Private Lender by AAPL

SPECIAL FEATURE: AAPL'S ANNUAL CONFERENCE REVIEW ADVOCACY HMDA Rule Change Page 6

STRATEGY A Value-Add Tactic That Earns Customer Loyalty Page 46

The Official Magazine of AAPL | Winter 2023

LENDER LIMELIGHT

OPERATIONS Protecting Your Business in a Changing Market Page 60

Ruben Izgelov Living the American Dream—and Transforming an Industry

WINTER 2023

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PRIVATE LENDER

CONTENTS

6

WINTER 2023

46

6

ADVOC AC Y U pdate on HDM A Rule s

12 C A SE S TUDY 12 B al t imore Projec t Targe t s Renter s E ar ning Be t ween 60% and 10 0% of A rea M edian Income

16 F inding t he Right Par t ner Was Ins t r ument al in Bay shore Proper t y Deal

20 FUND MANAGEMENT S tar ting My Fund

38 2 022 CONFERENCE RECAP 3 9 P hotos & Tes t imonials 4 2 A ward Rec ipient s

46 S TR ATEGY B eyond C api t al: Lender s C an H elp Inves tor s By Prov iding E x per t is e

50 LENDER LIMELIGHT L i v ing t he A mer ic an Dream — and Tr ans for ming an Indus t r y wi th Ruben Izgelov

Management Journey: Research, Research, Research

28 MARKET TRENDS 2 8 C api t al Mar ke t Movement s D o Impac t Pr i va te Lender s W ho Don' t Us e Wall St re e t M oney

3 2 W ha t a Mar ke t Downt ur n M eans for Real E s t a te Inves t ing in 2023

56 OPER ATIONS 5 6 R EO Management W hen t he Proper t y I sn' t Loc al

60

76

FUNDAMENTAL S 76 G e t t ing Bot h Right: T he “ Hor s e” and t he “J oc key ”

8 0 B uilding a True Culture of Customer Ser vice

8 4 R aising Private Lending Capital with Banks

88 PROFESSIONAL DEVELOPMENT T i t an of Real E s t a te L aw: Gar re t t Su t ton

94 VENDOR GUIDE 98 L A S T C ALL W hen Faced wi t h a Di f f ic ul t Choice – Make t he Leap!

6 0 P rotec ting Your Pr ivate Lending Busines s Dur ing a C api t al Mar ket Disr uption

6 4 C losing Small - Balance Deals A mid CR E Mar ke t Uncer t aint y

70 L egal C onsider a t ions W hen St r uc t ur ing Mul t i - Lender Loans

WINTER 2023

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CORPORATE & SECURITIES • • • •

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

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

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

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

OTHER SERVICES • Conference Line • Originate Report Magazine • Lender Lounge Podcast 4

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FROM THE CORNER OFFICE

MAKING “OLD" NEW AGAIN EDDIE WILSON

As we begin 2023, we wish you a happy and

LINDA HYDE

the various challenges of “new.” “New” can be

CEO, AAPL

successful new year. Yet we can’t help but consider invigorating, a reinvention, a fresh start. “New”

Managing Director, AAPL

can also suggest leaving behind the past, erasing

KAT HUNGERFORD

hard‑won lessons and undermining the value of

Executive Editor

wisdom and experience.

DAVID RODRIGUEZ

So, as we launch this year with a multitude of new ideas

Design

CONTRIBUTORS Katie Bean Gregory Becker Daren Blomquist Gene Buccola Casey Busch Wade Comeaux Ben Fertig Michael Fordham Randy Fuchs Tom Hallock Pam Hoepfl Linda Hyde Melissa Martorella Madelaine Ryan John Santilli William J. Tessar

COVER PHOTOGRAPHY Eugene Krasnaok

Private Lender is published quarterly by the American Association of Private Lenders (AAPL).

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

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BACK ISSUES

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

For article reprints or permission to use Private Lender content including text, photos, illustrations, and logos: E-mail PrivateLender@aaplonline.com or call 913-888-1250. Use of Private Lender content without the express permission of the American Association of Private Lenders is prohibited. www.aaplonline.com Copyright © 2023 American Association of Private Lenders. All rights reserved.

and fresh projects, we also challenge ourselves (and you, our reader) to reflect on the path taken to get to today, especially as we consider the unknowns ahead.

Where have you found the most success in your private lending business? The greatest challenge? The most professional satisfaction—or dissatisfaction? What is your most valuable “lesson learned?”

At AAPL, we’ve uncovered a common thread that has proven itself repeatedly, both internally and in discussions with industry professionals: We find the most success and sense of accomplishment when we are able to be nimble and flexible, while still holding fast to our underlying principles and mission.

Private lenders have built their businesses with an agility where institutional lenders lumber, a swiftness where banks are slow, and a flexibility where others can only return a “no.”

The reverse is also true: When we have tried too hard to conform to other’s expectations for how and when we perform, we have faltered. In uncertain times, being able to make decisions quickly while still maintaining our core tenets has enabled stable growth.

What decisions have brought your lending program the most stability? Or, conversely, the least? What are your “secret sauce” principles that reverberate throughout your operations and provide a guiding light for decision-making?

As we navigate the inevitable “news” of 2023 — new normals, new market conditions, new shiny-penny opportunities, new challenges — we encourage you to revisit and reconsider the value of “old”: wheels already invented, lessons already learned, and values already established.

LINDA HYDE

Managing Director, American Association of Private Lenders

WINTER 2023

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ADVOCACY

Update on HDMA Rules AAPL sends letter to Congress urging definition change that exempts business-purpose loans.

E

ffective Jan. 1, 2018, Congress enacted new

Home Mortgage Disclosure Act rules requiring most private lenders to furnish a 110-datapoint Loan Activity Report to the Consumer Financial Protection Bureau (CFPB) for each residential mortgage loan application taken, regardless of a loan’s business or consumer purpose.

Since then, AAPL has been communicating regularly with Congress and the CFPB, including meeting with congressional staff and CFPB leadership. Upon request, we submitted formal comments on the effectiveness of coverage, data points, disclosure requirements, and operational and compliance costs.

This year for our annual Day on the Hill advocacy outreach efforts, we took things a step further: We hope to work closely with policymakers to enact a simple definition change that not only aligns HMDA with precedent regulation but exempts business-purpose loans from HMDA reporting requirements entirely. Here is the letter we sent to our Capitol Hill contact as a summary and follow-up to that meeting.

We hope to have more to update in the coming months, and we remind our constituents that change is often a long road.

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PRIVATE LENDER

November 14, 2022 Senator Thom Tillis 113 Dirksen Senate Office Building Washington, DC 20510 RE: 12 U.S.C. 2802(2) definition of a mortgage loan in the Home Mortgage Disclosure Act

Dear Senator Thom Tillis, We are writing on behalf of the American Association of Private Lenders (AAPL). AAPL is the oldest and largest trade association for private lending professionals and represents more than 650 small-business members that make non-consumer loans secured by real estate.

These loans primarily go to other small businesses to return distressed property to the market, revitalize aging housing stock, increase affordable housing inventory, and support local jobs. Banks do not generally fund these kinds of loans due to a combination of regulation and risk, so our industry fills a crucial gap.

Earlier this year, we met with a member of your staff regarding the Home Mortgage Disclosure Act (HMDA), where we discussed the Act’s burden on our membership and industry. At the conclusion of that meeting, your representative indicated it would be helpful for us to provide specific language on our requested change for possible inclusion in a bill. We greatly appreciate the opportunity not only to meet with your representative, but to work together to reduce regulatory burden while improving the accuracy and fairness of HMDA compliance.

We request that Congress enact the following underlined addition to 12 U.S.C. 2802(2)’s definition of a mortgage loan: the term “mortgage loan” means a loan which is secured by residential real property or a home improvement loan made primarily for personal, family, or household purposes The requested addition follows precedent language in the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), which define credit transactions as “credit offered or extended to a consumer primarily for personal, family, or household purposes [12 C.F.R. 1024 et seq.].

We request this change because under the current definition of a mortgage loan, the Home Mortgage Disclosure Act requires small-business private lenders that transact non-consumer mortgage loans to submit information to the Consumer Financial Protection Bureau. Much of this information is not applicable to this type of loan and represents a significant compliance and operational cost burden.

WINTER 2023

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H MDA was enacted to address concerns that financial institutions had contributed to the decline of some neighborhoods by failing to provide adequate home financing. It was intended to gather data to aid public officials in targeting public investment where it was needed most. It is a law that relies upon public scrutiny for effectiveness.

H MDA requires financial institutions to compile and transmit over 110 data points (age, race, ethnicity, etc.) for each residential mortgage application processed on an annual basis.

L enders are subject to the regulation based on the type of property, rather than purpose of the loan or the borrower. As a result, both business-purpose and consumer loans are subject to HMDA reporting.

P rivate Lenders make business-purpose loans, usually to business entities, and are not in the business of making consumer residential mortgage loans. The required data points are largely irrelevant to their loans.

I n our dialogue with the CFPB, representatives told us that because Congress defined a mortgage loan more broadly in HMDA than precedent regulation, it signaled a broader scope of CFPB oversight. Congress must revise the definition for any change.

As small businesses, private lenders feel the additional operational cost keenly. The CFPB’s 2020 HMDA Small Entity Compliance Guide” is 132 pages and still includes links to additional explanatory/clarifying documentation. This represents the compliance requirement for just one regulation amid many to which lenders are subject.

Even the CFPB has recognized that the opaqueness of its rules represents a significantly greater burden on small businesses than it does institutional lenders. CFPB Director Rohit Chopra wrote in his June 2022 Rethinking the approach to regulations” letter: … unnecessarily complex guidance and rules impede consumer protection, and instead simply increases compliance costs, which benefits larger market players and their high-priced lawyers. Unnecessary complexity places new entrants and small firms at a disadvantage compared to their larger competitors.”

Additionally, HMDA is a bright line example of unequal application of the law: certain minimum transaction threshold exemptions apply to some lenders (depository institutions) but not others (non-depository private lenders). There is no published reasoning on why this is. But it serves to punish small business private lenders with more red tape and time‑consuming/costly compliance.

Finally, HMDA’s inclusion of non‑consumer loan reporting requirements hits another mark on impeding consumer protection: because the report contains no method to indicate a loan is not a consumer loan, these loans skew the results, regardless of the intent behind gathering non-consumer loan data. Private lenders expend a significant outlay to comply with complex guidance and rules, only for their good faith compliance to negatively impact the accuracy of the CFPB’s data set.

In summary, we would like to see HMDA align with TILA, RESPA, and the SAFE Act in its definition of a mortgage loan to: M ore properly solely regulate consumer loan reporting to the Consumer Financial Protection Bureau.

Release our membership from a burden that even the CFPB recognizes creates an unfair disadvantage.

I ncrease the accuracy of HMDA reporting by removing uncategorized non-consumer loan information.

Sincerely,

Eddie Wilson CEO AAPL 8

PRIVATE LENDER

Linda Hyde Managing Director AAPL

Nema Daghbandan AAPL General Counsel Geraci LLP

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WINTER 2023

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CASE STUDY

BALTIMORE PROJECT TARGETS RENTERS EARNING BETWEEN 60% AND 100% OF AREA MEDIAN INCOME Roc Capital demonstrates how private lending supports an ecosystem of affordable single-family workforce housing.

In today’s rising interest rate environment, single-family

within a workforce community. They provide the needed capital

rental homes have become an attractive alternative for prospective

to build, update, and stabilize single-family properties; convert

homebuyers seeking an affordable and flexible solution to their

office and retail units to residential workforce housing; and

housing needs. As demand shifts from owning to renting, private lending fills an important void by providing quick funding for the rehab of non-owner-occupied investments (1-4 units) and debt service coverage ratio (DSCR) loans for landlords.

Private lenders are an essential component within the larger ecosystem by priming additional housing stock to be used either as single-family rentals or homes for first-time homebuyer

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PRIVATE LENDER

convert single‑family properties to 1-4 unit multifamily properties (including adding ADUs).

Fix-and-flippers that acquire, rehab, and stabilize affordable properties usually live within close proximity to their investments and provide vital support to their communities by hiring locally.

However, as capital becomes scarcer in today’s market, maintaining adequate liquidity for these types of workforce housing and

ROC CAPITAL PROJECT DETAILS Lender // Roc Capital

Section 8 projects can be challenging. Private lenders can bridge the gap but have fewer options for capital sources as well.

ROC CAPITAL TEAMS WITH RIPARIAN CAPITAL PARTNERS Roc Capital’s white-label table funding model provides reliable institutional capital that is balance-sheet-lite and operationally efficient. It is a less risky capital option for private lenders looking to diversify their product offerings and better align with the needs of entrepreneurial fix-and-flip and landlord investors. Most important, with Roc’s programs, the spigot of liquidity remains open to private lenders focused on lending into affordable housing communities, even as capital markets have been dislocating.

