INSIDE! PRIVATE LENDERS DEMAND FOR FINTECH HOW TO EVALUATE FOREIGN NATIONAL BORROWERS
The Official Magazine of AAPL May/June 2017
SCALING TRUST DEED INVESTING
Fund Management and Raising Capital
CHRIS HOEFFEL Colony American Financeâ€™s CFO plays to win PAGE 42
American Association of Private Lenders
2017 ANNUAL CONFERENCE Inspiration through Association November 12-14, 2017 | Las Vegas Register by July 7, 2017 for $559! 2 PRIVATE LENDER
CONTENTS MAY | JUNE 2017
Trending industry topics and news from around the world of private lending.
Brokers moving from direct sales to mortgage pools.
Compiled from Industry Sources
by Kevin Kim, Esq.
Considerations when determining capital structure. by William Schwartz
Investors benefit from transparency, data and reputation in the real estate crowdfunding space.
How to evaluate foreign national borrowers.
Why trust deed investing is hard to scale for traditional investment brokerages.
by Jason Fritton
by Eric Tran
Feature: Fund Management
with Chris Hoeffel
by Robert ‘Bobby’ Montagne
Inflation’s impact on the private lending and construction sectors.
Colony American Finance’s CFO makes a difference everywhere he goes.
by Jeffrey N. Levin
Feature: Raising Capital
by Corey Curwick Dutton
Raising capital to fund your deals.
Considerations for raising capital from IRAs.
Private lenders demand for Fintech.
How to know you’re making a good investment.
by Clay Malcolm
Manage & Lead
The annual review process: Making it a significant part of your company culture. by Linda Hyde
by Kellen Jones
Manage & Lead
Time for executives to improve their public relations skills. by Chrissey Breault
by Abhi Golhar
NEW! Last Call
For private lenders, sometimes being part of the team means a better bottom line. with Eddie Wilson
MAY/JUNE 2017 3
Financing for Private Lenders Spend less time raising capital and more time originating loans!
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4 PRIVATE LENDER
Capital is the Fuel Driving Your Business R. MICHAEL WRENN CEO, Affinity Worldwide
EDDIE WILSON President, Affinity Worldwide
LINDA HYDE Executive Director, AAPL
HEATHER ELWING-DIXON Editorial Manager
CHRISSEY BREAULT Editor in Chief, Private Lender Director of Marketing & Member Services, AAPL
TIM DRAPE Senior Account Manager, AAPL
EMILY BOWERS Designer
CONTRIBUTORS Kaitlin Brennan, Corey Curwick Dutton, Carole VanSickle Ellis, Jason Fritton, Abhi Golhar, Kellen Jones, Kevin Kim, Esq., Jeffrey N. Levin, Clay Malcolm, Robert ‘Bobby’ Montagne, William Schwartz and Eric Tran
COVER PHOTOGRAPHY Rob Tannenbaum 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.
SUBSCRIPTIONS Visit www.facebook.com/aaplonline or email PrivateLender@aaplonline.com.
BACK ISSUES Visit www.issuu.com/aapl, email PrivateLender@aaplonline.com, or call 913-888-1250. For article reprints or permission to use Private Lender content including text, photos, illustrations, logos, and video: E-mail PrivateLender@aaplonline.com or call 913-8881250. Use of Private Lender content without the express permission of the American Association of Private Lenders is prohibited.
Having an idea can be useless if you don’t have enough capital to convert it into a reality. It’s almost impossible to start a business without money. Yet, ironically enough, you cannot get money until your business is successful enough to gain the confidence of outside investors. Capital is the fuel that drives the company’s growth engine. Without it, reaching that “next level” is almost impossible. Capital attraction will solidify your goals and strategies with proven and successful ideas for building your business overall. Raising capital can be a challenge for many new investors, but it is a necessity for anyone looking to succeed. Putting other people’s money to work is what makes real estate investing possible for a huge percentage of aspiring investors. Even the most successful real estate professionals and legendary investors almost exclusively use other people’s money to reduce liability and maximize returns. As Clay Malcom wrote, “with a consistent need for capital to fuel business and individual loan products, a successful relationship between tax advantaged accounts and entities raising capital is more achievable than ever.” When you evaluate the factors critical to success in launching a fund, managers are certain to focus on two key areas – investment performance and raising capital. A unique and compelling investment will help get you through necessary doors. However, you are going to need the ability to articulate the differentiator when you’re planning to raise capital for your fund. In terms of your own public relation skills, you will have a nearly impossible time raising capital if you are always in sales-mode rather than understanding the nuances involved in dealing with people. After all, the real estate game is played by people. Complicated. Talented. Motivated. People. ■ (for printing)
(for spot color, silkscreen, or embroidery)
(for any black and white application)
Executive Director, American Association of Private Lenders
www.aaplonline.com Copyright © 2017 American Association of Private Lenders. All rights reserved.
The American Association of Private Lenders is an Affinity Worldwide Company. MAY/JUNE 2017 5
6 PRIVATE LENDER
Trending industry topics and news from around the world of private lending
AlphaFlow Adds Veteran Fintech Executive AdaPia d’Errico Fintech executive AdaPia d’Errico, joins AlphaFlow as their chief operating officer
Geraci Law Firm Reviews Loan Origination Documents for Applied Business Software
to assist with scaling their investor platform and the expansion of their customer
Applied Business Software Inc, the developers of
channels. She is nationally renowned for scaling businesses through brand advoca-
The Mortgage Office lending loan servicing and origi-
cy, creating innovative platforms and building engaged communities. Since 2014,
nation software for private lenders, announced Geraci
d’Errico has been at the forefront of real estate crowdfunding while advocating for the
Law Firm completed a thorough review of the software’s
power of improved transparency, technology and education.
loan origination documents. The review was to
“AdaPia’s passion, vision and execution are renowned in the fintech
ensure compliance with the latest state and
industry, as she was a key player in giving real estate crowdfunding na-
tional awareness, especially amongst investors,” AlphaFlow co-founder
Outside of the new set of origination doc-
and CEO, Ray Sturm, said. “I’m thrilled to have AdaPia here as a partner
uments, the new release of The Mortgage
and leader of the firm. Her track record, experience, and ability to apply
Office added enhancements like fully-inte-
innovative methods to reaching audiences will be fundamental to building
grated online loan application and notifica-
AlphaFlow into the premier real estate investment service for high net worth
individuals, wealth managers and registered investment advisers,” he added. Recently, d’Errico was the CMO of Patch of Land, leaving her footprint by
Jerry Delgado, CEO of ABS said, “We are excited about all the new features added to The Mortgage Office
leading brand, marketing strategy and operations to include building their
as they feed into our goal of providing our clients with
the latest regulatory updates and technology necessary
Ms. d’Errico stated, “I am beyond excited and honored to join AlphaFlow and the
to grow their business.”
incredibly talented team that Ray has already assembled.” She added, “AlphaFlow
Anthony Geraci, President and CEO of Geraci Law
Optimized Portfolios are the evolution of online real estate investing. We are at the
Firm added, “As the largest law firm who caters to the
intersection of robo-advising and real estate; technology and analytics combined with
private lending industry, we were excited and honored
human-powered real estate expertise and experience. I share the company’s passion
to be hired by The Mortgage Office to review their
for providing a seamless investor experience built around passive investing, diversifi-
loan origination documents so they can continue to be
cation, trust, transparency, and the utmost in customer service and care.”
the loan originator software document leader.”
Crowdfunding Marketplace, RealtyShares, Raises $3M for Phoenix Apartments RealtyShares, an online marketplace for real estate investing, announced their network of accredited investors funded a $3 million investment to acquire Clarendon Park Apartments located in Phoenix, Arizona which is comprised of 138-multifamily units. Rincon Partners, based in Arizona and owner/operators of multifamily properties whose focus is primarily in the Southwest U.S. sponsored the deal. They intend to use the raised funds to rehabilitate and modernize the perfectly situated properties located in midtown Phoenix. The property will receive updated interiors and amenities creating modern living spaces which are situated between two of the area’s largest employment corridors. The apartments are close to shops restaurants and new developed amenities. “This transaction was a natural fit for our platform,” said Brian Esquivel, Senior Director of Commercial Equity Investments at RealtyShares. “The quality of the sponsorship, asset, and market made for an attractive investment opportunity for our investor base. We look forward to seeing Rincon’s vision come to fruition and many more projects with them in the future.” MAY/JUNE 2017 7
ALPM pursues above-market returns for its investors/ clients by primarily investing in the historically strong and steady Texas real estate market.
A List Partners Management, LLC is a powerhouse team of real estate knowledge and experience providing high-yield alternatives through our managed funds for investors who want more for their money than the low interest rates offered by banks. Additionally, ALPM offers high yield opportunities for Non-US Citizens who are seeking investment options in the USA.
Investors receive semi-annual distributions based upon the net profitability of the fund, meaning that some periods may have small distributions and some periods may have larger distributions. The target of ALPM is to manage real estate transactions that yield greater than 12% annually. Investors may choose to receive a check for their semi-annual distributions or they may choose to reinvest their distributWion to build wealth by compounding their earned distribution. Compare our return rates to the rates banks offer on a five-year Certificates of Deposit, and see why ALPM offers a clear choice for the thoughtful investor.
Regional Center Fund
Each EB-5 project will be its own security filed with the SEC within A List Partners Regional Center. Whereas most Regional Centers offer only a tiny return for EB-5 investors, A List offers a 3% annualized interest rate to EB-5 investors, AND in some projects investors share in a small equity percentage of the project. For non-EB-5 investors investing through the Portfolio Interest Tax Exemption Program, the annualized returns are 8% of greater, AND in some projects investors will receive a bonus in addition to the annualized interest rate on the investment.
A List Partners Technology
Converting Cannabis Industry Legacy Money into Viable Investments
Frost Bank Tower 401 Congress Ave. Suite 1540 Austin, TX 78701 Phone: 512.687.6263
8 PRIVATE LENDER
A List Partners Mentorship Program Turnkey Option to Set Up Your First Capital Fund While being Mentored by Experienced and Successful Fund Managers
Trending industry topics and news from around the world of private lending
Global Financial Credit Gets Majority Investment from Lovell Minnick Partners Private equity firm specializing in financial and related business services, Lovell Minnick Partners, announced on April 12, 2017 that it completed a majority investment in Global Financial Credit. Through two other brands, MedChex and ChiroCapital, Global provides specialized working capital solutions to healthcare providers such as physical therapy centers, chiropractors, as well as other health care providers. Global also offers commercial and consumer financing. “Global Financial Credit has established an impressive platform, and we’re excited to help the current management team build upon its track record of strong organic growth, including expanding its healthcare coverage footprint,” said Steve Pierson, President of Lovell Minnick Partners. “An early leader in the industry, the company has a seasoned risk management process refined over more than fifteen years of operation and hundreds of thousands of transactions, providing a solid foundation. One of our priorities will be to support Global Financial Credit’s continued growth through acquisitions that build greater scale in its core markets, including healthcare.” Their current management team continues to stay on through post-closing. Terms of this private transaction were not disclosed, stated the press release.
Corporate Capital Trust Appoints New Board Member Laurie Simon Hodrick, a finance academic, practitioner and consultant, takes her seat as an independent director on Corporate Capital Trust’s board of directors. Hodrick has close to 30 years of expertise in valuation, as-
Sharestates’ Co-Founder Helps Raise Money for Children’s Charity Since 2007 David Miller, co-founder of Sharestates, has
set management, mergers and acquisition, capital markets and
been involved with the Sunrise Day
liquidity and risk management. Previously, she was an independent
Camp-Long Island and a board
director/trustee on various mutual funds boards of Merrill Lynch
member of the Sunrise Association.
Investment Managers. Where she was a financial expert for their
His mission? To help the Sunrise As-
audit committees. Her accolades extend to currently A. Barton Hep-
sociation raise money to bring back
burn Professor of Economics in the Faculty of Business at Colum-
the joys of childhood to children who
bia Business school and is a Visiting Professor of Law at Stanford
have cancer. The program is world-wide and even open to the patient’s
University and previously served as managing director and global
siblings through the creation of Sunrise Day Camps. The program
head of alternative investment strategies at Deutsche Bank.
offers year-round options and in-hospital recreational activates all
“Laurie is a veteran in the financial world and we are confident that her experience and skill set make her a valuable asset to our
offered free of charge. Miller has even ponied up his own handlebar mustache and his
board,” said Thomas K. Sittema, CEO and chairman of the board
head for shaving if certain donation goals are met. The founda-
for Corporate Capital Trust. “We are excited to gain her professional
tion encourages people to shave their own heads as an “act of
perspective and oversight, especially as Corporate Capital Trust
solidarity for cancer patients.” With pledges being thrown around,
continues with its plans to pursue a potential listing of its shares on
poker nights and auctions the foundation is sure to raise the funds
a national securities exchange.”
needed to continue this life changing program. MAY/JUNE 2017 9
Sell your loans to PeerStreet quickly and efficiently PeerStreet provides unprecedented liquidity to the private lending industry. Our team is flexible, easy to work with and we can purchase loans at a low cost.
PeerStreet can be your capital and technology partner Here are just some of the benefits of working with PeerStreet: • Free up capital so you can originate more loans • Reduce your overall cost of capital • Gain access to a diversified investor base without the hassle • Benefit from access to PeerStreet’s diversified investor base • Maintain borrower relationships • Gain a partner, not a competitor
This notice is issued with and forms an integral part of information supplied in the form of a printed document (“Information”) and should be particularly noted in connection with that Information. This document has been prepared by Peer Street, Inc. (“PeerStreet”) for informational purposes only and without regard to the particular needs of any specific recipient. All Information is indicative only and may be amended, superseded or replaced by subsequent summaries and should not be considered as any advice whatsoever, including without limitation, investment, legal, business, tax or other advice by PeerStreet. Any such advice should be sought from an appropriately qualified and/or authorized professional. PeerStreet does not guarantee the accuracy or completeness of the Information which is stated to have been obtained from or is based upon trade and statistical services or other third party sources. All opinions and estimates are given as of the date hereof and are subject to change without notice. The Information is not intended to predict actual results and no assurances are given with respect thereto. The Information is not an invitation, offer or inducement to acquire or dispose of, or deal in, any interest in security, or to engage in any investment activity. Strategies or investments of the type described herein involve risk and the value of such strategies or investments may be volatile. Such risks include, without limitation, risk of adverse or unanticipated market developments, risk of counterparty or issuer default, risk of adverse events involving any
PeerStreet’s Lender Platform
Please contact us to learn more about PeerStreet: Lender Onboarding Team firstname.lastname@example.org
(844) 733-7787 x707
underlying reference obligation or entity and risk of illiquidity. This brief statement does not disclose all the risks and other significant aspects in connection with transactions of the type described herein.
10 PRIVATE LENDER
Trending industry topics and news from around the world of private lending
PeerStreet Named “Best Overall Peer-to-Peer Lending Platform” PeerStreet was the recipient of the “Best Overall Peer-to-Peer Lending Platform” in
AAPL Opens Call for Topics The American Association of Private
the 2017 by the FinTech Breakthrough Awards. FinTech Breakthrough Awards honors
Lenders (AAPL) has opened the Call
excellence and recognizes creativity, hard work and success of FinTech related compa-
for Topics and Session Participation at
nies, products and technologies. The award recipients are chosen by a panel of FinTech
AAPL’s Annual Conference. The confer-
experienced, senior-level professions who have personally worked with the industry.
ence is planned for Nov. 12 to 14, in
PeerStreet is also a finalist for the Benzinga Global FinTech Awards in the category of Best Digital Mortgage /Real Estate Platform, Too or App.
