on your mission. If
Venture capitalists don’t want their
Email Ruby today to discuss how
you don’t get much traction at first,
money sitting in the bank. They
Geraci Media can make you an
don’t be discouraged. Rethink your
want it to be used to create a high
outstanding pitch deck!
vision and make sure it’s grounded in reality. 7. Forget to mention your story Everyone
loves
a
good
story,
especially one with a happy ending. For investors, that happy ending is
ABOUT THE AUTHOR: Ruby Keys is the Vice President of Geraci Media, a full service marketing agency, which caters to the Non-Conventional Lending Space. Geraci Media was founded in 2016 and began as an event line. Ruby has helped grow and manage Geraci Media to where they now host 5 conferences a year, produce a monthly magazine for Loan Originators, and offer marketing services for lenders nationwide. CONTACT: r.keys@geracillp.com
www.originate.report 19
GENEROSITY REPORT
A TRULY DIVERSIFIED PORTFOLIO
SHARESTATES INVESTS IN THE NEXT GENERATION By Originate Report Staff
I
nvesting
inherently
causes that all share one common
This organization is the world’s sole
risky business—just take a
goal: improving the lives of children
provider of day camps for childhood
cursory glance at the latest
in need. Whether it’s assisting
cancer patients and their siblings,
stock report and you’ll see that
families with funding medical bills
and they’ve provided this amazing
the
frequently.
for childhood cancer patients or
resource for free since 2006. Sunrise
But what if I told you that leading
providing food for homeless youths,
Association’s ability to maintain
real estate crowdfunding platform,
Sharestates realizes that the most
this zero-cost accessibility is made
Sharestates,
an
precious commodity is the welfare
possible through their partnerships
investment with zero risk and the
of the next generation—regardless
with
potential for unlimited growth?
of their socioeconomic status.
Share4Kids. The nonprofit arm of
prices
is
an
fluctuate
has
discovered
like-minded
entities
like
Sharestates hosts an annual poker Sounds too good to be true, right?
The
few
tournament, with 100 % of the
Think
because
examples of the many community-
proceeds donated to support the
invests
oriented entities that Share4Kids
efforts of Sunrise Association Day
in the future via their nonprofit
has assisted over the last several
Camps.
entity dubbed Share4Kids. This
years:
again.
Sharestates
That’s
consistently
following
are
just
a
affiliate raises capital for numerous outstanding
organizations
and
• St. Mary’s Hospital for Children: • Sunrise Association Day Camps:
20 Originate Report | September 2019
This
renowned
healthcare
center provides an unparalleled,
proceeds going towards funding
for implementing positive change
innovative continuum of care to
their education.
in the lives of children through their
children and young adults who require
are
• Bethel AME Church: Over 50 years
associated with the Share4Kids
suffering from serious illnesses.
ago, thousands of people gathered
organization.
Share4Kids sponsored a sizeable
at the Bethel A.M.E. Church in
they exhibit a similarly successful
team
Healthcare
Paterson, New Jersey to witness
ability
System for Children’s 14th annual
one of Dr. Martin Luther King Jr.’s
investors
Big Hearts Walk, which raised over
final sermons to raise awareness
estate investments via their easily-
$110,000 dollars for the global
for the Poor People’s Campaign—
accessible
leader in pediatric post-acute care.
one of King’s initiatives in his
average
historic non-violent campaign for
between a remarkable 8-12%. The
• Alpha School: An integral and
civil rights. Today, Bethel A.M.E.
secret behind Sharestates proven
proactive
the
Church continues King’s efforts
results is their innovative 34-point
East New York and Brownsville
as the local anti-poverty agency,
scoring matrix, which they use to
communities for more than 40
offering services such as day care,
mitigate risk to their investors and
years, the Alpha school assists
free health clinics and food drives
cost of capital to borrowers.