The use cases for deploying private institutional capital to workforce communities extends beyond serving as a fast and efficient

Broker // Eastern Union Borrower // Riparian Capital Partners Amount Borrowed // $54.7 million Units // 2 single-family rental portfolios con-

sisting of 461 units Term // 5-year Results // Riparian focuses on the workforce

housing segment of the single-family rental market, with rents that are affordable for individuals and families. The 461 units target renters earning between 60% and 100% of the area median income. Section 8 and other voucher programs are being used.

funding source for private lenders working with entrepreneurial investors on a smaller local level. Roc Capital also works with commercial brokers who facilitate the funding of larger turnkey SFR portfolios within workforce neighborhoods. Many middle-market owner/operators are looking for turnkey, renovated workforce housing units they can stabilize with a bridge loan or longer-term financing if they plan to add the units to their portfolios.

Riparian Capital Partners, which has one of the largest single‑family rental portfolios in the mid-Atlantic area, focuses on the workforce housing segment of the SFR market, with rents that are affordable for individuals and families.

WINTER 2023

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The company, which owns more than $125 million in assets under management, secured $54.7 million in financing to incorporate two

2020 cited the nation was short some 3.8 million units, up from 2.5 million in 2018. According to Census Bureau data, owner-occupied

newly acquired single-family rental portfolios into their existing

housing levels have increased by 11% during the past five years, yet

managed portfolio. Eastern Union arranged the financing, which

the number of rental housing units has grown by less than 1.5%.

was provided by Roc Capital. Both the acquisition loan for the

In fact, the share of rental housing today (30.9%) is less than it was

former and refinancing for the latter carry five-year terms.

five years ago (31.8%).

“ The 461 units target renters earning between 60% and 100% of the area median income.”

The portfolios, acquired by Riparian Capital Partners in October 2020 and December 2021, are comprised of 461 units, all located in workforce communities within Baltimore, Maryland. The units target renters earning between 60% and 100% of the area median income. Section 8 and other voucher programs are being used.

WORKING WITH INSTITUTIONAL CAPITAL Institutional capital is also being put to work on other new construction projects to meet the growing demand for rentals.

Recently, JP Morgan and Haven Realty announced a joint venture to develop and acquire $1 billion in build-to-rent communities throughout the U.S. These types of ventures will help address the

Yet, the demand for single-family rentals appears to be growing at a fast pace. This is partly due to the rising costs of home ownership. A June 2022 New York Time’s article, “Cost of Owning a Home Surges Above Cost of Renting One,” cites a new report from John Burns Real Estate Consulting that reveals having a mortgage is far more expensive than having a lease. This could explain why a sizable share of current homeowners have an interest in single-family rentals. According to a July consumer survey of nearly 1,350 owners and renters, John Burns Real Estate Consulting discovered that “one in four owners would live in a rental house if they could find a place that meets their exact needs.”

The goal of creating more affordable housing requires not only the construction of additional housing but also a harmonious balance of both homeowners and renters. According to a 2021 report

by Harvard’s Joint Center for Housing Studies and AARP, “the most livable neighborhoods offer the most diverse set of housing options, including multifamily and rental opportunities as well as

shortage of housing; however, demand for housing continues to

single-family and owner-occupied homes.”

grow faster than supply.

Private lending has played a key role and will remain an essential

The lack of housing supply as well as rental stock is putting a major

component to connecting institutional capital sources with both

strain on affordable housing. A Freddie Mac report released in

small- and large-scale affordable housing projects across the U.S. ∞

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PRIVATE LENDER

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WINTER 2023

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CASE STUDY

Finding the Right Partner Was Instrumental in Bayshore Property Deal The lender provided a jumbo bridge loan that closed in 10 days and structured the deal in a way that allowed the borrower to purchase at below-market price, flip the property, and turn a profit.

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PRIVATE LENDER

Lender // Acra Lending Client/Borrower // Tampa Growth LLC Location // 3801 Bayshore Boulevard, Tampa, FL 33611 Original Architecture Style // DT2; traditional Square Footage // 12,600 Original Year Built // 1994 Loan Amount // $3,600,000 LTV // 80% Interest Rate // 9.999% Length of Loan // 12 months Credit Score Considered? // Yes

AN OPPORTUNITY— AND A CHALLENGE What if a borrower approached you about purchasing an

expensive and exclusive property on the water in one of the hottest markets in the nation? They’ve done their research and

feel confident they can make a great profit if they can purchase this property below fair market value and line up a buyer. And

they believe the lender on the deal will benefit greatly too. Would you be prepared to be that lender?

Tampa Growth LLC experienced such an opportunity when they found a 12,000-square-foot home in Tampa on famous Bayshore Boulevard for $5 million, which was under market value.

The challenge? They needed to close quickly to make the deal happen.

WINTER 2023

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CASE STUDY

SOLUTION

days from appraisal to loan submission. No PPP was involved,

Tampa Growth pulled it off by finding a partner in Acra Lending.

Acra Lending was able to educate Tampa Growth about their

Acra not only could fund the transaction but also could structure the deal favorably and get the funds to Tampa Growth in time to

and terms included a minimum of four months interest only. guidelines and how to structure the deal. In this syndicated transaction, multiple LLCs were set up to assist as grantors, with

meet close of escrow (COE).

one entity holding the closing funds, assets, and liquidity.

Tampa Growth knew that locking the property down quickly in

The LLC established to hold the funds to close requested there

a rapidly changing market was critical to making the purchase at under fair market value, doing a quick flip to the buyer they had lined up, and turning a great profit. Tampa Growth just needed a few months after purchase to close with the new potential buyer, earning great potential in profit, and assisting the new buyer with

be limited liability to the grantors due to millions in assets, their experience in the business, and the millions in liquidity offsetting the layered risk. The request was granted with certain clauses.

OUTCOME

the purchase.

With Acra Lending as their partner, Tampa Growth was able to

All parties achieved their goals in profit and fees, and the

obtain a 12-month jumbo bridge loan that closed in 10 business

transaction was a success. ∞

18

PRIVATE LENDER

®

Amidst all of the changes in today’s market, one thing remains the same ...

CIVIC’s commitment to all of our valued partners.

We are operating as strong as ever and our ability to provide access to capital continues, uninterrupted.

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©2022 CIVIC Financial Services, LLC. All Rights Reserved. This is not a commitment to lend. All offers of credit are subject to approval.

Restrictions may apply. CIVIC Financial Services, LLC reserves the right to amend rates and guidelines. NMLS ID 1099109. Loans made or arranged pursuant to a California Finance Lenders Law License 603L321. AZ Mortgage Broker License 0928633. OR Mortgage Lending License ML-5282. CIVIC Financial Services, LLC is an Equal Housing Lender. See www.civicfs.com/Licensing.

(855) 972-7391 WINTER 2023 19 www.civicfs.com

FUND MANAGEMENT

STARTING MY FUND MANAGEMENT JOURNEY: RESEARCH, RESEARCH, RESEARCH Here's how one lender is navigating the daunting task of establishing a private money fund.

by Gregory Becker

20

PRIVATE LENDER

online education portal provides hours of informative educational material.

AAPL’s two fund manager certification courses helped us see the forest through all the trees.

In addition, AAPL’s annual conference offered a strong selection of educational opportunities designed to deal with all aspects and levels of private lending. On the final morning of the conference, AAPL hosted small private lender and fund manager roundtables. At the fund manager roundtable, we sat with experienced and respected participants—attorneys, accountants, fund managers, and brokers— in the private lending field who tackled a long list of important issues.

L

ast spring, I began meeting twice

a week with a longtime friend and colleague, Eric Saiki, to

pursue the establishment of a private mortgage fund. Saiki is a litigation

investments with strong returns that

cannot be realized elsewhere without more risk.

RESEARCHING THE ISSUES

attorney who represents businesses in a variety of matters.

Our initial goal was to identify issues. We

There is a process to managing a fund.

listened to private lending podcasts, found

responsible, organized, and trustworthy.

also spent a day at the Los Angeles Law

eventually a link in the chain will fail,

we reviewed vendor websites. We were

to the fund will be irreparable. Just

memorandums, which helped us under-

though; fund managers must nurture

The American Association of Private

Fund managers must be disciplined,

online articles, and watched webinars. We

If they lack any of these characteristics,

Library watching two legal seminars, and

mistakes will result, and the damage

even able to obtain private placement

having the characteristics isn’t enough

stand some of the subissues that exist.

them. Investors need to know their

managers are working hard to make safe

Lenders (AAPL) was without a doubt the major source for our research. Its broad

The practical responses we heard from participants gave us a good jolt of reality, punching holes in the idealistic vision our ivory tower research created. As we sat in the airport waiting to return home, we discussed the next steps. Our main areas of focus going forward would be legal, tax and accounting, technology, and marketing.

Let’s take a closer look at the four issues we agreed to focus on.

LEGAL CONSIDERATIONS: ENTITIES Establishing a private mortgage fund requires establishing two entities: One manages the private mortgage fund, and the second is for the private mortgage fund itself.

Management Entity. The management

entity is run by the manager(s), who manages investor capital retained inside the private mortgage fund. Managers WINTER 2023

21

FUND MANAGEMENT

deploy investor funds according to the terms of a subscription agreement. Inside the “four corners” of the agreement are the rules the managers must follow.

Failure to do so can lead to liability for the management entity.

It also oversees origination of loans, servicing of loans, regulatory filings, licensing, investor relationships, and distribution of profits.

Determining the structure of the management entity requires considering many variables that can vary from state to state, including taxation. Working with experienced lawyers and accountants helps with making the right choice.

Management compensation and investor return are two other major components to be decided. Some managers seek investors looking for a fixed return. In a “fixed” return fund, the investors receive an agreed-upon distribution. Any excess goes to the managers. This can be a very conservative approach for the investors, with envious returns to management.

In an effort to distribute the earnings more equitably, a “waterfall” approach can be used. This approach creates a “pecking” order in which distributions are allocated between managers and investors. This strategy often pays managers a small fee and prioritizes distributions to investors.

Excess profits are then paid out to both managers and investors pursuant to a formula that incentivizes the managers to maximize fund profits.

A third common way of structuring management compensation and investors’ returns is through a “split return” approach. Some argue this approach is the best for aligning the interests of 22

PRIVATE LENDER

management and investors. In general, expenses of administration are paid, and managers split the profits with investors.

of referral fees, receipt of referral fees from

It appears there is a move toward the split return approach to align interests better.

Investors are becoming savvier, which can lead to disputes or resentment. Because there are many variables that can lead to additional income or expenses, it is an area where the problems arise.

There are other variables as well, including

Some of the variables include the annual management fee, origination fees, payment

If fund managers are making two

loans that do not fit the box, loan servicing fees, or construction management fees.

who receives gains arising out of REOs,

whether payment is to be made to outside services from the profits versus payment by the fund managers, and whether

managers should receive the late payment fees or default interest.

points on origination and two points on

management fees, investors will not stay around if managers are taking revenue from other sources or reducing profits by running other expenses through the fund’s returns.

placement exemptions exist that allow

The Fund Itself: Private Mortgage

By analyzing and weighing the desired

Fund Entity. More complicated is the

structuring of the fund entity. It requires a legal team to help guide managers through the various exemptions to the Securities Act of 1933 since a mortgage fund is a security—a financial asset with value that can be traded or sold.

Generally, securities require expensive and time-consuming registration with the Securities and Exchange Commission.

For mortgage funds, however, private

faith and act in the best interests of the

these smaller securities to avoid the

person to whom they owe a duty.

costly filings. Three common exemptions

Investors should disclose all

mortgage funds use are Reg D Rule 506(b), Reg D Rule 506(c), and Reg A, Tier 2.

material facts that one would find useful in making a decision. The disclosure should be updated when

characteristics of the fund during the

material facts change or arise.

fund’s formation, managers can arrive at

Often, great deals arise the fund cannot

an exemption that best aligns with it.

Every decision made—or not made—sets off a chain reaction of other decisions.

Here are some private money fund characteristics to consider: E thics. Fund managers have a fiduciary

duty to investors; that is, they have an

obligation to exercise loyalty and good

handle. What does a fund manager do with that deal? Best practices suggest offering the deal to all investors and entering into a side agreement to disclose in writing the material aspects of the deal.

Conflicts of interest arise frequently, especially when fund managers

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FUND MANAGEMENT

remain, including whether to take in-state investors only as well as the issues that accompany taking out-ofstate investors or even offshore investors who are willing to take a smaller return.

Warehouse Line of Credit. These

LOCs are great for cash flow and help solve liquidity crunches. Short-term liquidity crunches are common while waiting for older loans to pay off. A line can provide capital to fund new loans while waiting for pay offs.

establish alternate funds that may

impact originations in their other funds.

Ethics is an area to take seriously.

When issues arise, and they will, a fund manager must be able to spot them.

Knowing the answer is not required.

Engage counsel who can advise the

proper course of action. Seeking counsel is money well spent, because many

shareholder suits against managers include causes of action for breach

of fiduciary duty, failure to disclose

material facts, and conflicts of interest.

O pen or Closed. Most funds are

“evergreen” funds; that is, they are

open-ended and can continually receive investor funds. Closed funds can be

good for liquidity because they pressure potential investors to make funding

decisions. Restrictions on withdrawal of said funds is another characteristic of

closed-end funds. However, open-ended

funds can accomplish a similar result by using lock-out provisions—with gates for early exit. If you start up a closed

fund, one day you may need to start up

a new fund that will require more time, money, and headaches.

24

PRIVATE LENDER

With open-ended funds, the private placement memorandum and financial disclosures must be updated annually. This may help avoid a claim for failure to disclose material facts arising out of changes that occurred during the prior year.