Las Vegas and is a two-day educational forum. Bringing together real estate fi-
These two awards are just the latest addition to PeerStreet’s growing list of acco-
nance professionals to discuss the latest
lades, following a landmark 2016 imprinted by rapid growth, expanded footprint, and
trends and technologies, best practices,
a strong start to 2017. Recently they have also won a LendIt Industry Award and a Los
and learn from one another through
Angeles Venture Association Award.
exceptional networking opportunities.
“We are extremely proud to be recognized as an innovative leader in the highly competitive FinTech market,” said Brew Johnson, Co-founder and CEO at PeerStreet. “Our team strives every day to provide investors access to quality investments in an easy-to-use and efficient manner, and this type of recognition inspires us to do more.”
AAPL is looking for presentations that demonstrate how private lenders and other real estate based service providers
“Our mission is to level the playing field between Main Street and Wall Street, enabling any accredited investor to easily invest in real
estate loans,” said Brett Crosby, Co-founder and COO of PeerStreet.
Showing their suc-
“By democratizing this system, PeerStreet’s platform has dramatically expanded the market for one of America’s largest industries.”
cesses, through innovative and effective strategies and tactics. Experiences shared at our annual conference will help gain knowledge, connections and leverage in your work space.
LoanCare Adds New Chief Information Officer LoanCare welcomed their new CIO, Jeff Bell, on March 27, 2017. In this executive
To learn more about the Call for Topics, visit www.aaplconference.com or call 913-888-1250.
leadership position, Bell is responsible for planning, organizing, optimizing, and managing staff as well as overall operations of LoanCare’s IT department. His role will help lend strategic leadership to ensure operational services to the business in supported timely and cost effective manners. Bell is also responsible for short and long term goals and developing objectives for the department. Previously, Bell was the CIO for PHH Corporation prior to being a partner at Crystal Shores consulting, where he worked directly with mortgage institutions as a management consultant. While at Crystal Shores, Bell received awards for JD Power Customer Service Recognition and earned number one at IDS FinTech 100 at TCS. At PHH Corp., Bell was on the executive management team when it took PHH from the top 20 list market share to number four in market share in less than three years by using increased client penetration and new client integration. “We are excited to welcome Jeff with his leadership, industry experience and strong business sense,” said Dave Worrall, president of LoanCare. “We look forward to leveraging his talent and seeing the contributions he makes to LoanCare’s goals and long-term growth. Jeff will strengthen an already strong commitment to innovative systems and technology.” MAY/JUNE 2017 11
Trending industry topics and news from around the world of private lending
Noble Capital Launches Fund in Partnership with US Capital Noble Capital launched a $250 million Texas real estate
HGTV’s Flip or Flop Fort Worth Considered for New Season Flip or Flop Fort Worth aired in February of 2017, staring Fort Worth locals
fund with San Francisco-based private
Andy and Ashley Williams of Recon Realty. The show is set to air in 2018
investment bank, US Capital Partners.
which is just one of the franchise shows. The pilot aired under the title
“We are thrilled to be partnering with
Noble Capital on this exciting venture
Private Lender would like to congratulate both for their hard work
focused on the thriving Texas
and dedication to AAPL and military veteran entrepreneurialship.
real estate market,” said
The couple are both military veter-
Charles Towle, Managing Part-
ans and know what they need to do to help other veterans get in
ner, US Capital. “Noble Capital
the game of real estate invest-
has extensive experience and a notable track record in the market, which will bring unique value to investors in the Fund.”
ing. This is noticeable throughout their own business practices by using
Noble Capital’s, The Signature Fund is one of the
veterans as often as they can as well as
biggest of its type. It allows the company to begin nota-
adding Rally Points at Think Realty Confer-
ble structural enhancements. It will allow for improved
ences and Expos; where fellow real estate
efficiency with the borrowing processes and greater
investors, who are also military veterans, can
accuracy as well as increases capital for borrowers.
network and discuss strategies and issues.
Sharestates Launches Shareline Solution Sharestates announced the launch of their new financing capability, Shareline Solution. Placing Sharestates as a strategic financing partner for lenders across the country. Sharestates created the first correspondent lending program for real estate crowdfunding and the real estate marketplace lending, due to roll out this month, May 2017. Shareline Solution was developed specifically for the private lending community as a way to collaborate with other lenders. It also enables Sharstates to tap into other geographical regions by working directly with local, private lenders through mutual strategic partnerships. The lenders using this platform will have the opportunity to finance through the Sharestates but will still maintain control of the loan qualification process. “As the company expands its geographical footprint, it saw great demand for this kind of product. We took the process, referred to in traditional banking as correspondent lending, and gave it our own unique touch,” said Sharestates CEO Allen Shayanfekr. “Since private lenders are not in the business of brokering loans, we created a financial product that meets their needs and goals, and contributes to our long-term goal of being a trusted source of lending across the country.” Shareline Solution is a hybrid between lending and brokering loans. It enables private lenders the ability to use Sharestates’ warehouse lines and lending capabilities to service their clients directly under their own brand while Sharestates holds the underlying paper and servicing rights. 12 PRIVATE LENDER
Situs Announces Acquisition of The Collingwood Group LLC Situs, a global provider of strategic business and technol-
Serial Entrepreneur Bill Green Releases New Book, Donates Proceeds Bill Green has been dubbed a serial entrepreneur by those who follow
ogy solutions for the real estate finance industry announced
him. Having opened numerous businesses over his 40-year career, he
on May 3, 2017 of the acquisition of The Collingwood Group.
has now written what could be considered the quintessential learning
Based in D.C., Collingwood is an advisory firm led by former
tool for entrepreneurs, All In: Real Life Business Lessons for Emerging
head of the FHA with other partners who held senior leader-
Entrepreneurs. Green uses his entertaining writing style and his hands-
ship positions who focused on housing policy and regulation
on experience to write this “delightful, fast-paced page turner.”
and worked within HUD, Fannie Mae, Freddie Mac and FHFA.
Green’s goal? “I want to inspire entrepreneurs of all ages and levels of ex-
With the acquisition of Collingwood, Situs secured regula-
perience to take up the challenge of a small business with passion and joy.”
tory policy experience and insights throughout the residential housing and multifamily finance industry. “Collingwood is a thought leader in the housing industry, and
Some of the skill sets and tools covered within the book are: importance of surrounding yourself with the best team possible, critical leadership skills every
we are excited to have them join the Situs team,” said Steve
business owner should have to cultivate your
Powel, CEO of Situs. “This acquisition expands our professional
business, identifying advances that can help
service offering beyond the commercial real estate sector, pro-
push your business beyond its competition,
viding residential housing expertise and advice to manage com-
personal sacrifices that arise and how to
plex credit risks and address continuing regulatory challenges.
“solider” through them, and adaptive busi-
Further, the Collingwood team provides a presence in Washing-
ness plans through changing environments.
ton, D.C., to better serve our existing GSE’s relationships.” “Collingwood has an established track record and cred-
The book’s contents are applicable within any business space and its universal message
ibility for providing consulting and advisory services in the
can help any entrepreneur with building and
housing industry,” said Brian O’Reilly, President of Colling-
growing their business. The book is considered
wood. “Joining Situs enables us to also provide fulfillment
to be “the ideal road map for anyone thinking of starting up a business.”
services to our clients, and offer these clients the same level
Another unique trait about Green’s book, of course outside of his unique
of industry expertise in the commercial real estate sector.
business skills, is that he is donating a portion of the proceeds from the book
The acquisition will also accelerate our growth in the strate-
to Alzheimer’s research. This is in honor of his father who had suffered from
gy, risk management and regulatory-compliance area.”
the deteriorating disease, leading Green on a journey to document his story.
Civic Financial Services Hires Visionary Lending Leader Civic Financial Services (CIVIC) is thrilled to announce their newest CEO William J. Tessar. Tessar, formally with Skyline Financial Corporation, joined CIVIC in March as their new president and CEO. Tessar comes to CIVIC with a long line of credentials with more than “30 years of mortgage experience and a track record of successfully growing lending operations,” states the press release dated April 13, 2017. Before joining the CIVIC family, Tessar founded and was the president of three lending companies, Capital Line, one of his companies, received recognition as a top originating brokerage in all of California. Another one of the company’s, Retail Lending where he served as president. He also spent 10 years at Skyline where he scaled the company from a retail mortgage funding company at $40 million per month to a multi-channel originator, funding annually $3.5 billion. “Bill’s leadership, talent and history of success has already made him a key addition to the CIVIC family,” Jim Helfrich, Co-Founder and Partner of CIVIC. “His vision and execution track record is exactly what CIVIC needs as we enter our next chapter. His appointment is a sign of our commitment to being the leading company in our industry.” MAY/JUNE 2017 13
Trending industry topics and news from around the world of private lending
Finance of America Adds B2R Finance and Jordan Capital Finance to Its Ranks by Kaitlin Brennan
Finance of America, a diversified national lender and Blackstone Group portfolio company, has rapidly expanded over the past two years. In that time, Finance of America acquired Urban Financial of America, Finance of America Reverse, as well as Gateway Funding Diversified Mortgage Services, Pinnacle Capital Mortgage and certain assets and operations of PMAC Lending Services, which together comprise Finance of America Mortgage. Continuing its advancement into real estate lending, Finance of America has also added B2R Finance and Jordan Capital Finance into its ever-growing fold. THE ACQUISITION OF B2R FINANCE AND JORDAN CAPITAL FINANCE B2R Finance lent funds to single-family residential real estate property investors while Jordan Capital Finance focused on
Announced in mid-February, this new line
private lending for fix-and-flip investors.
of business is designed to provide rental
These acquisitions combined to create a
term loans and fix-and-flip lines of credit to
new entity: Finance of America Commercial
residential real estate investors across the
LLC, under the Finance of America um-
country. The specific terms of the acquisi-
brella. Finance of America will continue to
tion remain undisclosed.
ca Reverse of Tulsa, Oklahoma and Finance of America Mortgage of Horsham, Pennsylvania. FINANCE OF AMERICA COMMERCIAL The company will focus on private lending for residential investment properties. Sin-
operate the commercial division from B2R
Finance of America’s Executive Chairman
and Jordan Capital Finance’s existing sites
Brian Libman spoke of the acquisition, “The
component of the housing economy in the
in Charlotte, North Carolina and Chicago,
launch of Finance of America Commercial
respectively. They will retain several exec-
enables us to reach new borrowers and will
utives from both former entities to oversee
help us continue to strengthen awareness of
ing, however, has been very constricted with
the new company.
the Finance of America brand.”
many of these rental properties owned by
Jordan Capital Senior Vice President (SVP)
Finance of America Commercial will contin-
gle-family rentals have always been a critical
Access to diverse and competitive financ-
Ben Fertig and B2R SVPs Joe Hullinger and
ue to serve real estate investors and operate
Matt Soto will continue to lead sales efforts
alongside the Finance of America’s other
United States and residential purchase-re-
and oversee operations for the organization.
lending channels, including Finance of Ameri-
hab- resale transactions reaching new highs,
14 PRIVATE LENDER
“With nearly 16 million rental units in the
Hullinger. “We’ll also be offering education
the real estate investment opportunity is
bility criteria to really effectively service that
clear and we believe that Finance of Amer-
market. And that’s where finance of America
and training to the sales teams within Fi-
ica Commercial will continue to be a leader
Commercial has the opportunity to make a
nance of America Mortgage and Finance of
in the space,” said Joe Hullinger, SVP of
huge impact, said Hullinger.”
America Reverse, which will be a benefit for
Finance of America Commercial.
Finance of America Commercial’s lending
Together the two firms (Jordan Finance
products and tools have been designed with
and B2R) have originated over 4,000 loans,
the single investor in mind. Innovative tech-
which is a level of experience generally not
nologies and personalized services allow
found in this asset class. Borrowers now
the single lender to create a load specific to
have a lender capable for fix-and-flip and
their financial needs.
rental products. Few competitors have ex-
“Working with the Finance of America
pertise in both [single-family rentals and fix-
family, we can offer a flexible alternative to
and-flips properties] on a nationwide scale.
traditional financing and operate in partner-
“One in 10 homes are either a rental or
ship with leading residential real estate pro-
investment property in the United State
fessionals to ensure that our loan products
currently. The conventional loan base really
and customer service are at the forefront
doesn’t have the processing speed or eligi-
of the single-family rental industry,” said
customers in those channels as well.” ■
ABOUT THE AUTHOR Kaitlin Brennan is a social media and digital content manager for Rivet: a small marketing, design and development studio based in the River Market area of Kansas City. Brennan has been freelancing in the Kansas City area for over five years, focusing on digital content creation, SEO strategy and data-driven marketing campaigns. She’s been active in the local startup community and has worked for companies at the Sprint Accelerator, Think Big and the Kansas City Startup Village. She earned a BA degree in English from the University of Kansas and lives with three cats: Tom Riddle, Bellatrix and Ramses.
MAY/JUNE 2017 15
Come on in, the Water is Fine Brokers are moving from direct sales to mortgage pools by Kevin Kim, Esq.
gage pool the right choice for your business?
As a broker, you have a fiduciary duty to your investors to ensure your paperwork is bullet-
proof, to protect their capital as best as possi-
ble. What they probably like most about you is
the fact that you consistently earn them money.
rivate-money lenders have been chasing direct sales for years, providing niche,
are becoming more open to mortgage funds
as a way to offer stability and year-round con-
mezzanine, and hard-money financing with
sistent returns. If the idea of not having to sort
good, the business is profitable for both the
is not appealing enough, investors also like the
there seems to be an increase in the amount
sified portfolio of loans, rather than placing all
direct investor capital. When the market is
through stacks of loan documents each month
broker and the investor. Though more recently,
idea of having their capital invested in a diver-
of brokers looking to transition from direct
their eggs in the one proverbial basket.
market stagnant or wildly fluctuating, investors
this emerging opportunity, is starting a mort-
investment into mortgage pools. With the stock
16 PRIVATE LENDER
With so much interest being generated with
What if you could earn them more money
with better security and less paperwork? A
mortgage fund offers them a great investment opportunity with better than average returns,
while providing peace of mind that comes with a diverse pool of loans, and about a 95 percent reduction in paperwork.
Now that we understand what makes mort-
gage funds appealing to investors, we can take a look at them from a brokerâ€™s point of view.
There is a reason why more and more dealers
are attending seminars on how to become a
with the ability to fund multiple deals without
keting. Running to investors to seek approval
Mortgage funds provide brokers with several
fund portfolio will protect investors if one loan
time-consuming. With mortgage pooling, a pool
pool manager and structure mortgage funds. benefits over direct investment lending. For one, the paperwork duties just got a whole lot easier.
Under a direct private loan, dealers are required to send a loan package to every contributing
investor for each loan the broker books. With a mortgage fund, the pool manager issues a Pri-
as much liability if one fails. The diversity of the sours, but also takes the onus off of the broker
who may otherwise face litigation from unhappy investors who lost money on a direct investment. The average performance of the fund is taken
into consideration rather than a single loan, and
it is much easier to explain a failed deal to inves-
vate Placement Memorandum and Subscription
tors while they are still receiving their monthly
once. After the agreement is signed, the pool
the reputation of the broker, but it also helps
Agreement to each participating investor only manager may allocate funds for new loans as
they are approved. For the investor, this process is far more convenient than sorting through stacks of new loan packages every 90 days.