students between the ages of 17-
in addition to their regular Sunday
21 in preparing for and passing
worship congregations. Share4Kids
Just like Sharestates believes that
the New York City’s high school
sponsors an annual food and gift
no child should be without the
equivalency (GED) exam as well
drive for the Paterson community
opportunity to thrive, they have
as applying to colleges, military
with the assistance of the Bethel
made it their mission to make
services or trade apprenticeship
A.M.E. Church.
real
in
special
St.
needs
Mary’s
component
or
amazingly effective partnerships
of
programs. Share4Kids helps these
to
Unsurprisingly,
in
offering
direct
access
online
net
estate everyday
everyday to
real
portal—with
annualized
investing
returns
accessible
investors—lowering
students reach their full potential
Changing the Future of Kids AND
the barrier to entry and enabling
by sponsoring an annual food drive
Real Estate Investing
everyone
within the East New York and Brownsville communities, with all
to
take
part
in
the
rewarding market of real estate Put simply, Sharestates has a knack
development.
C O N TAC T: m a r ke t i n g @ s h a re s t a t e s .c o m www.originate.report 21
FEATURE
CFPB Proposes Changes to HMDA REPORTING REQUIREMENTS THAT WILL BENEFIT LENDERS By Amy E. Martinez, Esq., Geraci LLP
L
ast
year,
the
Consumer
of credit per year, in each of the two
in a two-year period are required
Financial Protection Bureau
preceding years.
to report their HMDA data to the
(“CFPB”) made changes to
Now, the CFPB is proposing to
CFPB. However, the CFPB proposal
the data collection and reporting
loosen HMDA reporting rules even
establishes two new thresholds that
rules under the Home Mortgage
more by offering some relief for
would raise the HMDA reporting
Disclosure Act (“HMDA”).
smaller lenders and credit unions,
requirement
The new policy exempts insured
and possibly exempting them from
originate either 50 or 100 mortgages
depository
and
reporting requirements altogether.
over a two-year period. This new
credit unions from certain HMDA
The new rules would go into effect
threshold would eliminate reporting
requirements
on January 1, 2020.
requirements
less than 500 closed-end home
Under the current law, lenders that
lenders, community banks, and local
mortgages or 500 open-ended lines
originate 25 or more mortgages
credit unions.
institutions if
they
originated
22 Originate Report | September 2019
to
for
lenders
many
that
small
at the current 25.
proposed increase to the threshold
The CFPB added, “[T]he loss in data
would result in aggregate savings on
from these depository institutions
the operational costs of roughly 40%
and for this relatively small number of
of institutional lenders obligated
census tracts may be justified by the
under HMDA of approximately $8.1
significant reduction in compliance
million per year.
costs for the approximately 745
If you make consumer loans and want
lower-volume depository institutions
up to date information regarding
that would no longer be required to
HMDA
that the proposed increase in the
report HMDA data.”
please contact Geraci Law Firm for
closed-end
The
CFPB
Director
explained, changes
Kath
Kraninger
“[T]oday’s
proposed
would
provide
much-
needed relief to smaller community banks and credit unions while still providing federal regulators and other stakeholders with the information we need under the Home Mortgage Disclosure Act.” In the proposal, the CFPB states
from
25
coverage to
50
threshold
would
relieve
institutions that originate between 25 and 49 closed-end mortgages of the ongoing costs associated with reporting those loans that they might otherwise incur if the closedend coverage threshold remained
CFPB
estimated
that
the
reporting
requirements,
more information.
ABOUT THE AUTHOR: Amy’s practice focuses on representing lenders, brokers, real estate investment trusts, limited partnerships, individual investors, banks, hedge funds, mortgage pools, and private investment funds. As an experienced litigator, Ms. Martinez is able to navigate through the Court system, at both the State and Federal levels, and will help guide you through the process every step of the way. CONTACT: A.martinez@geracillp.com
www.originate.report 23
FEATURE
Secret Weapon Second’s By Bob Eakin, JCAP Private Lending
S
collateralize or do a “blanket loan” the LTV is still the same. One of the benefits of a second mortgage is that it allows your client
econd mortgages have long
and home renovation.
been used to get borrowers
“what do you do when your client
cash quickly when they have
needs more cash-out”?