I nvestors. Investors can be accredited

or non-accredited. Accredited investors are “sophisticated” investors who meet certain net worth or income thresholds.

Verifications from accountants or attorneys regarding their accredited status can be relied upon in good faith.

When non-accredited investors are in involved, there are landmines to avoid.

Advertising to non-accredited investors is not permitted under Reg. 506(b), so managers should not meet someone at a cocktail party and discuss the fund. Doing so may be an inadvertent violation of securities laws.

Under Reg A, advertising to non-accredited investors is less restrictive, but the fund’s capital limits are also restrictive.

Beyond deciding whether to work with accredited versus non-accredited investors, other investor decisions

Warehouse lines can also be an effective tool to increase profitability through leverage. If a fund is paying 9% to investors but borrows part of the debt from a warehouse line at 6%, the cost of funds falls and profits inside the fund will rise.

There is a black cloud over warehouse lines. Terms can be very onerous and cause the fund to implode when economic downturns occur. Fortunately, many of the onerous provisions can be negotiated away. One such provision is “mark to market.” It allows a bank to revalue property and then call the loan based on debt-to-equity valuations that no longer adhere to the bank’s guidelines. Imagine a strong set of performing loans being revalued downward, requiring the fund to pay down the warehouse line.

Provisions in lines concerning delinquencies and aged loans are of concern as well. Negotiating the basis for calling delinquent and aged loans is prudent. To allow a bank to call such loans without specificity can lead to disaster.

The term of a line is another important feature often overlooked. It is risky to

establish a line that is good for one year when the loan term is 18 months.

unrelated debt financed income (UDFI) and it causes UBIT.

subjecting them to increased regulation

The same can be said for adjustable-rate lines that secure fixed-rate loans. In this instance, terms should be rewritten to prevent shocks in the market from turning a fund’s delta upside down.

Self-Directed IRAs generally defer income and capital gains tax on growth. No such privilege is afforded when it leverages using the money of others. Once a fund leverages through a warehouse line and the Self-Directed IRA generates growth or income, the investor may be required to pay taxes on the fraction of growth or income attributable to the leverage.

“Penguins,” or potential investors

Another area of concern is when large investors pull out and the fund is left with too many IRA investors. In this instance, a management team can be treated as plan administrators,

versus risk of getting into the water. If one

S elf-Directed IRAs. Self-Directed IRAs

are a popular source of fund capital.

Fund managers must be aware that Unrelated Business Income Tax (UBIT) applies to an IRA when it leverages its purchasing power with debt. If an IRA uses debt to buy an investment, then the income attributable to the debt is subject to UBIT. This income is referred to as

similar to that of financial advisors. approached for the limited purpose of

balancing the fund to meet regulatory

requirements, can be hired to help reduce

the percentage of Self‑Directed IRA invest-

ments in a fund. The fund generally hires a firm to find these investors. Like penguins, investors start lining up on the beach and talk to each other about the opportunity

penguin goes into the water, often all the

other penguins follow suit. There is a price for hiring “penguins” and potentially legal fees to make this workaround happen.

www.buchalter.com

WINTER 2023

25

FUND MANAGEMENT

An alternative to “penguins” is a SubREIT inside of the fund. This provision can be created at inception but not used. The provisions can be awakened at any time.

Classes. Classes can be created inside a fund. Treating founders better incentivizes a team of initial investors to jump-start the fund. Classes can also be drawn to accept various types of investments (e.g., first loans and riskier second loans).

Reserves. Reserves for possible

losses can be written into the agreement as well as liability clauses that limit management liability.

N on-Origination-Based Activities.

What about buying loans or selling loans to and from the fund? How about buying distressed properties, rehabilitating them, and f lipping them?

What are the various licensing issues for each of these activities?

U nderwriting Guidelines. Each

fund must estimate its tolerance for risk and weigh it against reward.

Revisions of this strategy should occur when changes to the market are on the horizon. Some investors want big rewards and seek out funds that are willing to invest in riskier investments, such as junior financing with higher combined loans to value.

One of the challenges here is when the market takes a wrong turn. No manager wants an investor suit filed against them even if they lent pursuant to the “four corners” of the agreement, complied with their underwriting guidelines, and reassessed regularly in keeping with the standard of care.

L oan Origination. Business-purpose 26

PRIVATE LENDER

loans for cash-out, bridging, fix-n-flip rehabilitation projects, construction, and debt service coverage ratio are the main vehicles. How will these vehicles be sold?

Will there be only a retail component to origination? How about a wholesale division? If so, will the wholesale division seek licensed or even unlicensed brokers to originator loans? Establishing correspondent lenders is also an option.

L icensing. Licensing rules vary from state to state. Some of the areas that fall underneath the licensing umbrella include origination, loan servicing, and buying and selling loans.

In California, licenses from multiple entities may be required. Because entities have different rules and often overlap, managers run the risk of complying with one department’s guidelines while violating the others.

During formation, consideration must be given to whether (1) the management entity and/or the fund will

be required to be licensed with either or both departments, (2) lending with out‑of‑state investors will take place, (3) there will be any licensing issues outside of California, and (4) reporting will occur in or out of state.

L iability. There are ways to limit fund

manager liability. During formation experienced securities counsel use various techniques to protect managers.

Here an ounce of prevention is worth a pound of cure.

TAXATION Initially, we wanted to find a fund structure that would permit us to avoid audited financial returns. However, now we won’t move forward without them. Audited financials help build the credibility of the fund. Investors like to know they will be done and appreciate reviewing the audit results. For funds that use warehouse lines, the audited

financials are the cornerstone for a strong relationship with warehouse lenders.

Yes, audited financials can be expensive; however, using a fund administrator who can handle the back end of running the fund can reduce audit costs.

Audited financials in the private lending world are most efficiently performed by auditors with experience with private lenders. As such, selecting an accountant who can work with the securities lawyers and even fund administrators is a crucial part of fund formation.

Identifying tax issues early is a prerequisite to efficiently launching a fund.

Each state has different income tax laws.

There are also tax credits available to some and not others. Identifying these issues early helps managers formulate strategy for taking on investors.

TECHNOLOGY Software can be helpful with client relationship management, origination of loans, post-close management of loans, and investor relationship management.

There are many vendors in these spaces, and the fund manager’s job is to align its goals with the vendors’ technology.

With today’s software, an originator can completely set up the borrower’s experience in a few minutes. Loan applications and disclosures are created and emailed, a portal for uploading necessary documents is created, and e-signing is established to maintain compliance. The result is an efficient onboarding of borrowers and a shifting of processing burdens.

A byproduct of creating the friendly borrower experience is extrication of the management and origination team(s) from tasks that distract them from bringing in new deals and keeping investors happy.

Also important is post-close software, which includes servicing, financial reporting, and investor interface. For those resigned to hiring a fund administrator, post-close software may be less important and lead them to pursue providers whose platform is stronger in the origination sector. For those that like to do it themselves, the postclose software can function as a backroom billing and accounting department that can monitor every aspect of a loan and make virtually any report available to investors and tax advisors.

Those that make client relationship management a big part of their daily operations should look for a standalone CRM. For others, CRMs imbedded in some private lending software provider’s platforms can be used to manage client relationships.

establish white label arrangements at various wholesale lenders so business is conducted on a parallel path with properly forming the fund.

As part of our efforts, we intend to contact several of the participants at AAPL’s broker roundtable to discuss some of the finer points of the successes and failures they relayed to us at the conference. We will also seek referrals to various lenders who have exhibited mentorship qualities in the past. Through these contacts, we hope to create a focus that will help us hit the ground running. ∞

ABOUT THE AUTHOR

MARKETING Marketing includes the origination of loans. It also includes bringing in investors. During the fund formation process, the strategy for marketing becomes a condition subsequent to the fund formation itself.

Once all the formation issues are decided upon, a strategy can be implemented.

What we know now is that it will include a CRM, and our investors will be handled with velvet gloves.

GREGORY BECKER Gregory Becker is a wills and trusts

lawyer as well as a mortgage broker with an office in Redondo Beach, California.

With more than 20 years' experience in these areas, Becker is looking to start

a PLF and researching various private lending associations.

As a law school student, he wrote

for the school newspaper and now publishes a monthly article in his current city's local magazine.

In the meantime, I will continue to broker loans, fractionalize notes, and WINTER 2023

27

MARKET TRENDS

Capital Market Movements Do Impact Private Lenders Who Don't Use Wall Street Money The term “capital markets” is broad—so is its reach and impact.

by Ben Fertig

I

n private lending circles,

As a function of price, there is usually

defined, at least implicitly, as the

rate. This is based on historical data and

“capital markets” are often

sources of institutional capital. Although often associated with fixed-income

markets such as debt security or bonds,

capital could also be derived from other

institutional sources, including insurance companies, larger REITs, or even banks.

If one were to look at private lending through a rudimentary lens, it could

be broken down into two primary asset classes: Debt Service Coverage Rental Loans (DSCR Loans) and Residential

Transitional Loan (RTLs). Of course, there are many variations of both.

DEBT SERVICE COVERAGE RATIO LOANS

some correlation to the 5-year Treasury current assumptions that the weighted life

loans is fairly straightforward and direct.

28

PRIVATE LENDER

a borrower’s valuation calculus could change and its potential impact on loan performance. Consider the following three

of DSCR loans is close to five years.

factors:

The spread between the 5-year Treasury

01 Single-family rents have increased

rate and offered DSCR rates depends on several factors, including the specific capital source, investors’ risk assumptions, market supply and demand, overall liquidity, and even sentiment. For most of 2022, rising interest rates have not only put pressure on DCSR pricing directly, but also adversely impacted the liquidity landscape and investor sentiment—it is all interrelated.

Investors and aggregators do not want to own DSCR loans at 7.5% rates if they assume the market price is going to be 8% next month, because the value of the

The capital markets’ impact on DSCR

space, there is uncertainty around how

loan will go down. Further, although there is ample performance data in the DSCR

approximately 10%-15% year over year.

02 R eal wages (increase in wages less inflation) have decreased 2.3% year over year (10/2021 to 10/2022).

03 Payments on DSCR loans have increased more than 125%.

Given the relativity of markets, the lack of precedent data or information related to the third factor has increased the risk premium over the 5-year Treasury Rate required by many investors of DSCR loans. Combined with higher carrying costs of aggregation facilities, it is not difficult to rationalize the sharp upward trajectory of DSCR rates.

Whether you are a large or small originator, broker of DSCR loans, or a borrower, your correlation to these forces is direct and fairly obvious. Higher rates have a macro-level impact on borrower demand. They also put pressure on eligibility, because higher payments cause

have not been able to keep up. This has forced industry participants that fund DSCR loans to reprice before closing,

which causes reputational damage, or to

take a secondary market loss. If a company chooses the latter, there is only so much you can take before economics do not

a smaller percentage of properties to cash

justify this kind of risk.

flow, which is a primary qualifying factor

The best plan is to diversify your

in a DSCR Loan. A general tightening of credit in the asset class will also impact overall eligibility criteria.

At the very least, if you have built any infrastructure to facilitate the origination of these loans or have taken on a recurring cost load to originate them, capital markets forces will require you to adjust. If

sources of capital or find partners that are diversified. Although

this will not eradicate the impact of capital market forces, it can

mitigate some of the volatility.

RESIDENTIAL TRANSITIONAL LOANS (RTLs)

you actually fund DSCR Loans with your balance sheet, your risk is heightened.

As we have witnessed historical volatility in DSCR prices, even intraday, pipeline movement, and secondary market delivery

In the last 10 years, the progressive

integration of institutional capital into the RTL market has been a primary

contributor to the market’s exponential

growth. Equally (or even more) impressive, have been those companies, funds, and individuals who have capitalized their businesses with non-institutional sources.

Their resilience, savvy, and ability to endure even the most difficult market conditions is admirable (March 2020 notwithstanding, when most participants reliant on institutional capital experienced a disruption).

Although non-institutional funds may not be particularly appropriate for funding a 30-year single-digit coupon loan in today’s market environment, they have been proven extremely effective for RTLs. The non-institutional capital is diverse in its own right, and many of the platforms that deploy it are well managed, often by exceptional principals. These platforms thrive on flexibility, speed, and targeted market knowledge to provide reliability and quality service to their borrower bases. It is no wonder they have WINTER 2023

29

MARKET TRENDS

maintained impressive market share, even at times when institutionally sourced lenders offered very low price levels to the RTL market.

Overall, the cost of institutional RTL capital has increased dramatically during the last 120 days (as of this writing). RTL capital is correlated to the shorter end of the treasury curve.

The rise in the 2- and 3-year Treasury rates has contributed to the upward move in RTL interest rates. When you add to that several RTL securitizations from strong sponsors hitting the market at unattractive levels of execution and aggregators of RTL adjusting their risk assumptions related to the direction of the real estate market in general, you can see why institutional rates have been under pressure. Beyond that, RTL credit conditions have tightened, and maximum loan-to-cost and loan‑to‑value levels have come in in many cases.