Mortgage pools also provide the manager
disbursement check. Not only is this good for
for single-investor deals can be frustrating and
manager can leverage his capital by obtaining a
low-rate credit line, thereby reducing the cost of funds, and effectively offering more competitive financing options to his clients. The credit line
can then be paid down over time using investor funds. The process allows brokers to be more
selective with whom they lend funds, with the
ability to offer attractive terms, and reducing the likelihood of a non-performing loan. Consid-
avoid costly litigation that may originate from
ering that the fund manager has the right to
credit facility, it can quickly replace a loan that
of the entire fund, he will continue to receive
disgruntled investors. If the fund has obtained a
collect an asset management fee as a percentage
may not be performing.
payments even if new private money deals are
A mortgage fund also makes for good mar-
not landing on his desk.
MAY/JUNE 2017 17
Another reason more brokers are attracted
about your move to a direct lender? Some may be
Private-money lenders are required to operate
grasp of the concept and benefits. Once you have
Real Estate. This BRE licensing requirement
you can start the marketing process to bring more
ATR qualifiers, reporting requirements, and a
direct investment loans, you can fund their future
a broker. By creating a mortgage fund, a firm
are paid back and you continue to build up your
for a California Finance Lender’s license.
tion to direct lender. The pool manager can then
to mortgage pools is the licensing change.
confused, but most will follow you after they get a
under a broker license from the Bureau of
made the move and have your fund established,
makes a creditor liable for loan disclosures,
investors on board. As your borrowers satisfy their
myriad of other rules that go along with being
deals out of the mortgage pool. As additional loans
can now register as a direct lender and qualify
fund, you will be closer to completing the transi-
The CFL license provides a direct lender with
the ability to set up a corporate account that allows them to conduct all of their lending operations, in-
cluding taking in payments, issuing disbursements to investors, and rolling over money for future
opportunities. As long as the rules outlined in the Subscription Agreement are followed, the fund
manager now has all the tools necessary to become a full-service direct finance company.
While the benefits are plenty, there are some
hurdles you will need to address before entering
the space. You will have to spend some capital to establish your presence. Bring in legal counsel
to help you set up your fund and create your disclosures and subscription agreement, expenses
that can be paid back from the pool at a later date. Hiring a third-party servicer is a good idea, someone who can manage the collection of payments
and distributions to your investors. You will need
to hire a competent accountant; a person who will manage your accounts, protect your cash flow,
and ensure you have access to capital when you need it. If possible, you will most likely want to
secure a credit facility. If you have a sustainable
cash flow and are well capitalized, it should not be an obstacle. After obtaining a credit facility, you will have some breathing room to lock up
more deals, stabilize your reserve account, and give comfort to investors who are considering contributing more funds.
So, how will your direct sales investors feel
18 PRIVATE LENDER
devote the majority of his time to filling up the
mortgage pool with solid deals. During this period, your team can work on your existing investor base
to offer assurances about your change of direction. Many brokers complete the full transition to a mortgage fund within two years’ time. Mortgage funds are
a sound investment. While demand for mortgage
pools is high, the time is right to begin the process of taking your organization to the next level. ■ ABOUT THE AUTHOR Kevin Kim is an experienced corporate and securities law attorney and Senior Associate with the Geraci Law Firm, a law firm dedicated to providing reliable and innovative legal solutions. Kim focuses his practice on real estate matters, specializing in private placements and other alternative investments for private lenders, real estate developers and other real estate entrepreneurs. His work includes ensuring clients are compliant with the applicable securities laws, structuring strategic partnerships and creating innovative solutions. Kim’s securities and corporate practice also includes preparing complex private and public securities offerings for alternative investment platforms for clients throughout the United States and abroad.
not for everyone, but
for brokers who want
to free up time, reduce
EQUITY PARTICIPATIONS | TRUST DEEDINVESTMENTS AVAILABLE OPPORTUNITIES
the amount of paperwork, limit liability,
reduce risk, and build a bigger, and more
lending business, then starting a mortgage
fund is a no brainer.
Once your fund is well established, you can
work on strengthening the fund or creating
new pools. Data shows that more brokers are
now moving away from direct investor sales
and making the jump to mortgage pools.
There is plenty of investor capital just waiting on the sidelines for
CALL US AT 866-897-6966 EXT. 110/112 We have Whole & Fractional Equity Participations and Trust Deed Investments that can be invested with Capital Accounts and Retirement Accounts such as Self Directed IRA's, Pension Plans, 401k's, Roth's and many other qualified accounts. We are third party custodian friendly.
Lenders vs Investors Determining which capital structure makes the most sense by William Schwartz
project. With investors, since there tends to be multiple people involved in the funding, you might find yourself answering what seems
like endless phone calls, explaining what is
happening to their investment. Having only one party to appease makes it easier – both
ntrepreneurs have long wrestled with the
that the entrepreneur is able to bring enough
time- and focus-wise – when things go a little
personal money to the table to satisfy any cred-
sideways. Big Edge to the Private Lender.
capital through multiple investors using a fund,
get the rest of the money.
Duties to Partners
proaches. This article will discuss the pros and
The Tale of the Tape
our purposes, usually the entrepreneur or its
may be more beneficial than the others.
lender, you usually have to answer to just one
question of whether or not they should
use their own money to fund a project, raise use a lender, or a combination of these ap-
cons of each, and discuss why one approach
This discussion begins with the assumption
ibility questions. Now, let’s look at how best to
Number of “Dance” Partners: With a private
entity and one voice throughout the life of the
The general partner of a partnership (for
entity) owes a duty to its partners. Often, this
rises to the level of a fiduciary duty, which, in non-legal terms, means the general partner
MAY/JUNE 2017 19
must watch out for the best interests of its part-
avoid claims by the borrower of lender liability.
the fiduciary duty and breach thereof could be
projects where lenders take an aggressive
ners. Should the project sour, the existence of
a separate cause of action that an investor can
bring against the entrepreneur. With a private
lender, the entrepreneur has no fiduciary duty. Big Edge to the Private Lender.
Ability to Take a Punch Most private lenders have experienced
Lender liability claims usually arise from failed position in managing the borrower and the
borrower claims that but for the management imposed by the lender, the business would
have succeeded. So, with the private lender, the
developer is always in control. Investors almost always want to have some level of control (see
“Relationship” above). The most often negotiat-
defaulted and delayed loans many times. They
ed provision of an operating agreement is the
expectations are usually reasonable. On the
can make without first obtaining the consent
understand how to work out of them and their
other hand, unless the investors are institution-
alized money, they may never have experienced
a project that has gone sideways and their expectations of a return on their investment (whether it’s less than expected or perhaps nothing at all)
may be unrealistic. Additionally, private lenders understand the time it takes to complete a project and the many factors that can cause delays. Your typical investor will likely get antsy when
a project becomes sidetracked, even if only for a short while. Edge to the Private Lender.
The Relationship The private lender is really just looking to
be a temporary partner. Their goal is to make the loan, get paid some interest, and get paid back the principal. A fund investor, on the
other hand, has the expectation they are in
for all 12 rounds, or however long it takes to
monetize the project. They expect to act and
be treated like an owner during this time. So,
unless you are looking for long-term partner. Edge to the Private Lender.
Maintaining Control A private lender absolutely does not want
provision that limits the decisions a sponsor
of the investors. These are often referred to as the major decisions sections of the operating agreement. Typically, major decisions that require consent of some percentage of the
investors will be a decision to sell the property, bring on additional investors, borrow money,
etc. If you are not looking to cede control. Big Edge to the Private Lender.
Initial Expenses The out of pocket expenses involved in using
a private lender are limited to the usual third party-reports (for real estate deals - environ-
mental, title, soil, survey, etc.) and legal fees of
the lender and the borrower. These costs can be controlled by requesting a cap on lender’s legal fees and by instructing borrower’s counsel to
keep fees to a minimum. Using a fund to raise
money can be very expensive. First, there is the cost of producing a private placement memorandum in order to avoid violating securities laws. Legal fees can run between $15,000 for
the very simplest of deals with investors of only family and close friends, to $25,000 for the
most common types of real estate investing,
to upwards of $100,000 for highly-complex or
to control its borrower. In fact, it will go out
riskier deals. In addition to the legal fees for the
leave the element of control out of its hands to
are located, each investor may want to negotiate
of its way to make sure the loan documents
20 PRIVATE LENDER
private placement memorandum, once investors
and revise the proposed operating agreement in
some fashion. This means dealing with multiple lawyers, with multiple clients, all trying to win
their client the best possible position. Big Edge to the Private Lender.
Interest/Rate of Return The private lender may charge a few points
for originating the loan, and then a reasonable
rate of interest depending on the risk level of the
developer and the project. The all-in return to the private lender is typically between 10 and 18 per-
cent. While the return to investors is typically bi-
furcated into a preferred return (usually between
8 and 12 percent) and then a split of all funds after the preferred return has been returned to the
investor. This means there is a sharing of the profits in the deal with all investors. In other words, the upside to the investor is usually unlimited
and the developer will have to share the profits
no matter how big. The private lender will never share in the profits and its upside is limited to
the interest and points it charges. So, while the
percentages are lower if you go the investor route,
the private lender’s fees are capped proportionate
a non-recourse loan with a limited guaranty,
private lender route is the odds-on favorite
as your calculations include the profit, this one
fails, the sponsor could become personally
money for a deal), there are certainly plenty of
to their investment, not the overall gain. As long might be a….Draw.
Your Reputation Should You Lose If a project turns upside down, the reputa-
tion of the developer may be ruined with that particular private lender. On the other hand,
the bad reputation of the failed developer will circulate amongst the many investors in the
deal, their peers, their friends and their fami-
lies. In many cases, the investors could be your friends and family, making family gatherings uncomfortable should the deal capsize or go
sideways. If you are concerned about showing your face at the next Thanksgiving dinner or
stopping by the club after a deal fails, consider staying away from the investor-funded deal. Edge to the Private Lender.
Recourse A loan can be either recourse to the sponsor
or non-recourse. If it is a recourse loan, or even
there is risk to the sponsor that if the project liable for any loss the lender has on the loan. If there is a loss and there is no lender, the
sponsor is generally not liable to any investors. Big Edge to the Investor.
Move Like a Butterfly The private lender will have some very
specific requirements for collateral, funding,
monitoring and servicing the loan. There will be financial and non-financial covenants to
maintain and a very specific timeline by which to perform. Failure to perform may end up in a lawsuit. Investors, while their expectations
will be set by the deal terms, usually place no
hard deadlines for performance, do not require financial or non-financial covenants and the
end result for not performing is usually not a lawsuit. Big Edge to the Investor.
The Decision While the above seems to indicate that the
in the decision (that is, the best way to raise
circumstances where the investor route is the
better choice. For instance, poor credit history of the sponsor may limit the sponsor’s ability
to obtain a loan. Institutions that have invested together for long periods of time, may also
favor the investor route, having worked out the kinks described above.
All that being said, for those who have not
considered private lending as a “real” option or are venturing into this ring for the first time. If
you are looking to raise money for your project, a private lender should definitely be a contender in your funding planning process. ■
ABOUT THE AUTHOR William Schwartz is a partner in Levenfeld Pearlstein’s Banking & Restructuring Group. He concentrates his practice on representing borrowers and lenders in financial services, litigation (including bankruptcy) and workouts.
MAY/JUNE 2017 21
Investors Benefit from Transparency Data and reputation in the real estate crowdfunding space by Jason Fritton
he real estate crowdfunding space is a
important, as the real estate online lending
thing for borrowers and real estate investors
and have different goals and philosophies.
efficient and transparent offerings.
looking for others who have used the site and
at Crowdfund Capital Advisors, noted how
companies may choose to make this effort
than tripled [Cambridge University “Break-
borrower feedback, links to trade journals,
Finance Benchmarking Report”] between 2014
articles that mention the platform.
to a 2016 study by the University of Cambridge
proves difficult, third-party reviews are one
scores the outlook for online investing and
a platform. The Real-Estate Crowdfunding
booming industry. This can be a good
as online marketplace lenders provide fast, Bloomberg, quoting Jason Best, a partner
marketplaces may offer vastly different deals, Potential investors or borrowers will be
whether they had a good experience. Some
last year the U.S. online lending volume more
easier by directly offering some investor/
ing New Ground: The Americas Alternative
customer testimonials, and authoritative
and 2015 to more than $36 billion, according
If finding other crowdfunding customers
and the University of Chicago. This under-
way investors can gauge the reputation of
borrowing in the crowdfunding space.
Review ranks real estate crowdfunding sites
to find the platform that offers the services
its own methodology and includes hands-on
crowdfunding platforms doing to stand out,
backed by a venture capital firm has already
fully vetted by an independent investment
backing may want to highlight as this provides
The opportunity is for online investors
based on in depth reviews of each site using
best tailored to meet their needs. What are
testing of each site. They note that a company
attract borrowers and investors, and provide
had its business model and strategies success-
Like many investment vehicles, real estate
crowdfunding investments need to effectively
professional — something that sites with
some strong documentation on reputation.
Prospective clients will also want to know
communicate why these online investments
if a site is delivering on its promises and
way to tell their story on their website in
and borrowers will be looking for those sites
are trustworthy. Platforms need to find a
which ones have staying power. Investors
an “About Us” tab that is easy to find. Here,
they believe will be around for the long haul.
explain how they got started, who’s behind
approach to real estate crowdfunding. This is
the show. Investors and borrowers looking
companies have a good opportunity to
the effort, the mission, and their business
22 PRIVATE LENDER
It’s also important to know who is running
MAY/JUNE 2017 23
for a crowdfunding real estate platform will
kers, investors and asset managers; product
executive leadership, Google their names
expertise, access to the capital markets, and
want to read the biographies of the platform’s to find out where else they’ve worked and
assess their qualifications to lead a company in this space. They’ll want leaders with
extensive experience leading rapidly growing enterprises. Look for a range of skillsets
development competence; mortgage lending
spective clients that it knows how to properly
to accurately ascertain risk to the deals it’s
Transparency, data and technology Got data? Sites that can crunch and
provide analytical data to would-be inves-
among a company’s executives that would
tors and prospective borrowers will likely
grow and prosper. Some examples of valued
Sophisticated investors — those who are
help a real estate crowdfunding venture
executive expertise for this particular sector include fintech experience in leveraging technology for online applications; big
data and analytics expertise; residential or commercial real estate experience as bro24 PRIVATE LENDER
algorithms for underwriting shows its pro-
have the most staying power in the long run. accredited or backed by institutional funds — — will want to analyze a variety of data to properly vet a crowdfunding platform before committing significant capital. A
site that uses technology to write advanced
assign risk to borrowers and thus be able offering to investors.
In order to attract investors, marketplace
lenders would do well to make sure they are giving potential customers the information they need to make informed decisions. A
debt site, for example, will want to provide
monthly or quarterly data on the dollar value
of loans originated, the number of loans funded, the weighted average LTV on Day 1, the
realized rate of return and the average loan
size. Potential investors will also want to know if there are deals in which borrowers went
home is near a major employment center, a
as this is one of the main differentiators that
goes for lease terms, including additional
themselves and traditional lenders, many of
university or highly rated schools. The same details such as how long the current tenant
has been in place and whether they have ever
office, will have their own set of analytics.
investors and borrowers. Consumers who are
commercial real estate deals frequently
such as their Social Security number, home
provide a breakdown that shows the con-
centration in certain subsectors, so potential
investors can make more informed decisions. They should also be transparent about all
fees related to the investment. Transparency
leads to trust. The more transparency a mar-
address, bank account routing number and credit history will want to know it’s being
protected with advanced firewalls. So, it’s a
good idea to look for site security verification to provide peace of mind.
financing a deal, the more potential custom-
attracting borrowers and investors by providing
the JOBS Act and the ability for nonaccred-
in online real estate investing.
ited or inexperienced investors to jump into
Crowdfunding platforms are succeeding in
meaningful data and results to those interested As the crowdfunding industry matures, the
real estate crowdfunding, it’s more important
best-in-class firms will continue to rise to the
about their project descriptions, financing,
exceptional results for their customers. ■
than ever that platforms be crystal clear
market analysis, sponsor analysis, and legal delinquent or into default.
information so that these first-time real
detailed information about each property to
understanding the risks.
uate the deal such as monthly rent, gross yield, unlevered cash flow, unlevered net
Functional, convenient and secure website
marketplace lending platforms must have
are savvy and have come to expect ease-of-
this level of analytics if they hope to attract
experience. Lending platforms should be
estate investors don’t dip their toe in without
Investors and borrowers that invest online
a robust technology department to provide
use and functionality as core tenants of the
easy to navigate with simple and streamlined
sics of the property (year built, square foot-
website. The FAQ section of the site should
interactions within a professionally designed
age, number of bathrooms and bedrooms,
address the most common questions and
about the neighborhood such as whether the
cess should be quick and simple to complete
lot size), investors will want to know details
asked to provide personal and financial data
ers are likely to trust it. With the advent of
For single-family rentals, besides the ba-
In today’s world, security is top of mind for
ketplace lending platform can provide into
its data and processes for either investing or
yield and forecasted appreciation. Online
yet to streamline and simplify the applica-
tion and approval process.