So we ask A straight
to
borrow
significant
amounts.
Because the loan is secured by real estate, they have access to more than they could get without using
real estate to use as collateral. In
refi perhaps would come to mind
this article we’ll go through exactly
but they may not need the cash long-
what a second is, good examples of
term. A good option could be a 2nd
when it should be used, the benefits
on an existing investment property.
to a broker, and some things to look
You get paid for booking another
out for.
loan and your client gets the cash to
65% on a stated income loan. That
A second mortgage is a loan that
invest in other properties or cash for
maximum would count all of your
uses real estate as collateral while
their business. Your client may be
home loans, including first and
there is another loan secured by that
able to get up to 65% LTV on a stated
second mortgages.
real estate. People use these loans
income 2nd’s program or up to 80%
Good 2nd’s scenarios:
for all types of business ventures
with traditional blanket. If you cross
• If your borrower wants to sell their
24 Originate Report | September 2019
real estate as collateral. How much can be borrowed? It depends on your lender, but you might expect to borrow up to 80% of the home’s value on a full doc loan and up to
of all up-front costs from the get-go.
with your CPA). In some cases, there will be a
Second mortgage rates are typically
tax
lower than credit card interest
deduction
for
interest
paid
on a second mortgage. There are numerous technicalities to be aware of, so advise your borrower to talk to a tax preparer before they start taking deductions. For tax years after 2017, the Tax Cuts and Jobs Act eliminates the deduction unless
keeping an eye out for them: balloon
loan (consult your CPA).
payments that could cause problems
Benefits always come with tradeoffs.
down the road and prepayment
One
investment property on the line. If they stop making payments, the
• If your borrower is growing their business and needs cash quickly to invest in their business. • If your borrower needs cash fast to invest in another property. Second mortgages often have lower interest rates than other types of debt. Again, securing the loan with real estate helps because it reduces the risk for the lender. Unlike unsecured
personal
loans
such
as credit cards, second mortgage interest rates are commonly lower and may be tax deductible (check
Also, make sure to be aware of risky
be different for a business purpose
borrower will need to put their
loan.
first loan.
have these problems, but it’s worth
a second mortgage is that your
selling so they need a short-term
risk than the lender who made the
improvements” to a home. This may
of the biggest things to note with
to make it more profitable before
second mortgage lenders take more
loan features. Most loans do not
loans should be used wisely.
make improvements on the business
the first loan’s rate. This is because
you use the money for “substantial
The costs and risks mean that these
property but has been advised to
rates, but they’re often higher than
penalties that wipe out the benefits of paying off your debt early. Most lending companies don’t do second mortgages because there’s a greater risk in losing the mortgage to a lender because the 1st’s ability
lender will be able to take the home
to foreclose.
through foreclosure. For that reason,
typically consider 2nd’s as an option
it rarely makes sense to use a second
for their clients just because of the
mortgage for “current consumption”
low volume of companies offering
costs.
and
this type of loan, however, 2nd’s are
regular living expenses, it’s just not
a perfect solution for clients who
For
entertainment
sustainable or worth the risk to use a home equity loan. 2nd’s for business purposes are the best fit. Second mortgages, like the purchase loan, can be expensive. The borrower will need to pay various costs for things like credit checks, appraisals,
Many brokers don’t
need short-term loans but who do not want to disrupt their low interest rate 1st. Brokers who have advised their borrowers to use 2nd’s for business purposes have had happy customers
origination fees, and more. Closing
that turn into repeat customers and
costs can add up and it’s a good rule
that’s why we call them “Secret
of thumb to let the borrower know
Weapon Seconds”.