When a company’s source of capital is insulated (even somewhat) from the aforementioned market dynamics, the long arm of the capital markets may create opportunity. Privately funded platforms generally win with the RTL borrower based on flexibility, speed, and other knowledge—local or otherwise—that institutional-based providers have difficulty folding into the origination process. The great equalizer has historically been price, but that advantage could be diluted or negated altogether in the current market conditions.

There is a flip side though. Unless you are one of the few who lends to own, a successful RTL requires the borrower to effectuate a liquidity event to satisfy their 30

PRIVATE LENDER

obligation in full. When that does not happen, we all know what does—legal fees, loss of interest income, potential losses, and other risk factors associated with an unsuccessful transaction.

When it comes to many of today’s RTL portfolios, approximately 30%-40% of loan liquidations are the result of a refinance into some variation of longerterm credit, such as a DSCR loan. In the last 12 months, DSCR rates have more than doubled. As discussed, the impact on eligibility, feasibility, or desirability of a refinance could be demonstrably different from when an RTL loan was originated.

Although your mileage may vary relative to how your book exits, the capital markets still have an influence.

wide range and variety of capital sources in private lending markets. The arm is long, and its influence can be both positive and negative. Either way, recognize, understand, and appreciate its reach. ∞

ABOUT THE AUTHOR

To reiterate, the capital markets are broad.

They also encapsulate the conventional owner-occupied mortgage rate, which has more than doubled since the beginning of 2022. It comes back to the impact on the valuation calculus. In this case, it would be the property’s end user. Whether that end user is a prospective homeowner or landlord, the current cost of financing changes the lens a purchaser looks through, in general and from the time the RTL was originated.

BEN FERTIG

The risk profiles have changed, and that impacts non-institutional capital directly and indirectly, even if the impact is not the cost of funds. You should anticipate the effect on performance, default costs, and the durations (how does it impact when money cycles back in compared to before) of RTL loans as the demand curve has shifted in concert with the rate landscape.

in the sale of the Jordan Capital

These simple dynamics just scratch the surface of how capital markets impact the

Ben Fertig is the president of

Constructive Capital. Constructive

originates, services, and securitizes single-asset rental loans and

originates, services, and asset manages Residential Transitional Loans.

Prior to Constructive, Fertig ran credit and asset management at Finance

of America Commercial and served as chief operator officer of Jordan

Capital Finance, where he managed

originations, credit policy, and capital markets. Fertig was instrumental Finance platform to Blackstone

and Finance of America in 2017.

Fertig began his mortgage banking career more than 25 years ago and has served in a senior leadership role in the Residential Investor Loan market since 2012.

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MARKET TRENDS

What a Market Downturn Means for Real Estate Investing in 2023 As the housing market transitions, here’s what real estate investors can expect—and how they can adjust.

by Daren Blomquist

32

PRIVATE LENDER

According to Heller, investors preparing to take advantage of that opportunity should do three things in advance of the downturn: I dentify one or two acquisition

strategies to focus on.

I dentify funding sources.

I dentify both preferred and backup exit strategies.

“Right now, they should be identifying an acquisition method such as REOs or short sales or buying on the courthouse steps,” said Heller, whose preferred acquisition source during downturns is real estate owned by the bank (REO). “Identify a source and get good at it. … Don’t be a jack of all trades, be a master of one or two.”

WHERE’S THE INVENTORY?

Annual Change in Sales Existing

Annual Change in Sales New

Months Supply Existing

Months Supply New

60%

12.0

50%

30%

8.0

20% 10%

6.0

0% 4.0

-10% -20%

2.0

Sep-22

Jul-22

May-22

Jan-22

Mar-22

Nov-21

Jul-21

Sep-21

May-21

Jan-21

Mar-21

Nov-20

Jul-20

Sep-20

Mar-20

May-20

Jan-20

Nov-19

Jul-19

Sep-19

-40

May-19

-30% 0.0

Sources: NAR, U.S. Census

gradually rising and will likely increase

further in early 2023 as a growing number of would-be sellers will no longer be able to put off listing their homes for sale.

Data from the National Association of

Realtors (NAR) shows how this dynamic is

playing out. Weakening demand is evident in slowing home sales, which were down 24% year-over-year in September on an

annualized basis—the ninth consecutive month with a year-over-year decrease

and the fourth consecutive month with a double-digit decrease.

As demand weakens, inventory of homes for sale is gradually rising and home

price appreciation is quickly slowing. The NAR data shows a 3.2-month supply of

inventory in September, unchanged from the previous two months but up from

With housing demand dwindling in the face of surging mortgage rates, the inventory of homes available for sale is

Months Supply of Inventory for Sale

10.0

40%

Jan-19

“When there are speed bumps, there are typically opportunities for investors who are ready to act,” said Andy Heller, a veteran real estate investor and founder of the Regular Riches training program for real estate investors. “A potentially generational opportunity for investors to buy property below market. Those opportunities typically last one to four years.”

DOWNSHIF TING HOUSING MARKET

Mar-19

be profitable in any market, but successful investing strategies often vary widely depending on broader market conditions. As the housing market transitions quickly from frenzy to f latline, here’s what real estate investors can expect and how they can adjust accordingly.

Annual Change in Sales

R

eal estate investing can

a 2.4-month supply in September 2021.

Median home prices were up 8.4% from

a year ago in September, but that pace of

appreciation is nearly half of the 16.2% pace just six months ago, in March 2022, and it is one-third of the 25.2% pace at the peak of the pandemic market in May 2021.

A more dramatic rise in housing inventory is showing up in the new homes market.

There were 462,000 new homes for sale in September 2022, up 23% from a year earlier, according to data from the Census Bureau. September was the 16th consecutive month with an increase.

Meanwhile, the inventory of distressed properties, which represent prime valueadd acquisition opportunities for investors, has been gradually increasing in 2022 and is poised to increase even further in 2022.

The volume of properties brought to foreclosure auction in second-quarter 2022 increased to a new pandemic high, up 55% from foreclosure moratorium-suppressed volumes a year earlier, according to proprietary data from the Auction.com WINTER 2023

33

MARKET TRENDS

PREDICTING COMPLETED FORECLOSURES WITH FORECLOSURE STARTS Foreclosure Starts (Actual)

Completed Foreclosures (Actual)

Completed Foreclosures (Predicted) 350,000

600,000

300,000

500,000

Foreclosure Starts

200,000 300,000 150,000 200,000

100,000

100,000

Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Q3 2017 Q1 2018 Q3 2018 Q1 2019 Q3 2019 Q1 2020 Q3 2020 Q1 2021 Q3 2021 Q1 2022 Q3 2022 Q1 2023 Q3 2023

0

50,000

0

Completed Foreclosures

250,000

400,000

platform. Even with the increase, secondquarter foreclosure volumes were still 50% below the pre-pandemic levels of 2019.

Foreclosure auction volume plateaued in the third quarter, but foreclosure start data indicates more increases are coming in 2023 and beyond. More than 67,000 properties started the foreclosure process in thirdquarter 2022, up 167% from a year ago, according to ATTOM Data Solutions. The third quarter marked the third consecutive quarter in which foreclosure starts were up by triple-digit percentages from a year ago.

An Auction.com historical regression analysis of the relationship between foreclosure starts and completed foreclosure auctions indicates the

Sources: ATTOM Data Solutions, Auction.com

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34

PRIVATE LENDER

“It’s harder to find the properties. You just have to search more. But there is a lot of money to be made.”

foreclosure starts in the first three quarters of 2022 should produce about 137,000 completed foreclosure auctions in the first three quarters of 2023. That would be more than double the volume in the first three quarters of 2022, although it’s likely the actual increase will be lower, given continued aggressive foreclosure prevention efforts.

DEEPER DISCOUNTS One California-based real estate investor said many distressed property sellers have yet to adjust pricing to match with the market, but he expects more to do so by early 2023.

More distressed inventory will likely translate into more discounted acquisition opportunities and deeper discounts, especially in an environment where home prices are falling. In that environment, distressed property sellers—and other sellers—will need to adjust their pricing expectations lower to avoid the danger of catching a falling knife by holding out for the higher, but outdated, price point.

“In 90 days or so, it could be a lot better if banks come to their senses on pricing,” he said, adding that he was still “buying heavy” in late 2022 thanks to enough distressed property sellers who have already adjusted

REBOUNDING FORECLOSURE DISCOUNTS Avg Discount Below As-Is Property Value (No Interior Interior Inspection) Avg Sales Price at Foreclosure Auction 30%

$200,000

25%

15%

$100,000 $80,000

10%

$60,000 $40,000

5%

Source: Auction.com

2022 :Q3

2022 :Q2

2021 :Q4

2022 :Q1

2021 :Q3

2021 :Q2

2021 :Q1

2020 :Q4

2020 :Q3

2020 :Q2

2020 :Q1

2019 :Q4

2019 :Q3

2019 :Q2

2019 :Q1

2018 :Q4

2018 :Q3

2018 :Q2

2018 :Q1

2017 :Q4

2017 :Q3

2017 :Q2

2017 :Q1

2016 :Q4

2016 :Q3

2016 :Q2

2016 :Q1

2015 :Q4

2015 :Q3

$0

2015 :Q2

$20,000 0%

Average Discount

20%

$120,000

2015 :Q1

Average Sales Price

$140,000

Proprietary data from Auction.com shows many distressed property buyers are pursuing deeper discounts as the market turns. In the third quarter, buyers at foreclosure auction purchased for an average discount of 23% below estimated “as-is” property value, up from an average discount of 15% in the previous quarter and more than double the pandemic low of a 9% discount in the first quarter of 2021.

These distressed property buyers are, in effect, hedging against a possible home price correction in many markets.

$180,000 $160,000

pricing to align with the downshifting market. “It’s harder to find the properties.

You just have to search more. But there is a lot of money to be made.”

“I think Boise will get whalloped. I think Maricopa County will get whalloped. I think Florida will get whalloped,” said Tomasi. “Central and South Florida are just overpriced.”

Atlanta-based investor Jared Garfield doesn’t think the middle-America markets where he buys are as likely to experience a home price correction because they didn’t experience a massive run-up in home prices during the pandemic. Those WINTER 2023

35

MARKET TRENDS

WHERE FORECLOSURE BUYERS ARE HEDGING AGAINS T HOME PRICE CORREC TION -23%

Three-Year Change in Average Foreclosure Purchase Discounts

23%

are markets like South Bend, Indiana; Montgomery Alabama; and the Quad Cities in Iowa and Illinois.

“Some of the markets that have gone up 25% a year for five years—of course, there’s room for a correction,” said Garfield, who also helps run Housefolios, a real estate investing software designed to help investors identify good deals. “(But) the news for Salt Lake City for real estate is not the same as for Davenport, Iowa.”

Garfield said an increasing number of his deals are coming from other investors who are skittish about the possibility of a home price correction or crash.

Six-Month Change in Foreclosure Auction 200% -61% 300% Auction 0% Six-Month Change in Foreclosure 370% 100% 200% -61% 300% 0% © 2022 Mapbox © OpenStreetMap 370% 100%

“I’m finding a lot of investors that are selling properties right now because they

© 2022 Mapbox © OpenStreetMap

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PRIVATE LENDER

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@stormfieldcapitalfunding

“I’m finding a lot of investors that are selling properties right now because they are anticipating a crash and they want to be liquid." are anticipating a crash and they want to be liquid,” he said, providing as an example a duplex he recently purchased in the Quad Cities for $64,000, 26% below its original listing price of $99,000. “They’ll still sell it at decent discounts because they have had so much appreciation. … They might give up 10, 15, or 20% of their equity on a deal.”

“I’m increasing my purchases. We’ve done 35 deals in the last two months that we have bought to renovate,” said Garfield, who primarily renovates and resells turnkey rentals to other investors. “We’re buying every deal that makes sense.”

MITIGATING RISK Tampa, Florida-based investor Lee Kearney is employing a more cautious strategy given both his market, which is at more risk for a price correction, and his primary investing strategy—selling renovated homes to owner-occupant buyers.

“We’re just trying to move inventory quickly,” said Kearney, who has invested

during multiple down cycles in the housing market. “If it’s not moving, change the pricing so it does move. These are market-based decisions."

“We try to buy properties at a price where it doesn’t matter what the market does,” Kearney added. “I don’t see any rise in prices in the next couple of years. I see prices continuing to decline with this current environment.”

Kearney’s strategy reflects both sides of the double-edged sword that is real estate investing during a market downturn, according to Heller.

“Clearly, if the economy is softening, there will be plenty of opportunities to acquire properties below market,” he said. “The problem is on the back end, what you’re going to do with the property after you buy it. Many investors don’t think about that, and that is greatly impacted in a downturn.”

Heller’s exit strategy of choice during a downturn is leasing properties with an option to purchase. That allows him to receive rental income from the property in the short-term

and realize a greater equity gain by selling down the road in three to five years after the market has started to rebound.

“You’re not going to have to sell the property at a severe discount as you would have to if you sold the property quickly in a severely depressed market,” he said. “If you’re buying in a down cycle and you’re not utilizing a lease purchase, then you’re leaving money on the table.” ∞

ABOUT THE AUTHOR

DAREN BLOMQUIST Daren Blomquist is vice president of

market economics at Auction.com. In this role, Blomquist analyzes and forecasts complex macro and microeconomic

data trends within the marketplace and

greater industry to provide value to both buyers and sellers using the Auction. com platform.