Platforms that fund both residential and
allow a potential investor to properly eval-
whom have gravitated to the Web but have
been delinquent on rent payments. Com-
mercial real estate deals, from multifamily to
Platforms that offer equity often provide
online marketplace lenders have between
answer them succinctly. The application pro-
top by providing innovation and delivering
ABOUT THE AUTHOR Jason Fritton is Co-Founder & Executive Chairman of Patch of Land, responsible for setting its vision and leading the team’s efforts to accomplish the company’s mission of building wealth and growing communities. Fritton launched Patch of Land when the SEC implemented Title II of the JOBS Act in 2013 based on his vision to evolve real estate financing to be tech-enabled, data-decisioned, and easily accessible to a marketplace of borrowers and investors. Jason has decades of experience managing and growing startup companies. Prior to Patch of Land, Fritton founded and developed a telecommunications design and procurement firm active in the public sector. Previously he served as Director of Digital Marketing for a national retailer. Additionally he founded and developed several technology-based startups including Startingline Networks, Tech@Cost, and Virtual Realties. Fritton studied biology at Cornell College.
MAY/JUNE 2017 25
Loan Applications & Foreign National Borrowers What you need to know about foreign investors and loan processes by Eric Tran
oreign nationals who purchase U.S. real
estate have a reputation for paying cash,
and there’s a good reason for that. According
to the National Association of Realtors, it’s the top way for international buyers to acquire 26 PRIVATE LENDER
property in the United States.
phenomenal opportunity for U.S.-based
foreign buyers take out mortgages: 44 percent,
buyers spent more than $102.6 billion on U.S.
What you might not know is that plenty of
compared to the 50 percent who are cash buyers. The international market represents a
lenders and brokers. In 2015-16, foreign
residential property. They also tend to buy
properties that cost more – usually around
an price of all U.S. existing-home sales. You
Tips for Handling the Mortgage Application
and lenders have expanded into this market.
tion from a potential borrower who lives and
with international buyers. For real estate and
questions should you ask? What do you need
$227,380, compared to $223,058 for the medican see why a growing number of brokers
Yes, there are some differences when dealing
lending professionals who have done business only with U.S.-based clients, there may be a
fear factor. But these differences are surmountable, especially when you think about the
opportunity of serving this active clientele.
Intrigued? Here’s a high-level overview of
what’s involved in taking a loan application
Let’s say you’re handling a loan applica-
works in another country. What kinds of
to keep in mind? Here are a few best practices: The first step is pleasantly simple: Take
the loan application as usual – though you
will, of course, have to leave the spot for the borrowers’ social security number empty.
– the Individual Tax Identification Number
Two Types of International Buyers
through the Internal Revenue Service. That’s
two types of foreign nationals who acquire
(ITIN) that foreign nationals can receive
a bit beyond the scope of this article, but you can learn more about that program at www.
properties in the United States.
irs.gov. For our business, though, we don’t
to the United States to work, usually under
don’t involve a tax liability obligation on the
The first is the foreign national who comes
ask for an ITIN because our transactions
the EB-3 or L-1 visa program. They have
and places of employment that a lender can
too different from applications that you’ll
required of a regular borrower. The only dif-
to list information related to their place of
social security numbers, credit histories
Otherwise, the application process is not
verify. In a sense, they have all the criteria
receive from U.S. citizens. Borrowers will need
ference? On their loan application, the boxes
work and their banking institutions, even if
are marked “no.” When many lenders talk
used to seeing. One difference: Some compa-
for “U.S. Citizen” or “Permanent Resident”
the names sound different from what you’re
about foreign nationals, this is the borrower
nies do not ask for an international borrower’s
But there’s another type, and that’s the
process. Instead, they ask for a reference letter
they’re thinking about.
credit history – it’s an incredibly complex
group we’re going to focus on in this article.
from their banker to establish, to a certain
These are people who live and work in their native countries and have no social security number. Their bank accounts are with for-
would probably like to have a face-to-face
meeting with them, too. It’s likely the bor-
rowers want to make the journey anyway. But remember to extend an invitation – most foreigners won’t show up without being asked. It is also important to discover the
best methods for communicating with the borrowers – some people may prefer the
immediacy of a phone call, but coordinating
You may have heard of another identifier
from a borrower who lives in another country.
First, we need to distinguish between the
States during the loan process, most lenders
extent, the integrity of a borrower’s capital. Be sure to ask borrowers how often they
eign institutions, and their jobs are usually
are in the United States: regularly, sometimes
countries. They may be buying property as
the borrowers want to acquire property here
residence for their children as they study in
a house in a country they never set foot in?
with companies headquartered in their home
or rarely? This will help you understand why
an investment, as a vacation home or as a
– after all, why would anyone choose to buy
the United States.
Secondly, if they happen to be in the United
For real estate and lending professionals who have done business only with U.S.-based clients, there may be a fear factor. But these differences are surmountable, especially when you think about the opportunity of serving this active clientele.” for time zone difference could be tricky. For-
tunately, email makes it possible to connect
with just about anyone just about anywhere. Even so, you should always be willing to provide a courtesy call to the borrowers
and clarify any questions that might pop up during the application process.
How would the borrowers prefer to receive
their documents, by email or by certified mail?
You may discover it’s best to do both. Send your MAY/JUNE 2017 27
The 5 States with the Most Foreign Buyers of Residential Real Estate
As measured by percentage of overall foreign purchases of U.S. residential properties
Source: National Association of Realtors, 2015-2016
borrower electronic copies by email, so they can quickly review the documents, but also follow
up with print copies delivered by FedEx or UPS. You’ll find that most borrowers prefer to receive
you may find it wise to send them all relevant disclosures just as a matter of policy.
Is the borrowers’ down payment already
all documents in a formal manner – this is very
with a U.S. banking institution? If not, where
request to “please print out and sign.”
payments from foreign nationals – anywhere
important to them. E-sign won’t cut it, nor will a And a quick note about what kind of pa-
perwork you send to borrowers: Not all U.S.
is it? (Most lenders require higher down
from 20 to 30 to 40 percent of the purchase price. Because it is more difficult to deter-
disclosure rules apply to foreign nationals.
mine a foreign national’s credit history, many
sure are two examples of documents that you
the borrowers plan to wire the down payment
The Privacy Act and the Credit Score Disclo-
probably don’t need to ship to borrowers. But 28 PRIVATE LENDER
lenders require a heftier down payment.) If
from a foreign banking institution, make sure
you check with the escrow company first.
Also, check with your title company about
what types of ID it requires. A passport is a
must, and an entry visa to the United States
is a bonus. Your title company will advise you
as to which kind of ID they require. Normally, they will require two forms of ID. You might also ask your borrowers whether the title to
the property will be held in their name or in the form of an LLC or some other entity.
Another important question to ask bor-
rowers: Are they located near a U.S. embassy
or consulate in their native country? Remem-
don’t speak English very well. Though buyers
sionals must make for international borrowers.
seas, they must be signed and notarized in a
United Kingdom and Canada accounted for
market – to learning the intricacies and finding
ber, if loan documents must be signed over-
U.S. diplomatic establishment. The title com-
pany won’t accept any documents that weren’t notarized by U.S. diplomatic personnel.
In some cases, foreign borrowers will assign
a power of attorney to a U.S.-based agent. While
this is a common practice, there is a wrinkle that you must not forget: a power of attorney for this purpose will only cover one specific address in
from English-speaking countries such as the many purchases, China was the number one
source of international buyers of U.S. homes in 2015-16, according to the National Associ-
There’s a huge audience of international real
that can assist you. Help is just a Google
are vying for their business. Why shouldn’t you
You may encounter other differences beyond
you must create two different powers of attorney.
religion – which is why some lenders offer fi-
Keep in mind that many foreign borrowers
– there can be sizable rewards.
estate buyers who need the help that you can
easier than ever to find translation services
language, too. Many devout Muslims believe
Be Prepared for Differences
ways to streamline the loan application process
ation of Realtors. The good news is that it’s
one specific county. If you are buying two different pieces of property in two different counties,
For service providers who invest time into this
that charging interest is forbidden by their
nancing that helps them comply with that rule.
As you can see, there are some special consid-
erations that lending and real estate profes-
provide. More and more lenders and brokers try to seize the opportunity, too? ■ ABOUT THE AUTHOR
Eric Tran is the CEO of DH Capital, a Huntington Beach based lender with extensive expertise in private money lending. He can be reached at Eric.email@example.com or 714-300-8223.
Contact Tom Schmidt at 785-889-1300 or firstname.lastname@example.org to discuss your IRA custody needs.
MAY/JUNE 2017 29
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Trust Deed Investments Know more than your brokerage by Corey Curwick Dutton
rust deed investing has long been misunderstood by investors and is often labeled as an “alterna-
tive” investment. Trust deed Ponzi schemes, like those pushed by the infamous Dan Holbrook of San Diego, took many investors for a wild ride leading up to the
great recession. Further tarnishing the image of trust deed investing. Investment blogs pushing stocks and mutual funds warn investors about “oddball invest-
ments” like trust deeds. Realistically though, it isn’t so
much the image of trust deed investments that prevent
brokerage companies and broker dealers from peddling them to their clients. Here are four reasons brokerage
MAY/JUNE 2017 31
32 PRIVATE LENDER
companies and big broker dealers donâ€™t
year mortgages. Trust deed investments have
alongside of other investment opportunities:
six months to five years. But why not package
commonly offer trust deed investments
NOT EASY TO SCALE Trust deed investing is not easy
to sell to investors on a mass scale like many securities and mutual funds. The primary
reason itâ€™s not an easily scalable investment is because there are a lot of moving parts required to both underwrite, and then
manage each trust deed investment. These
moving parts include mortgage brokers, real
shorter durations, or loan terms, varying from all the investments with the same term? For example, packaging a cluster of one-year
balloons together and selling it. Because of the higher rates associated with trust deed
investments, a borrower on a one-year loan
may pay the investor off within three months. It is just this particular aspect of trust deed
investments that makes them more difficult to package and sell to Wall Street.
services, appraisers, insurance agents, home
and in some cases, home remodeling experts.
factors, it becomes difficult to price each
ment for risk, the investment broker - often
but are not limited to, loan to value ratio, lo-
property value opinions from realtors or ap-
condition of collateral, income producing or
of insurance coverage, analyze title reports,
experience or track record of borrower. For
deed investment is sold, another army of
a trust deed investment may be located in a
investment including property managers,
other property may be located in an upscale
cialists. For large brokerage companies, this
the borrower in the rural community in the
hassle and difficult to scale, when compared
payment, while the borrower in Los Angeles
estate agents and/or brokers, title and escrow inspectors, property management services, In order to underwrite a trust deed invest-
DIFFICULT TO PRICE Because each trust deed in-
vestment is given such a wide range of risk investment uniformly. These factors include,
called a private money broker - must obtain
cation of collateral, credit score of borrower,
praisers and analyze them, validate adequacy
vacant property, cash position of borrower,
perform site inspections, etc. Once the trust
example, one property used to collateralize
moving parts may be required to manage the
rural community in the Midwest, while an-
contractors, and other real estate related spe-
neighborhood in Los Angeles. But what if
type of an investment could seem like a large
Midwest is bringing in a 50 percent down
to strictly paper investments.
is only bringing in 10 percent down payment?
NOT EASILY PACKAGED AND SOLD DOWNSTREAM
How would someone price these different trust deeds based on these particular risk
factors? This seems like a pretty daunting
Unlike many of the securities offered by bro-
task for someone who is not experienced
trickier to package and sell to Wall Street. Un-
approach to pricing trust deed investments
Obligations (CDOs) that have been blamed
company that is used to relying on credit
recession; trust deed investments are not 30-
of the investments it sells to investors. But as
kerage companies, trust deed investments are
with trust deed investing. This complex
like the widely criticized Collateralized Debt
tends to overwhelm a traditional brokerage
for the subprime crisis leading to the great
rating services - like Moodyâ€™s - to rate the risk
MAY/JUNE 2017 33
many furious investors found out the hard
to be an investment Ponzi scheme, the firm
not consider offering it to their clients.
kerage companies. As evidenced by Moody’s
imately 1,800 investors to invest in trust
investing works, it can be quite a rewarding and
AAA investments leading up to the financial
Mortgage followed the same path as Boileau
listed above are why these investments are not
way, credit rating services can mislead bro-
blunder in rating mortgage back securities as crisis. According to a report submitted by the Financial Crisis Inquiry Commission in January 2011, “The three credit-rating agencies
were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval.”
TRUST DEED INVESTING IS WIDELY MISUNDERSTOOD
Trust Deed Investing is Widely Misunder-
stood: The reputation of trust deed investing received its first big blow in the early 1980s
from the implosion of Boileau and Johnson. Taking advantage of the 10-year real estate boom in Southern California from 1970 to
1980, Boileau and Johnson offered very high risk second, third, and fourth trust deed in-
vestments to mostly elderly clients. Reported 34 PRIVATE LENDER
lost $20 million given to them by approx-
deeds. In the 1990s Gary Naiman of Pioneer and Johnson, further damaging the repu-
tation of trust deed investing. Naiman mis-
managed and lost $200 million given to him
by approximately 2,300 investors to invest in trust deeds. Most of Naiman’s investments
were second and third trust deeds, which re-
For those who understand how trust deed
lucrative investment vehicle. The four reasons
traditionally offered from brokerage companies or the large broker dealers. This is good news for private money brokers who specialize in trust deed investments. Meaning, they can
maintain their unique niches, and can offer
superior returns to those investors who under-
sulted in massive losses when the real estate
stand them and seek them out. ■
The tremendous fall out of investment firms
ABOUT THE AUTHOR
of trust deed investments, leaving many
Corey Curwick Dutton is a hard money lender and the founder of Private Money Utah, a Salt Lake City-based, private money brokerage. Her team provides nonbank loans for real estate acquisitions, development, rehab, and other specialized assets. Mrs. Dutton is widely recognized in the private money lending industry because she speaks and writes about tough topics such as loan scams and hard money “protocol.” Originally from Austin, Texas, Corey is an MBA Graduate who enjoys skiing and mountain biking in the beautiful Utah outdoors. You can reach Mrs. Dutton at: www.PrivateMoneyUtah.com.
market began to tank at the end of the 1980s. like these have compromised the reputation
investors confused about how they work. Because of the financial disasters of firms like
Boileau and Johnson and Pioneer Mortgage,
trust deed investing is widely misunderstood, and is often categorized as an extremely high
risk, “alternative” investment. For this reason, many brokerage companies also tend to mis-
understand trust deed investing, and thus do
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MAY/JUNE 2017 35
Itâ€™s Back! Inflationâ€™s impact on the private lending and construction sectors by Jeffrey N. Levin
t is critically important for leaders in
both the finance and construction sectors
to understand and plan for inflation in the
months and years ahead. The U.S. economy and the world as a whole have enjoyed a 36 PRIVATE LENDER
sustained period of low inflation, so much so
rates and our modest growth in Gross Do-
that only Baby Boomers and older gener-
mestic Product (GDP), which lately has been
inflation. This decades-long trend of low
this environment has become the operating
ations have any real memories of rampant inflation correlates with record-low interest
in the range of 2 percent per year. While
norm, it is all about to change, -- all signs
inflation this year, why be vigilant?