ABOUT THE AUTHOR: Bob Eakin is the CEO of JCAP Private Lending based in Newport Beach. Jcap offers short-term, low loan-to-value real estate loans (including Construction Loans and Stated Income 2nd’s) offering safe, high-yield investments for their investors, while quickly solving a short-term problem for loan clients. They are committed to bringing unparalleled professionalism and service to their community. CONTACT: bob@jcap.net
www.originate.report 25
CITIES TO WATCH
CITIES TO WATCH:
BALTIMORE, MARYLAND By Originate Report Staff
S
to
history – which extends further
away from the shore, however, the
influential writers such as
than the U.S. itself – Baltimore
city’s largest employers are Johns
Edgar Allen Poe, Frederick
continues to evolve to this day,
Hopkins Hospital and Johns Hopkins
Douglass, W.E.B. Du Bois, and F.
creating a unique atmosphere for
University,
Scott Fitzgerald – and with one
its 600,000-or-so inhabitants.
worldwide
erving
as
the
home
which for
are
their
known
healthcare
and education prestige. Because of
third of its buildings on the National Register of historic buildings –
Established by the Constitution of
the city’s numerous districts, this
Baltimore, Maryland is certainly
Maryland as an independent city in
Maryland metropolis is home to an
teeming with history and culture.
1729, Baltimore has grown to the
eclectic mix of character, culture,
With hundreds of districts, the city
most populous city in Maryland
and cuisine.
holds the catchy moniker of the
(and the 30th in the U.S.) The
“city of neighborhoods,” and boasts
second-largest
more public statues and monuments
Mid-Atlantic, Baltimore has long
The scent of pretzels, hot dogs,
per capita than any other city in the
established itself as a main-stay
and (admittedly overpriced) beer
U.S. But aside from the city’s
in transporting goods – further
– where do these scents belong,
26 Originate Report | September 2019
seaport
in
the
Must-see Locations
BALTIMORE, MD Economy: • Major industries: Biotechnology, IT
percent one-year forecast) • Homeownership: 47.4 percent • Median rent price: $1,264/month
& Cybersecurity, Military & Federal,
Job Market:
and Energy & Sustainability
• Forbes List: Best places for business
• Minimum wage: $10.10/hour
and careers #57
• Cost of living: 3.2 percent lower than
• Unemployment: 5.60 percent
the national average
• Job growth: 0.6 percent (future
Housing:
job growth has been predicted at 25
• Median household income: $77,394
percent, however)
• Median home price: $115,300
• Loan originator average salary:
• Home price change: 1.8 percent (-2.6
$62,542
you may ask? At a baseball park,
this location is a must-visit; if not
only seem logical to flop into your
of course. Baltimore’s well-known
for fresh seafood, then for local
hotel bed. Although this may be the
park, Camden Yards, is the home
offerings from countless purveyors
case, your day doesn’t have to end
of the Orioles – whether it is a hot
of delicious cuisine. But what is that
once the sun goes down – after all,
summer day or a crisp fall evening,
sound in the distance? It sounds like
Baltimore’s nightlife will have you
thousands of fans pack the stands
someone…or
to cheer on their team. If, for some
“nevermore.” This sound, possibly,
hitting the town long after the “rest
other-worldly
pretzels
is emanating from the Edgar Allen
and beer are not your favorite,
Poe House, a monument to one
Baltimore’s
market,
of the preeminent disseminators
Lexington Market, is the oldest in
of the grotesque and arabesque.
reason, premier
something…saying
the country. Established in the late 18th century – before the advent of
Nightlife
refrigeration and other “modern”
After a full day of exploring the
amenities we take for granted –
largest city in Maryland, it may
of the city” is fast asleep. A visit to the Tin Roof, for example, leaves tourists and regulars alike with full stomachs (and a necessary Uber ride home, depending on your hankering for some of the Tin Roof’s mouth-watering libations.) On-par Cities to Watch: Continues on pg. 28
www.originate.report 27
Cities to Watch: Continued from pg. 27
with Baltimore native Edgar Allen Poe’s thrilling stories, prepare for a spine-tingling night on one of the city’s Ghost Tours, which you can brave alone or drag a group along with you…but beware, you may also be dragging unwanted spirits from the grave!