Blomquist’s reports and analysis have been cited by thousands of media

outlets nationwide, including all the major news networks and leading

publications such as The Wall Street

Journal, The New York Times, and USA

TODAY. He has been quoted in hundreds of national and local publications and

has appeared on many national network broadcasts, including CBS, ABC, CNN, CNBC, FOX Business, and Bloomberg.

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2022 Conference Recap

13TH ANNUAL CONFERENCE HIGHLIGHTS E

ach year, the American Association of Private

Lenders hosts the industry’s largest conference,

lauded for its second-to-none “culture of collaboration”

3 D AY S

25+ SESSIONS & AC TIVITIES

700+ AT T E N D E E S

and ability to draw decisionmakers-all while covering

key subjects impacting the profession both today and in the future.

But don’t just take our word for it. On the following pages, check out conference stats, photos, and testimonials.

65+ SPONSORS

8,043 A PP CONNEC TIONS M A DE 38

PRIVATE LENDER

O u r A n n u a l C o n f e r e n ce i s l a u d e d by t h e i n d u s t r y ’s W h o’s W h o a s t h e s i n gl e b e s t eve n t f o r p r i v a te l e n d e r e d u c a t io n , n e t wo r k i n g , a n d v a l u e. Rea d w h a t l ea d e r s f r o m a c r o s s t h e s p a ce h a d to s ay a b o u t o u r 2022 eve n t .

ROC Capital has been attending the AAPL conference since 2014, and it has been an integral part of our growth story. This is the

one annual event that no industry participant dare miss out on. It is jam-packed with events, content, and networking opportuni-

ties and choreographed by experts who live and breathe private E R I C A B R A M OV I C H ROC Capital

lending.

—Eric Abramovich, ROC Capital

AAPL has consistently been a great conference for networking and meeting with our industry partners. This year, in particular, I found the main sessions and several panel discussions to be interesting.

They provided great content with new, relevant information. Particularly good was the keynote from Ali Wolf, chief economist at Zonda.

RO B E R T G R E E N B E RG Patch Lending

What a great presentation!

—Robert Greenberg, Patch Lending

G .O.A.T. Champion's belt for AAPL's inaugural Charity Poker Tournament, brought to the 13th Annual

Conference with the support of Appraisal Nation.

This conference was the best of all the AAPL conferences I have attended. In the past, it has been great for networking and touching base with friends and providers in the private lending space. This was the first year I attended when there was

distress and instability in the capital markets. The presenters were excellent in discussing the situation and giving guidance for strategies for success and traps to avoid. I got invaluable information in real time that helped me establish a go-forward

strategy for Rehab Financial Group that safeguards the company but also provides growth opportunities within this market.

SUSAN NAFTULIN

—Susan Naftulin, Rehab Financial Group

Rehab Financial Group

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39

2022 Conference Recap

The AAPL conference is an annual highlight for me. It is a great place to connect with

industry leaders and keep up with trends affecting our space.

—John Beacham, Toorak Capital J O H N B E AC H A M Toorak Capital

V endors brought their A-game to the exhibit hall this year with gold,

espresso bars, giveaways, and more.

C amee Adams, professional MMA fighter, posing during the 2nd Annual Women in Private Lending Luncheon.

We sent a huge team to the AAPL con-

ference, and we’re so glad we did. The

networking was nonstop, the content was

incredibly informative, the industry intel was in-depth and insightful, and to top it all off, the parties were off the charts. Absolutely AJ POULIN

The Mor tgage Of fice

amazing event.

—AJ Poulin, The Mortgage Office

C amee Adams, professional MMA fighter, speaking during the 2nd Annual Women in Private Lending Luncheon.

40

PRIVATE LENDER

AAPL's annual conference is one of my favorite industry events, and I

have not missed a single one since 2013. The conference gets bigger and better every year and continually attracts new attendees that I

haven't met at other events. Many lenders and brokers have told me it's the only private lending conference they attend.

RO C K Y B U TA N I

—Rocky Butani, Private Lender Link

Private Lender Link

P layers stategizing their next move

during the Charity Poker Tournament.

A li Wolf, chief economist for Zonda, gave a riveting

O ur title sponsor, Residential Capital Partners, taking a brief

market analysis during her keynote presentation.

moment away from their crowded booth for a photo op.

The AAPL conference brings together the top leaders within the lending community, giving attendees access to key playmakers they may not have otherwise had the opportunity to connect with. With a variety

of daily activities apart from the conference itself, everyone is sure to

find an event for them to take advantage of additional networking and

business development. Integrating professional development through ALESONDR A MOR A Streamline Funding

T he VIP Reception on the OMNIA

certification training as well as supporting groups such as Women in

Private Lending is a testament to how this organization is uplifting the members of our industry as a whole!

—Alesondra Mora, Streamline Funding

Terrace set the stage for a busy, networking-packed event.

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2022 Conference Recap: Award Recipients As champions for the private lending industry’s reputation and future growth, AAPL realizes it’s crucial to recognize those in the industry who look beyond their own businesses to help our mission.

Our Excellence Awards showcase peer-nominated members who have leveraged their resources to solve problems, kick-start innovation, and improve their communities.

The Member of the Year and Rising Star awardees are determined by popular vote, and Community Impact nominees are evaluated by AAPL. Read on for our 2022 Excellence Award recipients!

Rising Star

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

J A C K H E L F R I C H // CIVIC Financial Services

Jack Helfrich’s star has been rising since he launched his career as one of the five original founders of CIVIC eight years ago. Starting as an account executive, through grit and determination, he learned the business and earned the trust and respect of his customers, peers, and industry colleagues.

Today, as senior vice president of retail lending, Helfrich is a key member of the team that has built CIVIC into one of the premier private lenders in the nation. To say that he cares about his team, his customers, and the private lending industry is an understatement. Helfrich is the human equivalent of a golden retriever—loyal, kind, and lots of fun, creating a contagiously positive impact wherever he goes. There’s just no stopping this rising star!

—Elizabeth Hillestad, Civic Financial Services

W h at h e l f r i c h h a d to s ay a b o u t b e i n g o u r 2 0 2 2 r i s i n g s t a r:

Winning the Rising Star Award was an honor, especially from such a reputable organization as AAPL. Their presence within the industry is undeniable. AAPL’s support for lenders, borrowers, brokers, and all other private lending service providers is unparalleled. AAPL has been a major contributor to legitimizing and commercializing the real estate finance microcosm of private lending. As an industry, we would not be where we are today without their service. Receiving the Rising Star award from AAPL was certainly a highlight of my career and a privilege I will remember forever.”

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PRIVATE LENDER

Member of the Year

The Member of the Year award goes to an AAPL member for their deep expertise, unique value, and strong commitment to clients and growing the industry.

C A R R I E C O O K // Ignite Funding

As the president of Ignite Funding for the past 15 years, Carrie Cook has led the company to be one of the most reliable private lenders in the western U.S. and an investment sponsor private investors can depend on for portfolio diversification, growth, and mitigated risk.

Ignite Funding embodies Cook’s philosophy that everything should be

W h at C o o k h a d to s ay a b o u t b e i n g o u r 2 0 2 2 M e m b e r o f t h e Ye a r:

handled in-house. This is how Ignite Funding has never missed a funding deadline, providing borrowers with the timely financing they need to be

It is an honor to be recognized by professionals in our industry and the employees that support

successful in a competitive industry.

my leadership.

It’s also the reason Ignite Funding

Working in the private lending industry, it is rarely discussed the impact we make in society.

services each loan from cradle to grave, so investors know they are working with an organization that stands behind their investment, not for the fees Ignite Funding earns, but for the integrity they

In the last 10 years, Ignite Funding only has funded $1.5 billion into the infrastructure in the Southwest. Our financing has created thousands of jobs, built thousands of homes, created countless amounts of commercial space, and taken private companies to become public companies. All this happened while paying investors $150 million in income.

gain from investors.

As a leader, I am only as good as the people around me. My ’tough but fair’ leadership trait

—Stephanie Fryar, Ignite Funding

industry is probably not for you.

pushes people to believe that more is possible. If you cannot take it, then the private lending I am honored to receive the Member of Year Award from AAPL. Ignite Funding will continue to make you proud!”

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2022 Conference Recap: Award Recipients Community Impact

The Community Impact award honors dedicated and innovative professionals and their commitment to bettering their local and/or private lending communities through volunteering, community development programs, or civic/legislative efforts.

A L E X A N D R I A B R E S H E A R S // Lend2Live

During the pandemic Breshears started a Facebook group for private lenders, now numbering 7,000+ members. She has done this through her leadership, providing education via live trainings with industry experts covering legal, software, social media, and operations. The sense of community she has created allows for an exchange of best practices that focuses on inclusiveness, regardless of experience level. The mix of knowledge levels prompts an ongoing inspiring environment.

Alex is now a published author on the topic of private lending. “Lend to Live” and its CPR lending system teaches the reader how to manage each step of the loan cycle from beginning to end.

Alex’s leadership and ability to create community in a fragmented industry has brought more people into the industry and taught them to lend the right way. At the same time, she’s helping experienced lenders gain a new perspective about operations, marketing, and legal topics.

—Mike Seidl, Cedar Oak REI

W h at B r e s h e a r s h a d to s ay a b o u t b e i n g a 2 0 2 2 Community Impact Awa r d r e c i p i e n t :

This was such an honor to win this award. We got stuck in terrible traffic going to the event that morning, so when I missed it, I literally broke down. I really cannot express how much this means to me.

I was honored just to be nominated, but to win the award was mind blowing. I started this journey just wanting to talk to other private lenders and didn’t know where to turn at the time. Over the course of the past few years, I grew in knowledge and network, and AAPL was a huge part of that journey for me. When the opportunity came up to help others learn more about the beginning of their private lending journey, I knew this could be something life-changing for so many people and get more lenders into a community that would help educate, empower, and provide that feedback I wish I had all those years ago. I look forward to being an active member of the lending community with education and advocacy as a central focus. Thank you for the support from within the lending community!”

J E F F R E Y T E S C H // RCN Capital

The entire RCN Capital Team, led by Jeffrey Tesch, takes pride in giving back to their local communities. RCN Capital has provided tremendous support to their local Children's Hospital by sponsoring the hospital's Superhero Day with CT Children’s and supporting their Amazon wish list by hosting companywide toy drives. It is inspiring to watch their company give back to their communities, both in Connecticut and in their satellite office communities through food drives, back-to-school supply collections, and more.

—– Erica Sikoski, Bridge Loan Network

W h at Te s c h h a d to s ay about being a 2022 Community Impact Awa r d r e c i p i e n t :

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PRIVATE LENDER

RCN Capital takes tremendous pride in the charitable initiatives we engage in to give back to local communities throughout the U.S. So, receiving the Community Impact Award at AAPL this year was humbling as it affirmed our efforts are being recognized and are making a notable impact."

PRO

WINTER 2023

45

STR ATEGY

Beyond Capital: Lenders Can Help Investors By Providing Expertise Working with your borrowers to help them understand which home improvements are known to pay off can lead to more successful investments and loyal, partner-focused clients.

by John Santilli

W

hether a new-to-the-scene landlord or a seasoned

fix-and-flipper, a real estate

demonstrates the lender's commitment and willingness to be a partner.

loan investor will likely want to make improvements to any recently purchased property to increase its potential income.

For lenders, this presents an opportunity: Guiding investors through this oftenfraught decision-making process can be the difference between a successful and a failed investment.

ENCOURAGING THE RIGHT IMPROVEMENTS

Yes, it takes time and effort for lenders to educate themselves about the current state of any given market and to consult with their customers about the best way to position property to achieve their investment goals, but that is the best way to work toward a profitable venture.

Identifying home improvements that will deliver value are vital. Helping a customer succeed is time and energy well spent and

will always matter, so improving the

46

PRIVATE LENDER

It is essential to make home improvements that are generally known to pay off, no matter local market conditions.

Exterior Improvements. Curb appeal

exterior to catch homebuyers’ attention

is an effort worth pursuing. Curb appeal improvements alone can add up to 7% of

the home price, says a Sept. 6, 2019, study published in the Journal of Real Estate

Economics and Finance. Improvements that impact curb appeal include siding

or stone veneers, fresh paint, windows, shutters, doors, garage doors as well as

minor features such as address numbers, mailboxes, and outdoor lighting. A February 4, 2022, article in HomeLight notes that paint can add 152% ROI to home value, and a new garage door can add up to 133% more. Be sure landscaping—lawn maintenance, walkways, mulching, and tree care—is neat, clean, and welcoming.

Interior Improvements. When it comes

to interior upgrades, start with kitchens and bathrooms, which consistently increase a home's value. These are places where people need the most comfort.

For example, consider updating floors, countertops, fixtures for cosmetic improvement, and appliances for energy efficiency. Think replacement and upgrades and not a full remodel, which can be much more costly and might not offer the same return on investment. On the more extensive side of renovation,

items like a double sink vanity can be desirable for busy families. A kitchen

pantry or island that adds cabinet storage are some of the most highly-ranked items on buyers' wish lists.

Beyond core home improvements, buyers and renters look for secondary upgrades that change based on current popular

trends. Understanding these emerging

home improvement trends will also help

the Remodeling Industry (NARI), five key projects that add the most dollar value to a sale based on recent trends are refinishing hardwood floors, installing new wood floors, upgrading insulation, converting a basement into a living area, and renovating closets.