Because the Federal Reserve will of course
react to inflationary pressure by raising the
Fed funds lending rate. Already the Fed has pushed through two 25 basis point increas-
es, the most recent in March, and most Fed
watchers predict another one or two 25 BPS
increases will happen again later in the year. Meanwhile the dollar is strong, which helps keep a lid on core inflation. Prices of most
imported commodities will likely decline a
little due to the dollar’s relative purchasing
power, while prices of domestically-produced goods will be dampened due to the price competition from imports.
It may seem unusual to think of an
economy that’s been growing just 2 percent
a year — well below the nation’s 3.3 percent
historic average — as somehow overheating. Yet the U.S. expansion is now about eight
years old, the labor market is fairly tight and the unemployment rate is at a nine-year low of 4.5 percent. Companies have to pay more to find workers, and wages are rising at the
fastest pace since the recovery began in 2009. The upward pressure in wages has also been
accompanied by the higher prices for energy, medical care and housing, and so all these trends acting together are going to nudge inflation higher. point to an uptick in inflation ahead which, if not carefully managed, can take a bite out of any business or project’s balance sheet.
Most economists agree that the overall
inflation rate should increase to an annual
rate of 2.5 percent by the end of 2017, up from
2.1 percent at the end of last year. Most of this increase is caused by the rebound of energy prices from the depressed levels of 2016. In
fact, energy price increases in January alone will account for most of this calendar year’s
inflationary pressure. Given the imbalanced effect of energy prices, it is more instructive to pare down to the impact of “core inflation,” which is the same measure as the
Consumer Price Index but excludes food
and energy prices. Expect core inflation to
increase modestly to 2.4 percent by the end of 2017, up from 2.2 percent at the end of
2016. Housing and medical care will drive the increase in the core inflation index.
So, with a relatively modest uptick in
Generally, this modest level of inflation
is fairly benign for many sectors including
banking, construction, and the economy at
large. For years, the Fed has been targeting an annual inflation level of 2 percent, which represents modest growth in the GDP allowing
businesses to pass along reasonable, although not painful, higher prices to consumers. If
inflation goes too far to either extreme – deflation, where interest rates plunge and personal
savings are destroyed, while consumers put off purchases in expectation of even lower prices;
MAY/JUNE 2017 37
or excessive inflation, where the CPI ventures
It’s no surprise the Fed and bond market
above 4 percent creating pockets of hardship
watchers are eagerly watching the Trump
The guiding metaphor at the Fed has been a
will pass through Congress. The first question
in different sectors – the economy suffers.
steady hand on the tiller, navigating a middle
path and avoiding the “Scylla and Charybdis” of either extreme.
There are factors at work in the market-
place, however, that could trigger a higher
administration to determine what fiscal policy
the chopping block was a 0.9 percent federal
issue that plays a bigger role with inflation is the taxes that were imposed by the Afford-
would have effectively killed the mandate that
the “known-unknowns” first.
38 PRIVATE LENDER
device manufacturers, and high-cost employ-
Americans will have over the years ahead, the
include both the “known-unknowns” as well
turn of phrase from recent history. Let’s cover
health insurers, pharmaceutical and medical
er-sponsored group health plans (nicknamed
questions of what kind of health insurance
able Care Act. The original Trump and Ryan
as the “unknown-unknowns” to borrow a
end of this year. These included taxes on
is over health care reform. Setting aside the
rate of inflation and thus a greater correction
by the Fed, as well as the bond market. These
several taxes contained in the ACA by the
strategy to “repeal and replace Obamacare”
everyone buy health insurance by eliminat-
ing the tax penalty for those who don’t have coverage. The bill would also have repealed
the Cadillac plan tax). One tax that was on
Hospital Insurance tax increase on individuals with incomes above $200,000 and couples
with incomes above $250,000. Another was a 3.8 percent Medicare tax on “unearned
income” that wealthy Americans derive from capital gains, dividends and royalties.
On March 24, 2017, both the Trump Ad-
ministration and Speaker Ryan announced
that there were insufficient votes to pass a
through the tax cuts associated with their re-
bill, nor do we know when such a bill will
“Replace and Repeal” bill, and at the time
form bill -- leaving aside the future of health
again even be put forth, if at all during this
relegated to the back burner. However more
that excess liquidity in the economy going to
been drawn: will we see a conservative wing
inject a big dose of liquidity, which in turn
which would be more inflationary than the
lead the Fed to work to raise interest rates
Ryan is championing? Now there are some
leap because as basic economics tells us, any
ish both wings of his party and work with
like big tax cuts, is inflationary. We call this
current act. As no one can predict the out-
it seemed as though health care reform was
recent statements by both the Administration
and leading Republicans in Congress indicate
some type of health care reform may return to the forefront in the near term. It’s likely that
such a second-pass bill would focus more on the elimination of Obamacare taxes rather
than the “heavier lifting” of either eliminating health care benefits for millions of people or providing an alternative plan.
In the event the Republicans in Congress
and the Administration are able to push
care itself -- the operative issue is what’s all
term. What we do know is the lines have
do? Reversing Obamacare’s tax mandates will
of the Republican Party get a repeal bill,
would change current assumptions and may
“replace” type of bill like the one Speaker
more frequently, or steeply. This is no big
indications that the president may pun-
significant expansion of the money supply,
issue a “known unknown.” Because as of this writing, we don’t know exactly who will win in the fight to pass some kind of health care
Democrats simply to tinker and improve the come of the health care debate, one needs to pay close attention to the timing and rollout
of the tax cuts as that’s a leading indicator of how the Fed is likely to react with rates.
A larger but related “known-unknown”
concerns the Trump administration’s tax reform package. The House and Senate
leadership plan to take up broad scale tax
cuts as the next step. On the table is a plan to
reduce the number of tax brackets from seven to four. These new tax brackets would mean
a reduction in income taxes for most individuals. The plan also increases the standard deduction to $15,000 for single filers and
$30,000 for married filing jointly. Meanwhile itemized deductions in general would be
capped at $100,000 for single filers ($200,000 for married filing jointly). The current plan
also proposes elimination of the federal estate tax, the much maligned “death tax” which
currently only impacts estates with assets in
excess of $5.49 million. Now, the centerpiece of the tax cut plan is slashing the top corpo-
rate tax rate from 35 percent to 15 percent, and the complete elimination of the corporate
Alternative Minimum Tax or AMT. This lower rate would apply to all U.S. businesses that retain all profits within the country.
How much tax reform passes, and the
structure and timing of the changes, is a key MAY/JUNE 2017 39
unknown that may drive Fed activity and
massive infrastructure bill that has bipartisan
changes proposed by House Republicans and
trillion in infrastructure building that will be
law, it would have a profound effect on the
may extend to 50 or even 100 years! For many
the audacious rolling back of taxes across
tries, if this comes to fruition it will represent a
interest rates. Even if just a portion of the
appeal. Still at the draft stage, the idea is $1
the Trump Administration are signed into
financed publicly and privately with bonds that
economy. As the plan has been scoped so far, a vast swath of corporate and individual
payers means massive injection of liquidity
in the private lending and construction indusonce-in-a-lifetime revenue opportunity.
Of course, the operative word here is “if.” As
into the economy. Republicans are banking
we witnessed with the debacle of the Health
Chairwoman Janet Yellen will take them at
any big, defining legislation is being ques-
on this strategy to boost the GDP, and Fed their word -- increased growth correlates
with increased inflation, and the Fed will be
very vigilant to try to throttle back any rapid escalation in the CPI with rapid and steep increases in the Fed funding rate.
The third “known-unknown” concerns a
40 PRIVATE LENDER
Care Bill, the Administration’s ability to pass
ty of promises and much posturing around
the infrastructure bill, take it with a grain of
salt in this windy political climate. Naturally
if it comes to pass, the Fed would be pumping the breaks hard on the economy, since it has
been framed as a $1 trillion spending package. Inflationary? Most definitely.
Inflation watchers next must consider the
“unknown-unknowns” – those scenarios
that aren’t teed up right now with Congress but could either boost inflation, or in the
alternative put a damper on growth and lead
tioned. It would take a deft deployment of
to a fall-off in future interest rate increases,
tives done in the first one or two years of the
from the Fed. Some of the things to keep an
political capital to get all three of these initia-
or at least a flattening of the expected curve
Trump presidency. The question is, will the
eye on include:
Administration be able to find its footing and
get any of them done. So while there are plen-
• A trade skirmish with China would be
inflationary because prices for all kinds
flatten, or go down? Tough question, but
the future of both the private lending and
the Trump administration slaps new tar-
would not present a safe environment for
omy as a whole. ■
of imports would go up, particularly if
iffs on a variety of goods and commodi-
ties. Also the dollar is likely to fall in this
scenario, with reduced purchasing power for imports from the rest of the globe
including the Eurozone. Over the long term this might depress GDP, leading
the Fed to reduce its upward pressure on rates -- watch for a whipsaw effect;
• A massive correction in the stock market
a simple answer is that such conditions big, multi-year development projects;
•E urozone and Brexit inflation could ripple
to our shores. Inflation has already returned to the Eurozone -- the headline CPI for the Eurozone in February showed an annual increase of 2 percent. For many analysts
the fact that inflation was creeping back
over there was cause for concern. There are huge unknowns with the implementation
would have similarly unpredictable
of Brexit and its impact on trade, monetary
and Nasdaq enjoyed record highs, only
fice it to say, as the U.K. and Eurozone sort
the derailment of the Obamacare repeal
core inflation rates – any “cold” in Europe
results. Following the election the Dow to retreat some of that ground following bill. A steady increase in inflation is
one trigger that could pop the equities bubble (failure of the Trump adminis-
tration to get tax cuts, which are priced in to today’s levels, is another). In an
and fiscal policy across the Eurozone. Suf-
out their challenges, you should watch their
While it is clear
to Earnings multiples, like much of the
interest rates, what’s
businesses that grow their topline are
rewarded with high PE ratios, but in an
inflationary environment they tend to get punished, as investors worry their rev-
environment of rising next for inflation is
pretty much anyone’s guess at this point.
In the construction
and private lending
enue is just “coasting” with the inflated
sectors you may find
and construction sectors are particularly
clouds ahead. In such
inflationary environment. Now, in the
ment, everyone should
ket the Fed is likely to slow its upward
the Bureau of Labor
conditions. Public companies in the tech
sunshine or storm
vulnerable to market corrections in an
an uncertain environ-
event of a big crash in the equities marpath of its funds rate, but on the other hand bond prices would rise because
of the natural retreat to fixed income. So would rates continue trending up,
Jeffrey N. Levin is the founder and president of Specialty Lending Group and Pinewood Financial, which together provide a full suite of boutique private real estate lending services in the Greater Washington, D.C., area. Prior to launching SLG, between 1993 and 2007, Levin was a cofounder and CEO of iWantaLowRate.com and a cofounder and president of Monument Mortgage. Levin is a recognized authority on real estate investing and, as such, is a frequent author, lecturer and panelist. He earned a BA degree from The American University in Washington, D.C., and lives on Capitol Hill with his wife, Dunniela, a Canadian trade lawyer, and his two sons, Jack and Charlie.
in America, and
we are living in an
market today. When inflation is low
ABOUT THE AUTHOR
will trigger sneezes
inflationary market investors tend to be tougher on stocks that have high Price
construction sectors and, of course, the econ-
stay laser-focused on Statistics’ monthly
inflation updates, as they will assuredly
have a big impact on MAY/JUNE 2017 41
LENDER LIMELIGHT WITH CHRIS HOEFFEL
AHEAD of the GAME. The most successful professionals have a few strengths and strategies in common. Hereâ€™s how Chris plays to win. by Heather Elwing-Dixon
42 PRIVATE LENDER
MAY/JUNE 2017 43
44 PRIVATE LENDER
LENDER LIMELIGHT WITH CHRIS HOEFFEL
eam work, vested interest,
bank, and head of a Wall Street commercial
experience of switching market niches. We
superior customer service with
of moving out of the comfortable lending
change within the industry if he could. Pri-
strong management team, and a dash of outstanding food
and wine thrown in, support Christopher
mortgage conduit, Hoeffel saw the benefits space he worked.
“Initially I worked with a well-established
Hoeffel’s team at Colony American Finance.
private equity firm that was expanding
his belt, Hoeffel, chief financial officer of
structured debt financing because of the
With 30 years of commercial lending under the company, has narrowed his focus on
from pure real estate equity investment to disconnect between risk and return,” he says.
single-family property lending with an eye
toward filling the gap in financing needs left open by the traditional capital markets.
“I have been involved in commercial mort-
gage securitization since its
“There, we were focused on subordinate and
mezzanine debt because it offered very attractive current returns relative to what we could
achieve in levered equity. But a few years into
asked Hoeffel what he thought he might
vate Lender was not expecting his response.
“Ironically, I wish there were more players in
the market like us,” says Hoeffel. “We consider the SFR market to be a new institutional
asset class and we would like that market to be much bigger. While I hate to invite com-
petition, I think that more good quality shops creating more loans and bonds will enhance liquidity, creating a healthier environment for both our borrowers and our investors.”
infancy, so I was able to bring my experience to Colony to help complete several port-
folio securitization transac-
tions that provide fixed rate
“WHILE I HATE TO INVITE COMPETITION, I THINK THAT MORE GOOD QUALITY SHOPS CREATING MORE LOANS AND BONDS
matched term financing for
WILL ENHANCE LIQUIDITY, CREATING A
our loans,” says Hoeffel. “I’ve
HEALTHIER ENVIRONMENT FOR BOTH
raised several funds during my career, both blind pool
vehicles and syndication of ex-
OUR BORROWERS AND OUR INVESTORS.”
isting assets, so that part came pretty naturally as well.”
After the liquidity crisis and the surge of
regulation which ensued, Hoeffel instinc-
tually left the traditional mortgage lending
arm. Realizing how small the proverbial “in-
NICHE MARKET, TRANSFORMING LENDING The market landscape is
changing as borrowers de-
mand more accessible capi-
tal, and that is where Hoeffel and Colony American come into play.
“We are looking at sin-
gle-family homes as invest-
ment properties, underwriting them the same way we would
the recovery, the high yield debt market be-
underwrite more traditional multifamily
secured by commercial properties dropped to
assets’ ability to repay the debt,” says Hoeffel.
came a misnomer; yields on mezzanine debt
the mid-single digits. Suddenly equity became
properties and sizing the loans based on the
Generally, when it comes to single-family
much more attractive again.”
rental financing options, the investor usually
not being met by traditional capital markets;
within the structured finance markets on
local savings institutions, hard money lend-
searching for a way to connect investor capi-
high yield debt market to assist with building
vestment bucket” was for many lenders, and witnessed how many borrowers’ needs were he decided to leave the institutional arena
tal with the real estate investors who needed it. His narrowed vision is spot-on when it comes to single-family property lending.