visit. Additionally, the National
dishes, Alexander’s Tavern has
Aquarium
plenty to offer – regardless of your
animals; whether you are a fan
proclivity for IPAs or Lager. If your
of giant sea turtles or fearsome
stomach is rumbling for American
sharks, the whole family will gaze
cuisine – with a twist – the intimate
at the splendor of aquatic life. For
setting and unique dishes of Alizee American Bistro will surely leave you with a full stomach. Attractions
Dining Due
microbrews and classic American
to
this
city’s
watery
Although Baltimore’s Inner Harbor
holds
over
15,000
history buffs – and for a journey into the heart of the American spirit – few sites carry the clout of Fort McHenry, which survived bombardment
during
numerous
battles and was the setting of
surroundings, it is only natural
is an attraction in and of itself –
that Baltimore is home to some,
after all, it is the second-largest in
excuse
kick-ass
the Mid-Atlantic – a short journey
seafood. Acqua Restaurant, for
inland leaves room for adventure,
famous Yankee, Babe Ruth, called
example, has a rustic atmosphere
excitement, and relaxation. A visit
this Maryland city home; a journey
and
of
to the Ripley’s Believe Or Not!
through the Babe Ruth Birthplace
Chesapeake Bay dishes (but not
for example, boasts oddities and
Museum
to worry, there are non-seafood
exhibits you will surely be talking
visions
options as well.) With over 60
about for weeks after your initial
stepping up to the plate.
my
classic
French,
interpretations
Francis Scott Key’s penning of the Star
Spangled
Banner.
leaves of
the
Another
visitors Great
Bambino
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28 Originate Report | September 2019
with
www.originate.report 29
FEATURE
Comparing Investing in Individual Deeds of Trusts with Investing in Funds
I
By Edward Brown, Pacific Private Money nvestors clamoring for yields
More often than not, individual
on these types of DOTs are usually
are often faced with choosing
deeds
provide
much lower than one can earn in a
to
a higher coupon than mortgage
Fund; thus, one has to start looking
assets, be they dividend paying
pool
at less conservative assets in order
stocks, bonds, alternative assets
are some specific downsides to
such as mortgages, and the like,
choosing individual DOTs instead
versus investing in pooled funds
of Funds. First, choosing the right
Another advantage to investing in
such as income mutual funds, or
DOT takes due diligence and a
individual DOTs is that the investor
alternative funds such as REITs, or
certain amount of expertise in
can pick and choose which DOT to
mortgage pool funds. This article
many cases. Investing in extremely
invest in compared to having the
focuses on the alternative market,
conservative DOTs that have LTVs
manager of a Fund choose which
and, specifically, individual deeds
at lower than 25% may not need
mortgage fits the desired yield.
of trust with mortgage pool funds.
a PhD in economics, but the yields
This is really not much different
invest
in
individual
30 Originate Report | September 2019
of
trust
funds
[DOTs]
[Funds],
but
there
to produce the desired yield.
than
an
investor
choosing
to
in most circumstances by some
a substantial discount associated
invest in specific stocks instead
division
Federal
with it should the investor need to
of investing in a mutual fund; for
Government authority or the state
liquidate, making liquidation much
some reason, however, the public
in which they do business. It is rare
less desirable and quite a hardship
seems to be more at ease in trusting
that a Fund has no oversight. With
for many investors.
a mutual fund manager than a Fund
regard to liquidity, most Funds
manager. Could this be because
have a lock up period in which
There are some advantages for
mutual funds are regulated under
liquidity
non-existent
investing in a Fund [as compared
the Investment Act of 1940? Could it
or comes with a penalty, similar
to an individual DOT] that may
be the relative liquidity of a mutual
to an early withdrawal penalty
outweigh the negatives. For one,
fund? Could it be the perception
imposed
that mutual funds are considered
the lock up period, withdrawals
regular investments as compared
may be somewhat limited by the
to
categorized
manager. Some individual DOTs
as alternative investments? The
may be able to be liquidated in a
answer is probably a combination
secondary market, but most offers,
of these. Although most, if not
even for high quality DOTs, are at
all Funds are not regulated under
a discount. Those DOTs that are
the 1940 Act, they are regulated
50% LTV or more will usually have
Funds
that
are
of
is
by
either
either
a
a
bank
CD.