HOW MUCH IMPROVEMENT IS TOO MUCH?

project. According to a joint 2022 report by the National Association of Realtors (NAR) and the National Association of

than the sale price.

For example, even if the investor target price for sale is $300,000, often a

property gets appraised for $250,000

simply because the appraiser's opinion

was based on data from other properties

on the same street. If all the other homes in that subdivision sold for $250,000, the appraiser is unlikely to return a

valuation of $300,000. But if the right

investors identify how best to provide

additional value when completing a rehab

that appraised value is a different outcome

This is a more challenging question whose answer will be specific to the property and market. When evaluating ROI for improvements, it is crucial to recognize

improvements are made, that property may sell for $260,000 or $270,000

because of the improvements. The more likely scenario is that it will still sell in WINTER 2023

47

STR ATEGY

the neighborhood of $250,000 but will attract more traffic and likely sell faster than properties in the same area with fewer improvements. In other words, while cosmetic changes may not impact the property's appraised value, cosmetic changes will attract the right homebuyers more quickly.

Some costly renovations will not translate to increased home value and may not attract buyers. For example, investors may be wise to hold off on replacing a roof unless it's damaged—it's too costly to undertake for cosmetic reasons.

For the most part, investors can get away with making minor improvements to settle the house for the average value. Nevertheless, it is essential to spend money in the right places if they want to yield a more significant profit, spark a bidding war, and ensure a quick settlement. Good, quality renovations to a property, even in a traditionally less coveted location, can make all the difference in attracting enthusiastic buyers.

Recently, for example, an investor bought a property for $150,000 and borrowed $80,000. He later decided an expansion could add more value, so he put an additional $50,000 of his own money into the project. Although the investor focused

AN ACTIVE DIALOGUE Cultivating a more personal and helpful

relationship with customers and ensuring you are on the same page takes time and trust. As a lender, ask many questions and even request photographs of any

renovations to see the type and quality

of the work. Set an expectation for your

investors to engage with their contractors in this same collaborative manner to

ensure expectations are aligned and the

improvements will improve property value.

renovations, he also realized that by adding just a little more living space he could take advantage of a thriving market. He turned around the house, repaid the loan, and netted more than $100,000 of profit.

48

PRIVATE LENDER

ABOUT THE AUTHOR

It is not a one-sided conversation.

Sometimes more seasoned investors will

know much more about the neighborhood and the market than you will, so it is

essential to listen to their insight. For

example, one investor who toured some of his 200 properties a few years ago

decided that in each home, he would

JOHN V. SANTILLI

Wherever he could, he installed a wider

of Rehab Financial Group. He joined

make serious bathroom renovations.

shower and used high-quality materials.

He removed the family room and enlarged the kitchen in every house he owned.

He demonstrated that the trend among

John V. Santilli is the chief revenue officer RFG in July 2019 and is responsible

for all opportunities connected to the

company’s growth. Santilli is focused on

expanding the company’s sales channels to maintain RFG’s position as a leader in

his renters was to use the kitchen as a

rehab financing.

were preferable to a family room.

25 years of lending and marketing

gathering space and that more bedrooms

MORE THAN A LENDER—A TRUSTED COLLABORATOR

on the core improvements of exterior curb appeal plus kitchen and bathroom

for everyone. For lenders, this added engagement with customers will result in better relationships that span multiple investments and loans over time. But, as we all know, happy customers can pay off their loan. Our goal as private lenders should be to help them get there sooner and faster, so they can move on to the next investment. ∞

We all know attracting new business is

more challenging than cultivating longterm, mutually beneficial relationships with borrowers. Providing an advisory

role brings added value to your service and promotes goodwill—a win-win

Before joining RFG, Santilli had

executive leadership experience across multiple private and public marketingdependent companies.

Unparalleled Expertise in Private Lending Funds • • • • •

Fund launch consulting Fund accounting & admin Portfolio reporting Investor Servicing Tax & compliance

LET’S TALK

973.241.3300 sociumllc.com suntera.com

Fast + Easy Financing

Kiavi offers real estate investors an easier, more reliable and faster way to access the funding to power their businesses.

• Fix and Flip / Bridge Loans • Rental Loans • Cash-Out Refinance Loans • Interest-Only Options Learn more at kiavi.com/broker NMLS ID 1125207

WINTER 2023

49

LENDER LIMELIGHT WITH RUBEN IZGELOV

50

PRIVATE LENDER

Living the American Dream—and Transforming an Industry The private money lenders at We Lend are motivated by helping their clients achieve wealth.

S

ummer 1996. Ruben Izgelov has

just spent several hours hawking

flyers to pedestrians hustling along

busy Queens Boulevard in New York, hoping to persuade them to patronize area

all sizes across the United States by providing quick and low‑cost capital on their investment properties.

REAL ESTATE BECKONS

pizzerias and sushi restaurants.

It was the young immigrant from Turkmenistan’s first taste of entrepreneurship.

“If you can imagine an eight-year-old, two years into America, distributing flyers for $1 an hour,” Izgelov said. “The beauty was it was in cash. And they made sure to give it to me in singles. I remember just counting it over and over and over. And that sense of, ‘Hey, I can make money out of just putting my time into something,’ that resonated with me for life.”

Today, Izgelov is the co-founder and managing partner of We Lend LLC, a New York-based private money lender serving real estate investors of

Izgelov’s foray into real estate began when he was just 13. His cousin Avi had come to the U.S. from Israel and began buying up physically and financially distressed properties. Avi invited Izgelov to “go knocking” with him, thinking that having a youngster in tow would lead to more open doors.

“I kind of got the taste of real estate,” Izgelov recalls. “My cousin was able to close some deals, and I went to the closings with him. I saw the type of money he was making, and I was hooked.”

They found a niche in off-market distressed properties that didn’t involve third parties or wholesalers. They

connected the off-market deals to real estate investors and operators who were interested in those types of assets, flipping the properties over to them for a wholesale fee. Once they built their “war chest,” Izgelov and his cousin started buying properties themselves.

Izgelov eventually dropped out of high school to work as a loan originator. He was successful at what he did—until the markets turned during the Great Recession.

“I went from making all this money to almost nothing within a very short period of time,” he said.

A CHANGE IN FORTUNES He confided in his father, who had been an entrepreneur in Turkmenistan, revealing he had just a couple of months of savings left. His father gave him a pep talk, reminding him that he was WINTER 2023

51

LENDER LIMELIGHT WITH RUBEN IZGELOV

“We were paying true hard money lenders,”

young, without responsibilities, and could start over. But his father had one demand: He made Izgelov promise he would finish his education.

In 2017, he received his Juris Doctor

magna cum laude and ranking in the

from them at 12 to 14 percent.”

“But not just my high school degree,” Izgelov said. “He made me promise I would go all the way to either law or med school. So, I kept my word.”

Top 10 of his class. Even so, it was his

Izgelov’s fortune changed when he and

Izgelov graduated cum laude with a bachelor’s degree in legal studies from St. John’s University in 2013.

biggest lessons: He realized he and

52

PRIVATE LENDER

from Touro University’s Jacob D. Fuchsberg Law Center, graduating

extracurricular activity of buying and f lipping real estate in the New York City area that taught him one of his his cousin needed to find a cheaper source of capital for their deals.

he said, “guys that didn't have an email—they only had a fax machine. We were borrowing

his cousin attended a private lender event

shortly after Izgelov graduated. At the time, he was working as a real estate attorney,

reviewing contracts. During the conference, Izgelov sat in on a presentation about investments and returns.

THIS OR THAT ?

ANDROID OR APPLE? WINE OR BEER? Vodka COFFEE OR TEA? MOUNTAIN OR BEACH? Beach, for sure.

NIGHT OWL OR EARLY BIRD?

“Family is everything to us,” said Izgelov.

“So, when we started buying, selling, flipping, developing, it was natural for me to do it with my cousins and my older brother Nison Izgelov. Then it was natural for us to grow into We Lend together. We have a level of respect for one another, and that has helped us grow.”

Izgelov’s cousins concur.

After listening to the speaker, he did some “napkin-type” math with his

cousin. They realized they could be

making better returns while making debt investments versus equity

investments. Izgelov also realized

lenders. We started We Lend LLC, and we never looked back.”

INITIAL GROWTH— AND THEN A SHIFT

he wasn’t cut out to be an attorney,

sitting behind a desk all day, analyzing documents and marking them up.

“We went in as private investors,” he said, “and we actually walked out as private

Izgelov’s co-founders are his cousins, Moses Suleymanov, We Lend’s director of credit analysis, and Solomon Suleymanov, the firm’s director of originations.

“Working within a family business has its ups and downs,” said Moses, “however, the yearn to grow and see the success of your family outweighs all of the downs.”

Solomon noted that working together as a team has been instrumental to We Lend’s growth.

“We are able to overcome challenges and thrive due to a strong emphasis on communication, clearly defined roles and responsibilities, and a commitment to supporting one another. The key to a successful family dynamic in a business setting is for family members to work WINTER 2023

53

LENDER LIMELIGHT WITH RUBEN IZGELOV

together as a team and to prioritize the well-being of the business as well as the individual family members,” he said.

We Lend certainly has grown. It made its first loan in May 2018, shortly after being incorporated. Since then, the company has reviewed more than 4,000 loan applications and funded about 1,000 loans with a value of approximately $400 million. Before the pandemic, We Lend was growing more than 100% annually.

Although the company continues to see strong annual growth, Izgelov says its focus is shifting.

FAVORITES? SEASON? Summer

PLACE YOU’VE TRAVELED: Israel

GUILT Y PLEASURE?

Izgelov said We Lend is also exploring the possibility of starting new verticals, one of them being a real estate brokerage.

FOOD:

“It’s just natural for us to enter into new verticals that complement what we're doing,” Izgelov said.

SPORT:

Ultimately, Izgelov would like We Lend to become a business with origination volumes of $1-2 billion annually and leave it as a legacy for their families.

A cigar Sushi

I don’t really watch sports, but when I do, it’s basketball, because my son loves basketball.

ANOTHER GUILT Y PLEASURE?

Working out—I have a gym in my basement, so I’m there quite often, unwinding.

54

“We are raising capital to become more of a portfolio lender, but we still have an arm where we fund and sell loans,” he said. “We did start a debt fund, a 506(c) Reg D, and we are actively raising capital. The idea is to become more of a portfolio lender and perform for our investors, while at the same time, be able to perform for our borrowers. The combination of the two is very important.”

PRIVATE LENDER

ADDING VALUE Noting that his family still owns and operates real estate, Izgelov said they know what it’s like to be in a borrower’s

But his first mentor, his father, is still his greatest resource and inspiration.

An owner of multiple businesses in his native Turkmenastan, he spent his life driving a cab after immigrating to the U.S. Although he tried starting several business ventures, he was unable to overcome the language barrier and adapt to differences in U.S. systems. Still, Izgelov said, his father wanted nothing more than for his children to be entrepreneurs like he had been, to create their own destinies and never have to work for anyone.

shoes, which drives We Lend’s investorcentric approach.

“Borrowers aren’t just borrowers—they’re your clients, right? They're the ones that drive our business. The secret sauce is making sure your borrowers are always top of mind,” he said.

He acknowledges that We Lend performs a balancing act as it strives to make good loans for investors and simultaneously make good loans to good borrowers.

Izgelov says that one of the main reasons We Lend has grown as fast as it has during the last four years is they add value for their borrowers by being able to bring deals to them. “A lot of times we'll call our borrowers, and they say, ‘We are sitting on dry powder; we just can't find a good deal.’ So, what we’ve been able to do is curate a marketplace, where we have wholesalers, realtors, and other investors that are always either selling deals off-market, looking for other partners or investors into their deals. We bridge that

gap and bring them together. We can call a client and say, ‘Hey, we have this amazing deal where you can make X amount on your money and we can finance it for you too.ʼ” Helping his clients build wealth is one of his greatest motivators. “We track a lot of analytics,” he said, “and one of them is our clients’ net worth. We have a lot of repeat business. The more deals we do with a borrower, the higher their net worth.

It warms my heart, because while I’m earning a living for my own family, we’re also building wealth for other people. For me, that sense of accomplishment through them is huge.”

COMING FULL CIRCLE Izgelov acknowledges the abundance of resources available for private lenders through conferences, online portals, podcasts, and the American Association of Private Lenders.

Remembering it was his father who pushed him to distribute the flyers on Queens Boulevard as a young boy, Izgelov said, “My father was always the driver of everything we’ve done. … I've lost him going on a year now, and I sometimes wish he was still around just to pick his brain.

He was the kind of guy that without even being involved in the business, by just giving him literally two or three sentences of what I was facing, he was able to pivot me and move me forward. Today, although I don't have him, the No. 1 question I always ask myself is, ‘What advice would my dad give me?’”

Although he came from humble beginnings with 12-15 family members sharing an apartment, Izgelov believes in the American Dream, just as his father did.