BUILDING AND CREATING HIS CAREER After stints as a mortgage banker, com-
mercial banker for a large money center
Building on what he had helped to create
acquires financing through family or friends,
Wall Street, Hoeffel left the comfort of the
ers or, as Hoeffel puts it, “to a limited extent,
a new private senior mortgage financing
the loans are underwritten based upon the
platform. He did not want to pursue a broad commercial mortgage strategy so instead he decided to focus on a historically under-
Fannie Mae and Freddie Mac.” Typically,
borrower’s ability to pay and not on the cash flow coming from the actual property.
“This is the first time there has been a
served niche market of single-family rentals.
reliable, repeatable source of mortgage
is one Hoeffel understands from his own
is remarkable considering it has represented
Change is never an easy concept but it
capital for the rental housing market, which
MAY/JUNE 2017 45
LENDER LIMELIGHT WITH CHRIS HOEFFEL
“WE DON’T FIND CAPITAL, INVEST IT, AND THEN GO OUT AND FIND MORE MONEY ... OURS IS MORE OF A PROCESS THAT CONTINUOUSLY GENERATES PRODUCTS FOR BOTH BORROWERS AND INVESTORS”
more than 30 percent of all rental housing stock for decades,” Hoeffel explains.
STANDING UP AND STANDING OUT Companies come and go but Colony has a
very long-term business approach.
“We don’t find capital, invest it, and then
go out and find more money,” explains Hoeffel. “Ours is more of a process that continu-
ously generates products for both borrowers and investors.”
That process includes working with sever-
al intangible factors, including assembling, and maintaining an intelligent team and
remaining dedicated to and focused on customer service.
Of course, Colony’s longstanding status
as a well-capitalized organization is also key.
They have access to long-term equity capital which doesn’t have a finite life, which is
much different than private-equity fund-
ed vehicles. Hoeffel explains how they are
different than any other companies in the in-
dustry thanks, in large part, to their excellent banking relationships that gives them access
46 PRIVATE LENDER
MAY/JUNE 2017 47
LENDER LIMELIGHT WITH CHRIS HOEFFEL
UP CLOSE & PERSONAL Private Lender
How long have you been married?
to debt capital and allows them to scale their asset base as needed while they grow.
“We have unparalleled access to the debt
capital markets; our permanent loans are
Married 24 years. We have two teenage boys, two dogs. A Portuguese Water Dog & Havanese puppy.
securitized and have been amazingly well-re-
also don’t sell the loans when we securitize, so
Do you have any hobbies?
Who has time with two kids, a wife, two dogs and a relatively new/growing business? Food and wine is a passion shared by many of my coworkers. One year our holiday party was a cooking competition. PL
When you have spare time, how do you spend it?
Apparently, I talk to reporters in my spare time. As with all working parents, I struggle to find time to spend with my family, either participating in their events or encouraging them to join me. My younger son just got his boating license this week and my older son is sitting for his driver’s license soon.
Do you have a place where you seek solace? Probably Nantucket, because its where I get the most down time with my family. Who is your favorite superhero & why?
I seriously hadn’t thought about this but who wouldn’t want to be Superman, especially in his current incarnation? But, that Deadpool guy is pretty funny… PL
Do you have any favorite foods?
That’s a long list; I’ll save it for Food & Wine Magazine.
what happened to the CMBS market and how it is a fraction of what it was during its zenith.
Hoeffel stays current with many of the new
rules and regulations thrown at this indus-
ceived by institutional investors in the U.S.
try. He says strong communication is a great
cords for credit support and trading levels. We
and prides himself on his experience with
and abroad, and our last securitization set re-
we keep long term ownership and maintain a
relationship with the borrower,” says Hoeffel. He believes this relationship is just as
important just in case the client needs something after funding has been provided. MOVING FORWARD TOWARD THE FUTURE OF LENDING It takes a lot to create a strong a company
Colony American Finance. Hoeffel attributes the firm’s forward progress to the dedication
of his excellent management team, which has many years of experience in single-family rental acquisitions, commercial mortgage lending, credit, capital markets, sales and
training. Within the walls of the company
there is a sense of ownership that only comes with personal vested interest. Which is
another positive attribute that makes Colony stand out and keep moving forward.
“We see tremendous opportunity in the
marketplace. The SFR market is enormous, and our target market is close to 30 million units. Yet at over $2 billion in closed loans,
we have barely scratched the surface of our borrower base, and we still have a leading
position in the industry. That opportunity gets
way to keep in time with governing bodies maintaining open lines of communication
with clients, bankers, competitors, attorneys and regulators. The Colony American team can be confident of having both experience and contacts at their back.
“Each of us holds a position in the major
industry associations that advocates for our
business,” Hoeffel says, pointing to The American Association of Private Lenders as a prime
example of an industry association that Colony has valued for years. Hoeffel leads by example and is also on the Board of Governors of the
Commercial Real Estate Finance Association
and previously held the title of president of that
trade organization. He shares with Private Lender that he is also, “actively involved in the MBA’s Single-Family Rental Finance Council who has “facilitated numerous meetings between our
team, regulators and legislators on Capitol Hill.” Colony American Finance is paving the way
into unknown territory and Hoeffel will continue to lead the way. He keeps his sights focused to ensure the growth of the company within a
niche market. Hoeffel is assured Colony stands
out from other companies by creating new and exciting products for interested investors. ■ ABOUT THE AUTHOR
everyone excited every day,” explains Hoeffel. With a new presidential administration,
Hoeffel feels President Trump will do what he can to promote growth in the business sector and attempt to dismantle the post-crisis reg-
ulatory framework that is causing difficulties 48 PRIVATE LENDER
in capital markets. He continues to mention
Heather A. Elwing is Editorial Manager for Private Lender and Editorial Assistant for Think Realty Magazine. She is a licensed Realtor in Missouri and holds degrees in journalism and public relations. She is dedicated to the education of those interested in private/ hard money lending and real estate investing.
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FEATURE: FUND MANAGEMENT
Fund Management 101 Finding the right mix of capital sources to fund real estate investment projects by Robert â€œBobbyâ€? Montagne
he fix-and-flip industry reached a new high in 2016, with 6 percent of all homes sold, officially designated as fix-and-flips. All of these
projects create billions of dollars in capital demands each year. Demands that are especially well-suited to and met by the private lending industry.
For lenders, having the available capital to fund as many qualified deals as possible is just part of the challenge. Determining which mix of funding
sources to use is another ongoing adjustment that private lenders have to make. It can be a bit like a balancing act, to not only keep capital levels
roughly equivalent to project pipelines, but to also maintain the right mix of the many different sources of capital available. 50 PRIVATE LENDER
Capital formation and development by
lenders often starts with a relatively simple
family-and-friends network of equity inves-
tors, and generally becomes more sophisti-
additional sources of funding.
BANK PARTICIPATION Many banks, whether local, regional, or na-
cated as the lender grows. But keep in mind
tional, are willing to form agreements with small
regarding all types of funding sources.
ically, banks will put up 80 to 90 percent of the
there are benefits, challenges and restrictions
Funding Sources As far a funding strategy or blueprint for
private lenders, newer companies typically
start with equity funding (from the principal and his/her friends and family), then often
move to bank participation, followed by sell-
ing loans and then creating a fund. Only the
largest and most savvy private lenders create
lending companies to participate in loans. Typloan funding, with the remainder contributed
by the private lender. Some agreements specify table-funding by banks, which eliminates the
private lender’s need to front the bank’s share of the capital even for a day or so.
An entrepreneur interested in making
about lending it. A private lender can mitiby creating a partnership ahead of time.
CONS: Banks are sticklers for documentation. Borrowers will likely
have to cough up more information
loans to real estate investors might begin
to private lenders who are funded by banks
money raised from family and friends. This
resulting in slower deals and probably
by contributing personal money, as well as
forms the company’s initial capital base from which it funds deals.
PROS: The informality and small size
of a self-funded company gives the
lender unparalleled freedom to choose
which deals to fund. When it’s your own money, it becomes a matter of personal preference.
CONS: Growth is limited by the money available. That’s fine for lenders
who want to keep things small and
simple. However, lack of diversification means that one bad deal can sink the company.
Growth-oriented lenders need to look for
CONS: Lower returns and contingent li-
ability meaning in some cases the private
lender may have to repurchase the loan.
CREATE A FUND The most ambitious option for a private
fund and you use the equity capital to finance
a small private lender solves the
gate the notorious slowness of bank lending
companies that provide you with readily
problem of limited capital. Banks have
work and resources to compete effectively.
common funding sources for private lenders:
platform sales with the Wall Street or P2P
lender is to create one or more 506(b) or 506(c)
plenty of money, although they are picky
Here are the basic pros and cons of the most
turnover. A private lender can make
more deals this way. You can set up
PROS: By participating with banks,
funds. Although investment funds provide the most flexibility, they require the most
PROS: Selling the loan creates rapid
than that required by self-funded lenders, higher rejection rates. Another con is that
investment funds. Investors buy shares of your real estate deals, such as fix-and-flips.
PROS: The fund manager decides
where to invest, subject to any lim-
itations imposed by the fund offering
statement. The amount of money raised by private investment funds provides flexibility and
growth potential. Basically, the sky is the limit.
CONS: Although less expensive than
an IPO, creating a 506 fund is costly and
time-consuming, and you have to market a
a bank can terminate its participation in
winning message to attract investors.
high and dry.
Challenges to Raising Fund Money
further deals, leaving the private lender
SELL THE LOAN A quick way to get the loan off of your
books and free up funding for another deal
SEC Regulation D sets out the rules for sell-
ing unregistered securities. Rules 506(b) and
(c) provide two different ways to solicit buyers.
is to sell it. You can sell loans to Wall Street
They differ in two significant ways:
private loans. Another option is to sell the
1. Offerings under 506(b) can be made to accredited investors and to no more than 35 sophisticated non-accredited investors, whereas only accredited investors can invest in a 506(c) offering.
firms specializing in buying and servicing
loan to a peer-to-peer lender. The P2P can
then maintain the loan in its own portfolio,
or more typically crowdfund it, either wholly or in chunks, to individual investors.
MAY/JUNE 2017 51
FEATURE: FUND MANAGEMENT
the fund, demand by investors, demand by
mance Standard’s Advertising Guidelines.
company’s comfort zone in terms of how much volume it is equipped to handle. After all, the
4. How can you get across the quality and value of the properties in the fund?
allocated to underwriting and management.
derwriting requirements for borrowers and
to accommodate non-accredited investors, or
2. Under which SEC 506 Rule is the fund governed?
lender might point out the following:
keting. Obviously, it is easier to market 506(c)
between (b) and (c) funds. The decisive factor
2. The fund sponsor can market 506(c) offerings to the public, as long as the fund sells only to accredited investors. Public solicitation of 506(b) offerings is not allowed. From the outset, a private lender is faced with
the decision whether to choose 506(b) in order to select 506(c) to gain access to public mar-
funds, as all the normal channels are available,
including websites, advertisements, brochures/ collateral, social media, email campaigns, even press stories. However, the lender is faced with accepting only accredited investors, a task that
requires due diligence and patience. Many CPAs or wealth managers can be reticent to sign ac-
creditation documents which makes the process
borrowers, marketing budget, and the lending
bigger the fund, the more resources must be
As mentioned earlier, you have tradeoffs
might be that you can cast a much wider
advertising net with a 506(c) offering, notwith-
standing the accreditation requirement. If you are attempting a large private offering and do
not have the backing of institutional investors, a (c) offering might make the most sense.
The starting point is specifying the un-
their properties. For example, a hard-money
∙Y ou evaluate the real estate and the borrower.
∙Y ou know your markets and the velocity of sales in those markets. ∙A ll property is over-collateralized.
∙Y ou select only the projects with the greatest potential for success.
∙Y ou require 15 to 25 percent equity investment from the borrower. ∙ You perform due diligence on the borrower, even if you don’t use credit scores in your underwriting.
more challenging and time consuming. With
3. How can you advertise your track record to potential investors?
before sending out marketing materials, which
with the SEC, the sponsor is still subject to the
A Word About Accredited Investors
You generally have leeway to use the calcula-
offering must be U.S. accredited investors,
a 506(b), the lender can pre-screen prospects have to be requested rather than broadcast.
As long as the fund takes care to accept only
self-proclaimed accredited investors, the deci-
sion as to what information to offer prospects is
up to the lender. However, 506(b) non-accredited prospects must receive exhaustive documenta-
tion similar to the prospectus associated with an IPO. This would seem to defeat the purpose of
making a private placement to start with, so it’s not uncommon for 506(b) sponsors to exclude non-accredited investors.
Questions About Your Fund If your investment company would like to
sponsor a 506 fund for real-estate investors, ask yourself these probing questions:
Although the fund shares are not registered
anti-fraud statutes that govern public offerings. tion methodology and composite construction
depending on the type of offering. According
portrayed results are not misleading, they are
tion, “one principal purpose of the accredited
calculations are consistent throughout. If you
bear the economic risk of investing in (these)
tive” account, you can’t cherry-pick winning
investor.gov has clear guidelines regarding the
such as size or length of holding. If you use
ited investors are defined by the following:
methods of your own choosing. As long as the
Though theoretically unlimited, the size
of your offering will depend on the nature of 52 PRIVATE LENDER
to the SEC’s website guidelines on accredita-
accompanied by adequate disclosure, and the
investor concept is to identify persons who can
want to highlight the results of a “representa-
unregistered securities.” The SEC’s website at
accounts. You must use some objective criteria,
accreditation of individuals or couples. Accred-
benchmarks for comparison purposes, you
must fully describe them. Your total-return
track record should describe the effects of fees and dividend reinvestments on net perfor-
mance. You can provide hypothetical, simulat-
ed, or modeled returns as long as they are sepa-
1. What is the size of the offering?
Most or all of your investors in a 506-fund
rately identified from, and not linked to, actual
returns. For a deeper dive into advertising your fund, check out the Global Investment Perfor-
∙T hey have a net worth at the time of purchase of at least $1 million, not including their primary residence, or ∙ They have individual income in excess of $200,000 ($300,000 for couples) in each of the two most recent years, and they reasonably expect meet the same thresholds in the current year
∙ Most institutions and trusts with total assets exceeding $5 million also qualify as accredited investors
Fund managers are required to take “reason-
able efforts” to verify that their investors are
accredited. Previous verification required only
self-certification but new SEC rules specifically state the types of verification that are accept-
able. Failure to properly verify your investors accreditation can have serious consequences with the SEC, including loss of your 506-ex-
emption status. There are four accepted ways to verify these individuals, which include:
∙ The Insider Method: if the investor is a director, executive officer, or general partner of the issuer of the securities being offered or sold,
he/she qualifies as an accredited investor. ∙ The Professional Letter Method: a letter of confirmation from a lawyer or accountant verifying the investors status. These letters often prove hard to get because many lawyers and accountants feel uneasy providing them and testifying to this information. ∙ The Income Method: the investor must provide proof of income such as tax returns or other financial documents, or a letter from his/her accountant or employer regarding income. Again, these documents can be hard to obtain because investors are often reluctant to share this information readily. ∙ The Net Worth Method: the investor must disclose his assets, liabilities and provide
or authorize a credit report. The fund manager can then calculate the net worth with this information. ■ ABOUT THE AUTHOR Bobby Montagne, CFM, is the founder of Walnut Street Finance, a leading private lender in the Mid-Atlantic. Walnut Street Finance is the sponsor of the Walnut Street Finance Fund II LLC, a private $30 million private lending fund offered under SEC Rule 506. It allows investments as low as $25,000 and provides a preferred dividend yield of 7 percent. The fund sponsor is Walnut Street Finance, a developer and private money lender with more than two decades of experience. The loans in the fund’s portfolio are generally short term – one year or less. All loans are collateralized by the underlying properties, and each borrower provides equity of 15-25 percent of the property’s value. This article does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security.