After
there is diversification in a Fund, so the risk is spread amongst many DOTs. Unless the Fund experiences a major disaster, distributions to the investor should be uninterrupted. With an individual DOT, a default usually means months or possibly a year or longer [as in the case Investing in Funds: Continues on pg. 32
www.originate.report 31
Investing in Funds: Continued from pg. 31
of a bankruptcy by a borrower]. If
foreclosure
proceedings
are
necessary, the Fund will usually handle them without the need for the investor to get involved or have to come up with money to pay the trustee or other costs, such
individual DOT is paying 8.5%,
capital that has been returned
the after tax return [presuming
due to payoffs from borrowers.
a 40% tax bracket] of the Fund
When one looks at the time value
is 4.76% whereas the DOT’s after
of money, this delay in redeploying
tax return is 4.80%. This 4 basis
capital can significantly lower the
point difference is not significant,
net, after tax, rate of return desired
especially if one were to reinvest
by investors. Money that is not
the distributions in a Fund.
deployed in new DOTs sitting idle in low earning bank accounts bring
as an attorney. In the case of an individual DOT, the investor/lender
“Another advantage to investing in
has to front these costs. If regular
individual DOTs is that the investor
distributions are a must, a Fund is a more conservative route.
invest in compared to having the
months at 1% produces a pre-
earn a higher interest rate than a
mortgage fits the desired yield. ”
Fund [about 1-1.5% on average],
whereby the interest can compound, usually
adding
about
35
basis
points, whereas an individual DOT has to take the monthly distribution with no ability to reinvest. The gap between interest rates of Funds and DOTs gets even narrower [for most investors] when considering the income tax issue because of the new QBID [Qualified Business Income Tax Deduction] introduced in 2018. Congress decided to allow Funds the benefit of reducing the income that has to be reported on an investor’s tax return [subject to certain income limits]. Investing in individual DOTs does not allow for this tax benefit. This 20% reduction in reporting can have a significant impact on the after tax rate of return of a Fund compared to an individual DOT. For example, if a Fund is paying 7%, and an
an 8% return on an individual DOT, having money sit idle for three
manager of a Fund choose which
offering a reinvestment program
For example, if an investor desires
can pick and choose which DOT to
Although individual DOTs usually
Funds may offer the advantage of
the net yield down for the investor.
tax return for the year of 6.25%. Money sitting idle for four months lowers the net yield to 5.67%. In addition, in many cases, Funds snap
The
most
important
factor
up the better quality DOTs, leaving
nowadays [at least in California] is
the less quality loans available
the continuity of investing in a Fund
for individual investors. The main
compared to investing in individual
reason for this is that Funds want
DOTs
due
to
the
downtime
to produce steady, uninterrupted
experienced
in
many
investor’s
returns for their investors. They
portfolios when a loan gets paid off.
usually desire to avoid loans that
In these circumstances, the investor
have a more likely default rate,
usually calls his broker for another
even if the yield could be higher
DOT to invest in and may be told
by taking on a bit more risk. Some
that there are no good loans to look
investors
at for the moment. The investor is
investing standards in order to
asked to be patient or may be forced
keep their money working; thus,
to look at less quality DOTs. There is
investors have to carefully consider
tremendous pressure in the market
whether the benefits of investing
right now for loans to fund, as
in individual DOTs outweighs the
there is significant capital looking
benefits of investing in a Fund.