“The ability to achieve the American Dream that many people take for granted, for me and my family, that is the hugest motivator,” he said. “I have three beautiful kids and am married to an amazing, supportive wife. My parents worked very hard. They left us with the opportunity to make a life here in America. I want to be able to achieve that dream for them and pass that legacy on to my kids.” ∞ WINTER 2023

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OPER ATIONS

REO MANAGEMENT WHEN THE PROPERT Y ISN'T LOCAL The asset management firm you hire becomes an extension of your team.

by Gene Buccola

W

ith a dynamic marketplace and property owners

succeeding or failing at

a rapid pace, public and private lenders

could be faced with a burgeoning REO portfolio. And, in many cases, the assets will be geographically distant from lenders, who may shoulder the burden of “what to do next” with the asset.

One of the first decisions to make is whether to retain an REO asset 56

PRIVATE LENDER

management firm or take on the disposition of owned real estate alone.

The right REO asset management firm will give you immediate capability and experience to manage your portfolio.

The firm you engage to manage this

If you choose to hire outside your organization, the crash course presented here reviews a list of requirements you’ll need to cover, either in-house or in a specific scope of work designed from the start of a contract.

important to have your contacts, support

process becomes an extension of your special assets department. As such,

they are able to save your organization time and workforce requirements. It is

system, and template in place when and if an onslaught occurs. Banking or lending experience will be invaluable to ensure

the firm supports your understanding of the landscape.

occur confidently, despite an unfamiliar location or landscape.

ASSET VALUATION Property preservation? Check. While your boots on the ground stabilize the physical needs of your property, the team should concurrently analyze the value of and

begin the slog of research to move forward with the asset. Your management team

should have the resources already in place to conduct analyses both locally and in view of nationwide trending.

POTENTIAL ASSET SALE ANALYSIS One alternative to foreclosure can be the sale of one or more problem loans where there is sufficient equity in the collateral to protect against a further write down of the carried asset value. A note sale gives immediate effect to the bank’s classified asset/capital ratio at a write off amount close to what would occur in the REO handling process. Your real estate team, or even the consulting firm, can assist with obtaining offers for the purchase of loans in your portfolio. If this is not the path for your organization, the REO process begins immediately.

ASSET STABILIZATION AND VALUE PRESERVATION

Make sure the team you have formed can assess the immediate physical needs of the property while an analysis can be completed on value. Your REO management firm should be working furiously in the background while coordinating maintenance, security, and repairs during the first valuable days of holding the property.

Be sure to connect them with a contact at your insurance company, because they’ll be your advocate navigating any fire, flood, or damage claims that won’t have to come directly from your pocket.

Foreclosure notification and tracking, cash for keys, and eventual liquidation on the horizon means that many things

opinions) and reconcile them with current appraisal reports. Keep in mind that

appraisal execution can be weeks out, so

ensure your team can request the service immediately upon acquisition.

While your team sets this in motion, customized reporting on local and

national cap rates, sales trends, and

comparative properties will be in your hands so you have all the information needed to determine the future of the property. Your decision to move one

direction or the other will naturally rely on the depth of knowledge and backup research your firm provides. They can

make recommendations on an appropriate brokerage house, property management

need to happen, often at the same time.

company, or other service provider.

Your firm will keep the process moving

There’s a lot to juggle here, so physical

with a stable of building inspectors, Let’s start from day zero. The property is now in your hands. Be sure to have eyes and boots on-site to conduct an initial property assessment. Damage? Squatters?

Imminent safety or security issues?

They will conduct BPOs (broker price

vetted maintenance vendors, locksmiths, and myriad others so you can focus on the larger picture as a lender. Once the property is secure and stabilized, you can move forward knowing that next steps can

improvements as well as value analysis may go hand in hand. A refresh on a

building lobby could add substantial

value in a resale, though maintaining the

lobby as it came to you could give the next buyer the opportunity for their own TIs. WINTER 2023

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OPER ATIONS

Your team will work with you to balance the need between building maintenance, repair, and improvement in order to minimize the time you are required to hold the asset and the highest realized return.

PROPERTY MANAGEMENT Asset stabilized. Check.

Asset value assessment. Check.

Possible sale, possible hold. Now, what to do in the interim? Your REO firm has multiple wheels in motion on your behalf, and while the process continues toward a sale or hold, your team will work toward optimizing the property to ensure the maximum value to your organization.

They will carefully qualify tenants and determine lease status.

Renewals can be granted, market rents can be updated, and full optimization of the property and rent rolls can occur while other items operate in the background.

Make sure the firm you’ve engaged can qualify your tenant procurement and vet vendors for bonding, licensure, and insurance. Their ability to recommend market-competitive rents as well as fill any vacancies will be an important requirement during the asset’s time in your hands.

They’ll adeptly handle any emergent services required with the local plumbing, roofing, or miscellaneous vendor needs.

Your organization’s geographic location will not hinder the operational efficiency of this property as long as your firm has the network depth needed in this space.

When necessary, they’ll also easily handle any eviction notices, lease terminations, or physical removal of current tenants.

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PRIVATE LENDER

EXPERIENCED ALLY A MUST The common thread throughout this process is the firm you’ve selected to handle this complex environment. As with any vendor relationship, the experience and trust they engender makes the most successful of relationships.

The REO sphere requires you have an ally, an advocate, a teammate who will go the distance on your behalf. That will not only ensure a successful REO process but also that the firm becomes an adjunct part of your own team, seamlessly weaving together your legal, insurance, financial, and operational aspects. You lead the charge with a full tool belt as they stand ready to support the process while you move through it.

Multiple properties? Multiple issues? Let your firm block and tackle on your behalf while you move the ball down the field.

PREPARATION IS VITAL

exactly how their engagement or retainer works, how quickly they can spool up, and how their termination process works if the fit isn’t quite right.

The time for opportunity in REO may be quickly approaching, and we are all the wiser for going in ready and fully armed. ∞

ABOUT THE AUTHOR

GENE BUCCOLA Gene Buccola is a visionary investor in and manager of high-performing companies in real estate, aviation,

In the end, success demands preparation.

Dynamic times mean dynamic solutions and opportunity. Prepare your organization early, so you are ready to pivot and flex as these opportunities hit your desk.

Ask colleagues in the industry for success stories (or failures!), formulate a working outline of what you’re looking for, and interview multiple organizations that are able to support at a moment’s notice.

Be specific. Don’t hesitate to challenge them with your real-world horror stories, determining whether they align with your organization’s structure and ethos. Know

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Buccola and his team of professional

partners have a track record of success

in commercial real estate repositioning, including REO asset management;

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and asset marketing, offer management, negation, and sale . Their private equity

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nreig.com/AAPL 888.741.8454

WINTER 2023

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Protecting Your Private Lending Business During a Capital Market Disruption Focus on these five critical areas to put your business in a competitive position for the new year.

by William J. Tessar

D

strongest, most experienced

leaders. Today’s market has proven to be no exception. As the leader of your company, now is the time to stay positive and engaged—while being prepared to make hard decisions.

Throughout nearly four decades of lending, interest rates have never moved as quickly within such a short period of time as they have during this past year.

For the lending industry, this created huge problems with warehouse lines and the ability to sell loans at anything close to par, leading to margin calls, short- and long-term pauses on lending, restructuring of capital and, in some cases, closing doors.

Let’s consider five critical areas you can focus on to protect your business in 2023.

60

The lending pie has become much smaller,

ifficult times test even the

PRIVATE LENDER

KNOW WHAT YOU’RE SOLVING FOR

so as you forecast the year to come, the question is: How do you get a bigger

piece? With increased rates and fewer

transactions, everything you are solving Understanding key factors that will be business drivers for your company is critical to planning ahead. Some things to take into consideration when it comes to your business projections are: W hat are the current/anticipated

inventory levels of real estate?

for should be tailored to your unique

business model yet be centered around

the common theme of capturing a bigger

piece of the pie while maintaining volume levels. Once your projections for your

business drivers are made, you can turn your focus to your people.

W hat does current/anticipated

real estate appreciation or depreciation look like?

ANALYZE YOUR ROSTER

W hat impact do supply chain issues

have on your business?

How does the availability of contractors/

subcontractors affect your business?

Part of protecting your business means taking inventory of your team, but

doing so entails so much more than an

and responsibly. Communicating empathy and understanding is important.

If you can help place the terminated individual somewhere else, you should certainly try.

If you know a reduction will be around the corner, how transparent should you be? Your honesty will have a ripple effect throughout your organization, and integrity will prevail.

Remember to give yourself permission to acknowledge the fear and uncertainty, but stay strong and stay positive for those who will remain under your leadership.

BE FINANCIALLY DISCIPLINED Now that you’ve established your projections and prioritized your people, it’s time to control your expenses. Determining what you need as opposed to what you want will help you make judicious decisions.

Operating a profitable business is easier said than done. So, strive to operate your business profitably. Here are some goals to strive for so you don’t operate at a loss. employee headcount. It means taking

have allowed your organization to add

a very thoughtful look at your team’s

team members that perhaps were not

talents and skillsets. Do you have enough

vetted as thoroughly as you would have

employees to operate efficiently, or are

preferred. A market pullback, however,

there gaps to be filled? Or, do you have too many employees for your anticipated projections to support? Remember: Know what you’re solving for!

Marketplace sentiment today is that rates

gives you time to define the criteria your organization can use as a guide if you are faced with difficult decisions. Consider what professional skills and knowledge are critical to each job. What business acumen

will be higher, and volumes will be lower.

is required? What discernment is needed?

With fewer transactions anticipated in

The lending industry has seen ebbs and

many 2023 projections, a reduction in workforce may be something to begin preparing for. A very busy market may

flows for around 40 years. Any time you have a reduction in workforce, you must conduct it is professionally, respectfully,

R ight-size your business so that in addition to everyone getting a paycheck and the utilities being paid, the business itself is getting paid too. If every department did this, a lot of bloat would be removed.

B ecome hyper-focused on the products or services with the greatest impact on your bottom line, and invest your time in those areas.

W atch and listen to what’s going on around you in the marketplace; pay close attention to shifts in the tide. Doing so will present opportunities to avoid potholes and WINTER 2023

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take advantage of market shifts you might not have thought about.

As you analyze your finances, it is paramount to maintain access to capital.

Stay on top of any requirements needed to keep it secure. Quality, quantity, and consistency drive capital market executions, so if you produce loans that perform at a higher level (and you do a lot of them on a consistent basis), capital partnerships and the terms of those partnerships will improve and strengthen to a net positive impact.

OWN AND HONE YOUR PROCESSES When volume is down, it is a prime opportunity to reflect on process improvement. With smaller pipelines, several core business functions that may have been stretched can exhale, creating the perfect time to focus on improving your business’s infrastructure: I dentify which areas of your company’s operations are a priority to focus your efforts on.

K now the size of your company and the impact of any volume reduction; then make operational adjustments accordingly.

Hone your processes and determine

what you can be the best at.

In the current environment that demands “more” and “now,” technology delivers.

In addition to assessing your operations, also take inventory of your technology: W hat does your technology

infrastructure look like?

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PRIVATE LENDER

I s now the right time to make big

technology improvements?

Should you invest in technology now or

put it on hold?

Pulling the trigger on innovative advancements has everything to do with your capital base, so if it’s not a sound investment for your business (refer to #3), simply improve upon what you have.

LISTEN TO YOUR CUSTOMERS The most critical defensive play you can make for your business is to genuinely listen to your customers. Their voice will always serve as a reliable pulse, a compass, to navigate your decisions. The perspective of customer feedback in a contracting market should be no different than in one that is thriving, because customer service begins at “hello” and ends … well… never.

When you are faced with critical business decisions every day in various areas of your company, it’s easy to lose sight of the big picture, so be sure to separate from the minutia and stay attuned to your greater goals.

Protecting your business during turbulent times is no easy feat, but when you approach the essential categories—planning ahead, people, finances, processes, and customers through a thoughtful and strategic lens, you will establish a foundation of strength to navigate the uncertainty. Coupled with integrity and transparency, this focus and prioritization of your business goals will serve as guide to survive and thrive in the year to come. ∞

ABOUT THE AUTHOR

A customer should not be viewed as

a vein to a commission. Although it is important to know your business’s numbers, don’t lose sight of your customers in a sea of data. Your customers require and deserve to be educated, guided, and supported throughout their customer journey.

K now your customers and take time to

understand your company’s customer experience. Investing in your customer and in the customer experience is money well-spent in any type of market.

M arket status updates in an

ever-changing market is information your customer will find valuable and will appreciate.

WILLIAM J. TESSAR William J. Tessar has more than 35 years of real estate and lending

industry experience. Before joining CIVIC in 2017, he founded and was

president of three mortgage companies, resulting in residential funding volume exceeding $40 billion. Tessar was

named 2021 AAPL Member Lender of the Year and is a leading voice in the private lending industry.

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CLOSING SMALL-BALANCE DEALS AMID CRE MARKET UNCERTAINT Y Lenders can use this approach to save borrowers money as interest rates rise.

by Randy Fuchs and Tom Hallock

64

PRIVATE LENDER

T

he commercial real estate market stumbled in 2022

as the Federal Reserve sought to combat high inflation with a series of jumbo hikes in the benchmark federal funds rate. These moves elevated interest rates to the highest levels in more than a decade. The ripple effects have included a double‑digit year‑over‑year decline in commercial mortgage originations during the third quarter of last year, a sizable pull back in CRE property sales volume in the same period,

and a deceleration in growth—if not absolute decline—in asset prices.