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FEATURE: RAISING CAPITAL
Considerations for Raising Capital
their IRAs or old 401(k)s, and many of them
Widen Your Vision to Include Other Tax-Advantaged Accounts
market. Most IRA holders don’t know that
by Clay Malcolm
hen thinking about raising capital, IRAs and other tax-advantaged
accounts should be on the list of sourc-
es. There are an estimated $7+ trillion of
retirement savings in IRAs and 401(k)s today. Historically, it has been troublesome and
inefficient for businesses to access individual tax-advantaged funds, but, fortunately, that
is no longer the case. The rise in online plat-
are looking for investments outside the stock their IRAs can invest in “alternative” opportunities. By making someone aware of that
forms that make money available to borrowers has created a greater need to replenish capital. The development of easier and
faster technology by IRA providers has made IRA funds a viable place to satisfy this need.
When courting individual investors, there
is no downside and potentially a big upside
to including IRA investing. Many individuals have their largest amount of available cash in
ability, a new capital possibility opens up.
That one person controls both their personal funds as well as their IRA funds and, in most
cases, both can be invested in the same offering. If someone holds personal equity and one day elects to allocate retirement funds
toward positions in the same entity, there’s no legal basis to prevent either party from
initiating the new relationship - assuming a disqualified person isn’t involved with the
MAY/JUNE 2017 55
FEATURE: RAISING CAPITAL
entity. Because one’s IRA is a separate legal
entity from their personal finances, the key is to keep the investments separate. Earnings yielded through a personal investment are
attributed to personal income and the asso-
ciated tax consequences. Conversely, income generated by an IRA or 401(k)-owned posi-
tion would return to the account tax-deferred or tax-free. Applicable taxes, if any, would
be assessed only upon distribution of those funds from the retirement account.
Education is part of the equation. Because
IRA investing in private offerings is new and because it represents a shift in responsibil-
ity for account holders, learning about how
these investments are made and the account holder’s role in that process is critical for
success. In its most effective delivery this education component is a collaboration
between the asset provider and the self-directed IRA provider.
IRAs can participate in a lending-based
or an equity-based offering. If you are a real estate investor raising money for a deal, a
lender offering fractional loans to investors on a note that you originated, or a manu-
facturer adding new machinery to launch a product, an IRA could be the investor you
are looking for. From an IRS perspective, a
Traditional or Roth IRA (HSA, SEP IRA, etc.) can invest in physical assets (like real estate or gold), private equity offerings, and/or
lending based opportunities. Of course the
account needs to be at an IRA provider that handles that type of asset.
Almost any business that is raising capital
can consider raising capital from IRAs. For smaller businesses, raising money from
family and friends is a popular play. Please
note however that the IRS places restrictions on certain individuals or entities to prevent “self-dealing” between a person and his or 56 PRIVATE LENDER
her retirement account. These disqualified
Education and technology are two keys
persons include oneself, one’s spouse, and
to accessing tax advantaged accounts. To
spouses - children, parents, grandchildren,
between the investment you are offering
anyone in direct familial lineage or their grandparents, son/daughter-in-law, etc.
Non-lineal members of one’s family, such as an aunt, uncle, or sibling are non-disquali-
fied persons and can therefore participate in
take it one step further, creating a match
and the desires of IRA investors may make
the combination even more successful. IRA investors often have different wants and
requirements than investors using their per-
IRA or 401(k)-owned investments.
sonal funds. The most obvious is time frame.
transactions, single-source logins between
decision-making is required are among other
IRA technology now allows for online
the platform and the IRA provider, and ACH movement of funds. Visibility on both indi-
Liquidity, timing of return, and how much key considerations.
The new investing landscape created by
vidual accounts and aggregate data are now
the JOBS act and convenient online com-
can have an online portal that provides up-
And with a consistent need for capital to fuel
available as well. The entity raising capital to-date information as well as the ability to manage new offerings to IRA investors.
merce is attractive to many IRA investors.
business and individual loan products, a successful relationship between tax advantaged
accounts and entities raising capital is more achievable than ever. ■ ABOUT THE AUTHOR Clay Malcolm is Chief Development Officer at New Direction IRA, Inc. He oversees most avenues of marketing, teaches continuing professional education and informal classes and webinars, and facilitates the training of business development and client representative teams at New Direction IRA Inc., a self-directed IRA provider that assists more than 12,000 clients nationally. Malcolm, who has more than 20 years’ management experience in various roles, draws upon his teaching background to develop the educational aspects of New Direction IRA and impart knowledge about self-directed IRAs to its clients and prospective clients. Malcolm received his Bachelor of Science degree in Communications from Northwestern University. www.newdirectionira.com/education
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732.409.1144 | www.lhrgb.com 58 PRIVATE LENDER
Defined Demand for Fintech
Meaning, there are fewer lenders seeking
Understanding Finance Technology and Where it’s Going
of replacing human underwriters with robots
by Kellen Jones
“AI” (Artificial Intelligence) for the purposes than there are fund managers looking for
better data, and ways to visualize that data, in an effort to make better decisions.
lon Musk, founder and CEO at Tesla, just announced his company will
especially at the banking level. The “man
versus machine” argument has made its way
Fintech is seeing this demand and devel-
oping a supply solutions. Many lenders are
to private lending.
even taking it upon themselves to develop for
tion was that this innovation will do more
foe to the industry where others depend on
demand shaped the horizon of fintech and
follow Tesla’s consumer approach to make
day businesses. Marketplace platforms and
ogy is spreading far and wide, categorizing
eventually deliver goods without a driver, the
making it possible to invest in real estate
truck drivers in the United States alone.
reflections on how things have been done
Domo Arigato, Lender Roboto
transportation, and many other industries.
be seen because adoption and adaptation
tioned just acquired a company called Neu-
the finance industry in the coming years,
systems and solutions in the industry varies.
fiction look antiquated. Musk says it will
add an electric semi-truck to their fleet of
Traditionalists tend to see fintech as a
their own needs, in-house. So how has this
than just improve the environment—it may
innovation to some extent in their day-to-
who’s driving that demand? While technol-
all driverless vehicles. If semi-trucks can
fresh regulations contribute to this evolution,
private lenders by technology adoption is
innovation would threaten up to 3.5 million
from your couch. This evolution has caused
products. The immediate public assump-
This shift is happening on assembly lines, in
to date. The impact of innovation is yet to
Reports widely suggest massive job cuts in
occurs at such a rapid pace. Demand for
The same Elon Musk previously men-
ralink, whose pursuits make most science
MAY/JUNE 2017 59
attempt to develop technology to integrate
indicators. The machine approves or denies
so users can do things like improve their
efit to this level of innovation is the depth
artificial intelligence with the human brain vocabulary with the simple firmware update. The most forward-thinking fintech innova-
tors aren’t quite reaching to that extent, but they are introducing machine learning into tasks like underwriting and loan approval.
In theory, this allows lenders to have an idea about loan quality based on real-time ana-
lytics and past performance. It “stereotypes” borrowers and projects based on historical 60 PRIVATE LENDER
loans before a human ever sees it. The ben-
brace fintech without removing the human from such an important fiduciary process.
of understanding and obvious time lenders
Big Data in Beta
supposed human-level interaction with data,
made of lenders who understand the power
wholly upon machines or data for algorith-
the quality of loans and the time it takes to
would get back. Although AI introduces
it still isn’t quite human. Lenders who rely mic decision-making are disregarding the importance of experience, intuition and
creativity to some extent. It is advisable for
progressive lenders to calculate ways to em-
The next tier of fintech integration is
of data and seek or develop tools to improve close them. More and more lenders are using credit profiles as a trace of breadcrumbs to how borrowers might perform rather than
as a qualification benchmark. As borrower,
property, and demographic data is analyzed and visualized, lenders make better deci-
sions. Some data is used as the prime witness in the loan approval process where other
sets are merely used to confirm or raise new questions on decisions already made. The
extent of data utilized can come down to cost. The best data, pre-packed to minimize hu-
computer, is a good thing. It’s actually commendable if the pace of adoption is second
to a commitment to policies and procedures.
As these types of lenders consider and adopt new technology, there should be heightened awareness to avoid wasting time and money trying to fit with trends.
man entry, comes at premium. Other data is
Sticking with the Legal Pad
requires human entry. One pitfall of fintech
fear or reject technology. This type of lender
inability to find the right fit. This often leads
because they’re either ignorant to what is
available to the general public, but typically integration is the lack of good options or the
groups to develop their own solutions, which is far more expensive than most anticipate.
Rather than jumping from option to option or responding favorably to every LinkedIn developer who pitches their services to
build an exclusive platform, lenders should
research all available options, compare them carefully, and determine the best way to implement technology without compromising the human element.
Motorized Horse and Buggy There are those who view any replacement of word processors and Excel spreadsheets
as an amazing advancement. They are doing whatever they can to speed up processes,
even if it doesn’t necessarily lead to improve-
There are still many, many lenders who
typically delays the adoption of fintech
available, or they’re engrained in their ways.
The due diligence list is scribbled on a white
cause they rely almost entirely on counsel to
produce documents sent to borrowers—from the first LOI, through loan documents, and
even statements and communication during
ful integration of technology, before turning components of the loan process over to a
depending on the organization size. An LOS alone falls short of all that is needed. But
too much non-correlated software can be counter-intuitive.
DO NOTHING DIFFERENT.
things on white boards and spreadsheets until the right fit comes along.
The demand for quality fintech is absolute,
but the human core that has formed the pri-
also frustrates borrowers when lenders move
compromise what made it great. Lenders must
model, but it does stifle growth and scale. It slowly because there is no certain process
in place. These lenders should also explore
options and carefully select ways to improve through adoption of some extent of fintech. Every lender has similar options:
DEVELOP ITS OWN SOLUTIONS.
doesn’t lead to a successful outcome.
unknowingly lacks all the important aspects
nology to its fullest extent, but perhaps care-
to over a hundred thousand dollars per year
a loan term. There is no major harm in this
This can become expensive and typically
contingent of lenders may not be using tech-
This can range from a few hundred dollars
Lenders can sit on the sidelines and keep
ally settle for software that allows them to
of lending that occur prior to funding. This
PURCHASE AN LOS OR SOFTWARE SOLUTION.
usually has no issue with high legal bills, be-
on dated pages in a notebook. This type
create borrower and investor statements, but
cloud storage, or a popular LOS—but they
lack a full-service solution. These types usu-
to the third party.
board. They have their favorite deals written
ment. Some of these groups will integrate
several third-party services like Dropbox for
money as an organization jumps from solu-
tion to solution, and deflects control, in part,
UTILIZE SEVERAL THIRD-PARTY SERVICES.
Utilize several third-party services. This
can fulfill needs of the moment, but wastes
vate lending industry should be unwilling to
effectively balance the “fin” with the “tech” as new innovation arises. So while considering
new and proven solutions for loan and investor management, it’s important lenders note the unmatched value of people. ■ ABOUT THE AUTHOR Kellen Jones is CEO and Founder of FundingDatabase, which has developed the most comprehensive loan and investor management platform according to its users (idealSUITE). Jones is a fintech expert with particular affinity to private lending technologies. Jones is also President of Cache Private Capital, which makes direct loans to borrowers seeking commercial financing under loans ranging from $500,000 to $5,000,000 nationwide. Jones also serves on the Ethics Committee for American Association of Private Lending.
MAY/JUNE 2017 61
62 PRIVATE LENDER
How to Know Youâ€™re Making a Good Investment Completing your own lender due diligence can reduce your own risk
property that your capital could be put into.
VALUE Knowing the exact market value of the
asset is essential to knowing whether the
investor will be able to turn a profit on it.
Be sure that you have a recent appraisal of
by Abhi Golhar
critical factors to look at when evaluating the
the property at hand, as this will give you the best idea of the current market value.
s the major source of investment
capital for many real estate investors,
private lenders shoulder a great deal of risk
asset and the investor before deciding to raise capital for a project.
Also, remember to compare this value to the asking price of the property to ensure the
investor is not using your money to overpay.
when extending loans. Failure on the part of
Evaluating the Asset
deal successfully can result in a significant
course, the property itself. The ability of the
who has provided the backing. Because of
the investor has secured for its purchase
the market that the property is in. Find out
is made or lost. Here are several of the most
property and the real estate market in that
a real estate investor to execute a property loss of money for the hard money lender
this fact, it is critical for a hard money lender to know as much as possible about both the
The keystone of any real estate deal is, of
LOCATION Knowing the current market value of a
property to turn a profit under the terms
property is useless without understanding
will ultimately determine whether money
as much as possible about the location of the
MAY/JUNE 2017 63
with the borrower, as this will protect you against a default on the loan.
MAKE EVERYTHING LEGAL First-time hard money lenders can sometimes
be overwhelmed by the legal complexities of
making a loan, especially if they are raising capital from other sources. Before doing anything in the private lending business, make sure you are on
sound legal footing. Consult an attorney and be
sure to follow all federal, state and local laws and regulations pertaining to the lending business.
DO YOUR HOMEWORK More important than anything else is
area. If the area is one that is generally de-
other loan, it is reasonable to expect a down
properties coming onto the market, you may
loan. An investor who is either not willing
Independently confirm all information a real
small down payment is likely not a good risk.
its potential to turn a profit. Approach the
behind the project, the real estate investor
it were your own real estate deal, because you
preciating or in which there are many similar want to think twice before advancing the loan.
PLANNED USE There are many ways for investors to make
money on a single piece of property. Some will
choose to fix and flip, while others might decide to rent out for a longer-term stream of income.
Be sure you understand every facet of the busi-
ness plan into which your money will be going. Evaluating the Investor Just like the asset itself, you will need to eval-
uate the person who plans to purchase it to determine whether he or she is a good risk. This
process starts with a thorough credit check, as you want to know that you are doing business with someone who has a history of paying off loans on time. A history of the investor’s past
business dealings is also a useful thing to have, as it will give you a better idea of the chances that the current venture will succeed.
Another aspect to consider about the
investor to whom you are considering lending money is how much of his or her own
money is going into the project. As with any 64 PRIVATE LENDER
payment or collateral on a private business
to know exactly what you’re getting into.
to do this or who will put up only a very
estate investor gives you about a property and
Even though your capital is the driving force
project with the diligence that would be due if
should have money on the line as well, as this
stand to lose a great deal of money if it fails.
and diligent in making business decisions that
by carrying out a proper evaluation of both
will encourage him or her to be more cautious
Making a loan decision is rarely easy, but
could make or break the enterprise.
the asset and the investor who is seeking a
regarding what projects you decide to fund.
loan, you will be able to make sound choices
Even if you have encountered the perfect
If, for any reason, you do not feel comfortable
property, there will still be risk involved. Before
be afraid to pass on it, as there will be plenty
investor who is looking to purchase the perfect
putting your money into a given project, don’t
you raise capital for the project or put funds you
of other opportunities available to you. ■
already have into it, you will need to take some basic steps to protect yourself against this risk.
SECURE INSURANCE With a large sum of money invested in a
project, you need to know that you are properly protected in the event of loss. Title insurance
is a type of insurance which will protect you in
the event of unforeseen claims on the property, such as a pre-existing lien. You may also wish
to secure terms on private mortgage insurance
ABOUT THE AUTHOR Abhi Golhar is the host of “Real Estate Deal Talk” and Managing Partner of Summit & Crowne. Abhi uses a “valueadded” approach to invest in real estate renovation, new construction and development opportunities in the Southeast United States. He actively educates and works with investors to deploy market-driven strategies that yield success. He holds a B.S. in Electrical Engineering from the University of Michigan. You can find him on Twitter, Snapchat, and Instagram - @AbhiGolhar.