lower
their
quality
for a home. This competition for loans has driven down interest
rates
that
an investor can earn on a DOT as well as adding to the length of time to reinvest
32 Originate Report | September 2019
ABOUT THE AUTHOR: Edward Brown is in the Investor Relations department at Pacific Private Money in Novato, Calif. CONTACT: edward@pacificprivatemoney.com
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Lockett-N-Homes www.lockettnhomes.com Info@lockettnhomes.com
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5M
50K 100K 150K
55/33
Direct Lender
75/30
JCAP Private Lending www.jcap.net info@jcap.net (949) 236-6600
10M
Direct Lender
100K Helvetica Group www.helveticagroup.com loans@helveticagroup.com (310) 575-3301
*AZ, CA, NV
LET LENDERS KNOW YOU FOUND THEM IN 36 Originate Report | September 2019
*CA
REV. 06.25.19 2019
Direct Lender
* = STATES LENDING IN
Fidelity Mortgage Lenders, Inc. www.fidelityca.com psteigleder@fidelityca.com Peter Steigleder (818) 422-8879
75/2
50K
LENDER
90/30
H O M E
TYPES OF PROPERTIES
70/30
L O A N
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2019
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MI NI MU M LO MA AN XIM $ UM Co LO mm AN er $ Co ns cial um Br e r idg Co e rp o A c rat i o qu ns i /T No sitio ru s ns te s a n ts/ L Pu eg dD rc h a ev e l o l Ent Re ased itie pm ha s en b ts Bla / Re mo nk S e e t Lo d e l e co d/ nd ans Re Jo no int Mor va tg V te d a en Fo ge t re i g n u re s s Ot h e N at i r on als MA XL OA NCh TO ur -VA ch LU es La E( /T nd % em (B )/M Au ar p AX les to m e / /S TE Co o RM Re mm yn t ag t a i i ve (YR e og l( rc i S) S En ue al/ s te r h o p L s o t ai / t ) Ga S nm tri sS en pM all Le t at i o t isu s) ns re Ho (G sp olf i Co Mi t alit ur y( xe se d H R e - u s e o te s / M ls) sid ar Pr ina In e o n p Ra d ) n c t i a l I e r t i e u st r he nv s ial sa Se es tm lfnd s en Fa R e to ra tP ge rms st a ro pe rti O f u ra n fic es t s e
LENDER DIRECTORY
50M
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Direct Lender
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*CA
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REV. 06.25.19 2019
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90/2
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Redwood Mortgage Corp. www.redwoodmortgage.com RMC@redwoodmartgage.com (800) 659-6593 San Mateo, CA 94402
200K
Direct Lender
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Patch of Land www.patchofland.com originations@patchofland.com (888) 250-2216 Sherman Oaks, CA 91403
Sunset Equity Funding www.sunsetequityfinding.com lending@sunsetequitygroup.com (833) 786-7381 Los Angeles, CA 90010
TYPES OF PROPERTIES
90/2
3M
50K
LENDER
TYPES OF LOANS
MI NI MU M LO MA AN XIM $ UM Co LO mm AN er $ Co ns cial um Br e r idg Co e rp or at i Ac on qu s/ i Tru No sitio s ns te s a n ts/ L Pu eg dD rc h a ev e l o l Ent Re ased itie pm ha s en b/ ts Bla Re m nk o e de t Se c o Lo a n l e d / nd s Re Jo M no int or va tg V te d a e Fo ge nt re i g n u re s s Ot h e N at i r on als MA XL OA NCh TO ur -VA ch LU es La E( /T nd % em (B )/M Au ar p AX l es to m e / /S TE Co o RM Re mm yn tiv ag t ai e (YR er l( cia ogu S) Sh En es l/ o te r Lo t ai ps/ t) Ga St nm rip sS en Ma Le t at i o t lls isu ns ) re Ho (G sp olf it a Mi lity Cou xe rs e (H d R e - u s e o te s / M ls) sid ar Pr ina I Ra entia oper ndu ) nc st r tie l I he nv s ial sa Se es tm lfnd s en Fa R e to ra tP ge rms st a ro pe u ra rti Of nt fic es s e
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