MANAGE AND LEAD
Annual Performance Review Process: How to Keep it Relevant Making it a significant part of your company culture by Linda Hyde
ach year groans from managers can
be heard by the mere mention of the
words, â€œannual evaluation.â€? Historically, even employees have had dissatisfaction with not only receiving a formal evaluation but the
requirement of completing a self-evaluation. There are many opinions as to whether the annual performance evaluation holds any weight with employees. But it all depends
on what you are doing the other 364 days of the year. As a leader, you should be sharing feedback, thoughts, and ideas weekly, if 66 PRIVATE LENDER
not daily, with your staff. This will create
a strong foundation for your team to grow
within their position, a key component for
their development. So, the question is, how
do you make the annual performance review relevant after an entire year?
ers spend little to no time preparing. Unfor-
tunately, your lack of preparation diminishes the value of the feedback being provided to the employee. Annual evaluations should have significant thought put into them.
What is the overall message you want your
employee walking away with after the meet-
COME PREPARED AND PREPARE YOUR EMPLOYEE.
Because evaluations are often seen as a
boring, bureaucratic exercise, many manag-
ing? If you are engaging with your employee throughout the year, you should have plenty to discuss from past conversations.
Providing your employee an idea of what
you will be covering during the meeting will
help put them at ease. These types of meetings can be very stressful, even for a well performing employee. Put together a quick agenda prior to the meeting.
BE OPEN TO A CANDID DISCUSSION.
to reinforce expected behavior and perfor-
mance for the year ahead.
GIVE PRAISE WHERE DUE.
This is especially important if you have
performance and recognition, the lower the impact of that recognition.
Immediately is never too soon! You can
always reference commendations that have
been given throughout the year during your discussion as well as including them in the
a high performing employee on your team.
being taken away as well as staff shortages
motivated by recognition; they are propelled
Making it more important than ever to use
do. Money and benefits are great, but many
have accomplished throughout the prior
their superiors. As a leader, the simplest,
less likely to lose them to competition.
sure each person on your team feels valued.
do they need?
provide some praise during an annual
ployees receive feedback at least once a week.
associate the conversation back to prior dis-
provide praise throughout the year. The
A performance discussion should never
be a one-way conversation. This is the time for you to share your point of view, but itâ€™s also a time to find out how they feel you
did. What improvements can be made as your leader? How did you feel this past
year went for you? What obstacles did you feel kept you from being successful? How can you support them better? What tools Make sure you have examples and can
cussions throughout the year. It is important
As the economy shifts many benefits are
Organizations are full of people who are
or cutbacks which effect employee morale.
by seeing and hearing the value of what they
an evaluation to provide praise for all they
workers just want regular feedback from
year. If an employee feels valued, you are
most impactful thing you can do is to make
Donâ€™t wait. Just because you should
evaluation does not mean you should not more time that passes between exceptional
Fourty-three percent of highly engaged em-
MAY/JUNE 2017 67
MANAGE AND LEAD
DISCUSS A DEVELOPMENT PATH.
Many reviews omit a discussion of what
advancement opportunities may be available in the near future, and what the employee
needs to do to apply for those opportunities.
manner after the performance review is
will continue to be ineffective. Specifically,
that you are engaged in their performance
performance evaluation function lacks the
discussed. This will demonstrate to your staff and a genuine interest in their development.
SET EXPECTATIONS FOR TOMORROW.
Too often, reviews for well-performing
if the manager responsible for handling the capabilities, and skills to empower, motivate
and develop people using an otherwise valuable management tool.
There are many opinions about whether
annual performance evaluations should be
Your employee should be able to provide
employees congratulate them on what
performed and it is an actual business decision.
selves for the coming year, while simultane-
there. The meeting should also end by
the year, it will mean more to your employee.
review. This will ensure you get your point
by providing ongoing feedback, and open com-
opinions. All the performance goals and
less another year. ■
you with a few goals they have set for them-
ously explaining how they will achieve them. Too often, the process of employee evalua-
tions become more important than the actual result. What do employees want out of their reviews? Aside from a raise, the main thing
employees want to know is what career path
they’re on — what they have to look forward to in terms of job growth and development.
FOLLOW-UP AND FOLLOW THROUGH.
This is one of the most important things
you can do to maintain relevance in your
feedback. This does not have to be a formal discussion but should be done in a timely 68 PRIVATE LENDER
they’ve accomplished and let the story end
But if you can maintain relevance throughout
gaining agreement on every aspect of the
As a leader, changing the role you play today
of view across but also hear the employees’
munication shouldn’t wait another day, much
management expectations should be
discussed at length, and determined before the commencement of the meeting.
ABOUT THE AUTHOR
leadership is setting expectations for those
Linda Hyde is Executive Director of the American Association of Private Lenders, an association built on the principles of ethics, education and networking. The Kansas City native has more than 17 years of customer service experience, including 13 years in leadership positions. While you will not find her on Twitter, you can find her on LinkedIn networking with other professionals in the real estate industry.
One of the key components to effective
who follow you. You’ve heard it before;
people will, most of the time, rise to a level of performance/behavior that is set for them.
In retrospect, even if you were to eliminate
annual reviews, and replace them with other structures of performance evaluations, it
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MANAGE AND LEAD
Public Relations: Imperative for Success Time for executives to improve their public relation skills by Chrissey Breault
ublic relations nightmares have taken over our social feeds and media com-
mentaries. In doing so, it has proven there is a huge gap between chief executive officers and their public relations people – whether on
staff or hired from an outside agency. A clear
majority of those in leadership positions don’t understand what PR people do and how it directly impacts them or their business.
There are several movies or shows that poorly
illustrate public relations or public relation pro-
gle/Microsoft/Amazon/Apple deal tomorrow,”
because they know that big account involves long, carefully managed sales cycles. It is those same
leaders who - more often than not - think the PR team can flip a switch and get immediate coverage in any media outlet. It’s because they don’t
understand that PR is based on relationships and skilled, relevant storytelling, they demand practices like mass-pitching that will cast the team -and the brand – in a negative light.
By now, the Pepsi commercial fiasco is old
fessionals: The West Wing, Designated Survivor,
news but let’s break down the short-lived com-
Candidate, Mad Men, Scandal, HBO’s Silicon Val-
many it recalled images from the Vietnam Era
Contagion, The Social Network, Jersey Girl, The
ley are a few that might hit close to home for you.
Most of these shows entertain us with a clear
illustration of the disasters that can happen
when a team doesn’t do the difficult parts of
their job – telling their leader something un-
pleasant or moving forward with bad direction from someone in a leadership role. It applies
to both the in-house teams and agencies, espe-
mercial featuring model Kendall Jenner. For
and unoriginally repurposed Coca Cola’s “I’d Like to Buy the World a Coke” ad. For others, it was a crass replication of Black Lives Matter protester and the movement. What was the inspiration
for this ad? Not only did they demonstrate they don’t have a relationship with their audience, it demonstrated how they don’t even know who
their audience is. Pepsi Co. made it abundantly
cially when it comes to media relations.
clear it’s (still) failing to define its own identity.
who reports to a sales-driven leader or clients
PR team is obligated to push back and say, “Actual-
relations! These leaders have no idea the nuances
has almost become mandatory for many, if not all
Surely many of you have witnessed a PR team
It’s when you arrive in critical junctures that the
who don’t understand people; forget public
ly that’s a bad idea and here’s why.” Pushing back
and diplomacy involved in dealing with the me-
PR professionals to help protect the brand image
dia, so they hand out ridiculous instructions like,
“Go get us in the Bloomberg report by next week.
and the team’s own careers and reputations.
United Airlines and the Federal Department of
Send out 30 press releases this month. Tell them
Transportation forced a passenger from flight 3411
These are the same leaders who would never
don’t respond to a crisis. The CEO himself should
the passenger was re-accommodated.”
dream of telling a salesperson “Go get that Goo70 PRIVATE LENDER
in April. The initial response was exactly how you have quickly offered a statement of empathy after
MAY/JUNE 2017 71
MANAGE AND LEAD
the passenger was forcibly removed from his
emails. Events and new products will go ignored.
So many pros have a hard time pushing
Inevitably, there’s going to be an angry leader who
seat and dragged down an overbooked airplane’s
back. Because PR is a service industry, many
an unreserved apology and dismissive excuse at
trying to keep clients happy by satisfying all their
aisle – regardless of the small print. Instead, it was best. The response has raked, a once named U.S. Communicator of the Year by PRWeek, United
agencies tend to be yes-women and yes-men,
demands to know why PR isn’t working.
demands. In-house teams end up walking the
Start by understanding the four Ps of
link of insubordination or even feel subordinate
public relations leadership
marketing professional who is not proficient in
keting Ps (product, price, promotion, place)
These for Ps are different from the mar-
to marketing departments (should you have a
Airlines CEO Oscar Munoz over the coals.
At the time of this writing, United Conti-
nental Holdings share price plunged. They lost
public relations?). It has even gone as far as all of
ing. They had a slight rally that left the shared
they told a CMO or CEO, “We don’t think that’s
less than the company’s $22.5 billion value. The
and the bully-like nature that comes with those
responsible or acting accountable for making a
job security for them because – as they say - the
nearly $1 billion of the company’s value in trad-
a sudden running into budget challenges because
price down 2.8 percent, close to $600 million
a good idea…” today. The lack of understanding
question looms; Who is ultimately being held
who hold the power titles tend to feel more like
total disaster out of this situation? Will it be the
sh** flows downhill.
know what truly happened in their offices that
and more comfortable path. But what about in the
no bad teams, only bad leaders.”
reporters stop taking their calls or answering their
CEO or will it be the PR team? We may never
day. Maybe Jocko Willink was right, “There are
and operate at a higher level, which in turn provides a more profound impact, but they do describe a PR leader’s role.
Purpose: The role of PR is to help build
societies that work. They achieve that in the daily work by assisting organizations make
In the short run, playing along may be the easier
long run? The PR team is going to find that some
good decisions. Decisions that are informed by
listening to people, by appreciating the context in which they live their lives, by understand-
ing what is important to them, by ensuring
the organization is part of the solution to the
COMPONENTS OF S&P 500 MARKET VALUE 100%
80% 60% 40%
20% 17% 0%
Tangible Assets Source: Ocean Tomo, LLC
72 PRIVATE LENDER
challenges that face them, not to cause their problems. This should be the heart of your
company’s organizational strategy and culture.
Principles: Having now determined
purpose you have to decide the strategy on how to implement it. It will involve some rules that guide behavior and decision-making against
intangible asset? It is your people, relationships, reputation/credibility, and territory.
Yet, 13 percent of PR professionals are taken
side and to develop the communication capa-
being measured against the 87 percent.
is truly a turning point for your organization
assets, which is what ROI measures, instead of
Process: The days and ways of command
and control and of CEOs trying to impose their
between declared and lived values that form
collaboration, and co-creation are the only
the legitimacy gap and is the space that social media plus other media forms constantly probe to hold you accountable.
Lived values are the surest protection
The combination of purpose and principle
should be the heart of your company’s
character and are most intuitively lived out by the leadership. Surely you heard the phrase “Lead by Example?”
It is why leaders need PR professionals con-
stantly at their side. They hold the truth to power, saying those things that others do not dare and
generally telling it straight as to how other people see their words, tone, and actions.
It also means that PR professionals must
operate everywhere within your organization,
looking at structures, processes, physical premis-
will on the world are long over. Cooperation,
way forward and to define success. Moreover,
relationship building, mutual respect, a shared value base and common objectives are all results of healthy communication.
Without communications or public
relations nothing can be achieved. It is more
than being an enabler; it constitutes the stuff
Chrissey Breault is a Pittsburgh native and hospitality major. Chrissey started a part-time photography and design business in 2009, while working full-time in local government communications. She is currently Editor-in-Chief of Private Lender, and Director of Marketing and Education Services with the American Association of Private Lenders.
leadership in public relations must be
now – and should be demonstrated at any
and all levels of your
organization then you
or people the best
journalist, or passionate Twitter user.
Remember, PR profes-
People: Believe it or not, you meet your
between your com-
written, not by the keystrokes of a reporter,
return on investment.
cent of the value of an organization. What is an
ABOUT THE AUTHOR
you that the time for
you, your company,
valued intangible assets at approximately 87 per-
forms the communities around you. ■
If it hasn’t become
where the company or brand narrative is really
Ocean Tomo released a study in 2015 that
only transforms your organization but trans-
increasingly clear to
are where principles are really lived and this is
it. This means that relationships are crucial.
and the PR profession. Be the leader who not
aren’t striving to give
company and people who work with and through
bilities and competence for senior staff. There
of a modern organiza-
es, ways or working – everything - because these
objectives through people. People who work for a
Even the most entry-level PR professionals
are being called on to decode the world out-
to task of the worth of the physical and financial
which you will be judged. In common practice, these are your core values. It is the distance
sionals bridge the gap pany and your stake
holders – stake holders meaning anyone who
has an interest in your company or product,
not just employees or MAY/JUNE 2017 73
LAST CALL WITH EDDIE WILSON
Long Term Lending in Community
ddie Wilson, president of Affinity Worldwide, is always thinking real estate, thinking capital, and thinking
growth. “It’s so important for every investor, every private lender in particular, to understand that no matter
what your capital resource is, there will always be a deal that is bigger,” he said, noting that a growth mindset necessitates participation in an investing community in order to truly accomplish big things. For private lenders, who often tend to operate independently and self-limit to the scope of their own available capital, this message is vital and timely.
Wilson has spent decades in real estate with a heavy focus on the private lending side of the
equation. When it comes to private lending, “It is not just about finding an active vehicle, but
also about finding the right vehicle,” he emphasized. For Wilson, the right vehicle to get started in the business was tearing down a series of “little two-bedroom properties” in his hometown and building “town-home-style duplexes” that met a fierce demand in the area for student housing for medical students. “Then I leveraged those and began investing in other real estate opportunities,” he recalled.
Those opportunities were often on the private lending side. Much as active real estate in-
vestors build teams in order to effectively find deals, implement wealth-building strategies while invested, and eventually exit those deals, the private lending community can and
should also view itself from a team-building standpoint in order to gain the best position for industry influence and high returns. “I often find myself doing joint venture deals,
equity deals, and working with other lenders to best leverage our capital,” Wilson said.
When asked to describe his “perfect deal,” Wilson responded, in typical private-lend-
As the president of Affinity Worldwide, my biggest goal is to build a community that not only self-sustains, but self-corrects as well.
er fashion, that the best deal is the one with solid returns. “I always
want someone on the other end of
the loan who is passionate and has
process,” he said. Unlike many private lenders, he does not demand a long
“tenure” in the business from his borrowers. “I
want them to have a process, though, so I know that the return is going to be solid,” he said. Also like many private lenders, Wilson prefers to be what he calls “the passive investor in the group.” He likes
to work with at least one team member who “doesn’t mind rolling up their sleeves and cutting costs by
doing some of the work themselves if necessary.” He cited his “20-percent rule” that requires borrowers
to have at least 20 percent of their own capital in the deal, making every private loan he makes, whether individually or as part of a larger syndicate, a true community project.
“As the president of Affinity Worldwide, my biggest goal is to build a community that not
only self-sustains, but self-corrects as well,” Wilson concluded, noting that when private lenders
function in community, growth potential increases exponentially. “People who are building community may not always be looking at the bottom line. Sometimes they are looking at the overall collective growth of the community and that leads to better investments, better projects, better long-term performance, and a better situation for everyone in every aspect of a deal and of the industry,” he said. “Private lenders are uniquely positioned to play a key role in defining that process and should be proud of their ability to do so.” ■ 74 PRIVATE LENDER
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