Amid this market turmoil, many traditional lenders began to narrow their risk appetite, tightened underwriting, and increased credit spreads last year. Further, in the event of a recession, more than 80% of commercial banks that responded to the Federal Reserve’s third quarter 2022 survey of senior bank loan officers indicated they would “somewhat” or “substantially” tighten lending standards on CRE. In the wake of the market’s uncertainty and these credit adjustments, a significant percentage of these banks also reported demand for CRE loans had softened.

As a result, borrowers now find less liquidity in the debt market and have had to adjust to a much higher cost of capital. Further, with cap rates still hovering well below prevailing interest rate levels, the appearance of negative leverage is a telltale sign of today’s more challenging times for CRE.

CLUES TO STREAMLINE THE LENDING PROCESS Private lenders can still find ways to originate loans without necessarily taking on riskier deals. Lenders who simplify their lending processes and reduce origination costs can gain a competitive edge with and thumbs-up from many frustrated borrowers whose deals no longer pencil out—or simply cratered—because of lower-than-expected estimates of loan proceeds due to higher interest rates.

To compensate for the market’s turbulence, to reduce costs, and keep deals flowing, private lenders

are deepening their commitment to streamlined and borrower-friendly processes. Put simply, they are optimizing due diligence operations with third-party service providers.

One solution involves using abbreviated reports by environmental risk assessment firms. For smaller, plain-vanilla-type projects devoid of environmentally sensitive uses, a fast option is an environmental “screening” report derived from governmental records that includes a green-yellow-red summary indication of any on-site environmental risks or hazards, accompanied by an environmental professional’s review.

This option also won’t hurt the wallet.

Another solution—and the biggest lift to shorten cycle times and increase certainty of execution—is to focus on trusted vendor partnerships that can deliver consistent and reliable commercial property valuation products. Because appraisals are frequently the most expensive and time-consuming of these third-party services, lenders should make them a top priority as they seek a competitive edge.

A key to quick underwriting is trusting the property-related information a broker or origination partner submits. So, procuring a simplified, easy-to-understand valuation report especially for small-balance multifamily properties (e.g., loan amounts less than $1,000,000), can lead to a faster loan decisioning and funding process.

More cost-effective property valuations will resonate with your investors. Private lenders are always looking for ways to expand their investor base. Over the last few years, large institutional investors that securitize or sell loans on the secondary WINTER 2023

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OPER ATIONS

markets have required expensive appraisals compliant with FIRREA (Federal Institutions, Reform, Recovery and Enforcement Act) and USPAP (Uniform Standards of Professional Appraisal Practice. But by using private sources of investor capital (e.g., crowdsourcing with accredited investors; in other words, investors that meet specific net worth and income criteria), private lenders are keenly focused on finding a trustworthy and reliable bottom-line valuation and are less interested in having their investor clients pay a premium for regulated appraisal reports that typically do not directly impact their investment decision.

sharestates.com 66

PRIVATE LENDER

PROPERTY VALUATION TOOLS ENGINEERED FOR SMALL‑BALANCE LOANS Appraisals dominate the industry—and

for good reason. They assure participants

dollar value of $3.7 trillion, according to research from Boxwood Means LLC. So, the size of this market incentivizes lenders to use resources in the most efficient and calibrated ways possible.

For many small-balance commercial

that property valuations are conducted

loans, an appraisal is akin to swatting

practice based on high-quality reports

report’s cost is disproportionately high

with a high level of professional

a fly with a sledgehammer. Plus, the

and principle-based standards.

relative to the value of the loan.

However, when it comes to small-balance

Of course, for a lender or investor

spot for many private lenders, appraisals

cost of the appraisal should not be the

job at hand. After all, the small-cap CRE

report’s thoroughness, reliability, and

commercial loans—the proverbial sweet

needing a property valuation, the

aren’t necessarily the best tool for the

primary factor considered. The valuation

market is massive, with an estimated equity

reasonableness of its conclusions will

COMPARISON OF VALUATION TOOL S High

typically calculated with the direct capitalization (direct cap) method.

PROPERT Y COMPLE XIT Y

APPR AISAL

EVALUATION

Evaluations are not Broker Price

RES TRIC TED APPR AISAL

Low

BPO Low

REPORT DEPTH, RIGOR & STANDARDS

High

Source: Box wood Means LLC

always be paramount. But as noted, private lenders have reliable and certainly more cost-effective alternatives for property valuations on small-balance loans.

on small-balance loan originations

Let’s take a look at some additional valuation tools of the trade. Refer to the accompanying chart for a visual comparison of these resources.

Here are some other details

Commercial evaluations. The

Interagency Appraisal and Evaluation Guidelines (IAEG) were initially adopted in 1994 and updated in 2010 and 2018. The IAEG differentiates between the policies and procedures, contents, and applicable uses—among other considerations— of appraisals and evaluations for federally regulated institutions involved with commercial and residential real estate lending activities. Although the IAEG may be outside of common parlance among most private lenders, commercial evaluations are a conventional tool the vast majority of commercial banks selectively and prudently use

and non-financial transactions (e.g., loan renewals, extensions, credit

reviews, and portfolio monitoring). private lenders should know about commercial evaluations or “evals”:

T he reports are frequently performed

by CRE valuation analysts and

appraisers. Some eval shops with a

national footprint rely on a network of contract brokers to prepare the

Opinions (BPOs). Though evals tend to be abbreviated reports (i.e., usually less than 20 pages), their content is in a different league than BPOs. They are more comprehensive and reflect more rigor in data collection, verification, and analysis of the subject property, comps, and market. Also, BPOs are prepared by brokers who usually aren’t trained in valuation techniques. Moreover, evals incorporate the results of an exterior or interior inspection of the subject property, whereas BPOs do not.

Evaluation reports come at a

substantial discount to appraisals and typically can be delivered in a much faster timeframe.

Despite their attractive attributes, evals should not be used indiscriminately.

Although they are perfectly suitable for valuing a single-tenant retail store, office/industrial condo, strip center, and mixed-use property, among other types of buildings, evals are not recommended for the following: Complex assets (e.g., properties

full-time in-house staff. The latter tends

subject to a ground lease with multiple streams of income, or large commercial buildings with dozens of leases, etc.);

consistent, high-quality, and timely

Many special-use facilities (e.g.,

valuations, while other firms employ

to be more trustworthy, producing more reports. They also tend to offer better client communications and support.

Much like appraisals, evaluations may

use the sales comparison approach or combined sales and income

approach. On the latter, the valuation of an income-producing property is

assisted living, nursing homes, marinas and other recreationrelated properties, parking garages, etc.). For these types of collateral, appraisals are your best bet.

R estricted Appraisal. Previously referred

to in the industry as a limited scope or

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restricted use appraisal, the restricted appraisal is a second and slimmed-down version of an appraisal. In its abbreviated format, the restricted appraisal is closer to an evaluation with regard to scope, content, and detail than an appraisal. Perhaps its biggest distinction is the restricted appraisal’s compliance with USPAP and its inclusion of the appraiser’s state license and certifications. The latter offer credence to lenders that the appraiser’s report and conduct are consistent with the ethical and performance standards of the appraisal profession.

Some other key features of the restricted appraisal lenders should know about include the following: U nlike an appraisal that summarizes the appraisal process and data compiled and analyzed, a restricted appraisal may simply state much of the information.

This distinction is actually material in nature; that is, appraisals describe the data sources, assignment scope, and methods used to the lender-user in far more detail than a restricted appraisal does. For example, an appraisal will define the appraisal methods and techniques employed; provide the reasoning behind the data collections, analyses, opinions, and valuation conclusions; and, if appropriate, explain the rationale for excluding the sales comparison approach, income approach, or cost approach.

In fact, a restricted appraisal must

explicitly caution the report’s intended user(s) that the basis under which the appraiser reached his or her opinions and conclusions may not be fully understood without

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PRIVATE LENDER

additional information (which the appraiser must retain in his or her work file). So, it’s important that lenders understand the limitations of a restricted appraisal in order that it adequately support its intended use.

R estricted appraisals are increasingly performed by licensed appraisers as a substitute for, and in response to, greater demand for evaluations by lenders. It’s a bit confusing because of differing state laws, but lenders should know that when you procure an evaluation from a licensed appraiser in your state of interest, you’re more likely than not to receive a restricted appraisal because of USPAP’s requirements.

Like evaluations, restricted appraisals are

also more cost-effective than appraisals.

Commercial evaluations and restricted appraisals thus offer private lenders viable alternatives to appraisals, depending on the scope and intended use of the assignment and the complexity of the loan collateral. It’s best to fully discuss your needs and options with a trusted valuation partner before you pull the trigger.

NAVIGATING INTO UNCHARTED WATERS

ABOUT THE AUTHOR

RANDY FUCHS Randy Fuchs is CEO and co-founder of

Boxwood Means LLC, a provider of alternative commercial property valuations and risk assessment services to 300

commercial banks and nonbank/private lenders nationwide. In addition to his managerial duties for the firm, Fuchs

pioneered research on and has been a leading research authority in the

small‑cap CRE market for nearly 30 years.

TOM HALLOCK Tom Hallock is the head of loan products for

PeerStreet. He leads PeerStreet’s origination, underwriting, and closing teams, managing existing and developing new lending

As of this writing, there is little transparency when it comes to the direction of the CRE debt market and the economy at large. Amid the market’s uncertainty, private and small-balance lenders that redouble their efforts to simplify operations, choose their service providers wisely, and wring out third-party due diligence costs will please clients and investors and win more business in 2023. ∞

and business channels for the PeerStreet

platform. He started his career in real estate

lending at Montecito Bank and Trust in Santa Barbara, California, and built construction

lending startups at Countrywide and Affinity Bank. Now, with more than 35 years of

lending and real estate investing experience, Hallock has built and managed national real estate portfolios for such organizations as Genesis Capital, American Homes 4 Rent, American Mortgage Investment Partners, and the FDIC.

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Legal Considerations When Structuring Multi-Lender Loans Co-lenders can avoid wasting time and money by discussing these six areas with their co-lenders and their counsel.

by Casey Busch and Madelaine Ryan

W

lender loan involves a lender that has the

the security is subject to state or federal

to share the burden in order to facilitate

any transaction where the lenders reside in

thereby diversifying their portfolio

with lenders residing in both California and

Regardless of the circumstances leading

When all lenders reside in a single state,

In a majority of instances, the opportunity for a multi-lender loan arises in transactions involving attractive properties or borrowers, with loan amounts too high for one lender to fund alone. Given the scale of the loan, there is a need to allocate risk over several lenders. Prospective lenders may want to be part of a highly desirable loan but do not have the financial resources to fund the entire loan amount themselves.

a loan will require multiple lenders, the

Each state follows a general set of model

Another scenario giving rise to a multi-

a security, it is necessary to ascertain whether

hen a loan will be made by more than one lender, an

additional level of analysis is necessary. Multi-lender deals have more than just financial considerations. You must consider allocation of amounts to fund, securities compliance, and the roles and responsibilities of each co-lender.

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PRIVATE LENDER

resources to fund the loan but prefers

law. As a general rule, federal law controls

funding multiple loans in a short period,

multiple states. For example, a transaction

through strategic deployment of resources.

Colorado would be subject to federal law.

to the decision, when it is determined that

the law of that particular state controls.

following pieces need to be examined.

rules that include some type of exemption associated with limited offerings

designed for accredited investors, and

SECURITIES COMPLIANCE Loan transactions with multiple lenders

should be presumed to be securities unless an experienced securities attorney determines

otherwise. If the multi-lender loan is deemed

they generally also include a whole loan

exemption. Every state varies on whether a filing is due, or if these exemptions are self-executing in nature. Co-lenders, or a broker arranging a multi-lender loan, should discuss the requirements with

counsel to ensure they are in compliance with any applicable exemptions. In

addition, states restrict general solicitation and advertising aimed at investors, adding an additional layer of analysis for transactions governed by state law.

A transaction controlled by federal law is subject to registration with the Securities and Exchange Commission unless it meets one of two Regulation D exemptions. The first exemption, 506(b), allows for securities with up to 35 non-accredited lenders, an unlimited number of accredited lenders, and an unlimited amount of money.

However, 506(b) does not permit general solicitation or advertising to market a transaction to lenders. The second exemption, 506(c), allows broad solicitation and advertising, but all lenders making a loan must be accredited investors and reasonable steps must be taken to verify the accredited status of each one. As mentioned previously, transactions controlled by state law will vary by state. Some states are more restrictive of securities, but other states, like California, are less restrictive.

An experienced securities attorney should

advise concerning whether the transaction is a security and, if so, which law controls.

ALLOCATION OF RISK Before committing to making a loan with other lenders, each co-lender must consider the level of risk it is willing to assume.

Initially, co-lenders should agree how the risk of a loan will be allocated. Co-lenders WINTER 2023

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can simply choose to share the risk equally or on a pro rata basis. This provides a clear way to determine profits and losses but may not always suit each co-lender’s preferences.

Co-lenders have the option to create an agreement that shifts the risk levels among themselves to accommodate their varying risk tolerances. Some co-lenders are willing to assume more risk in exchange for a higher return on investment, while others may be more risk averse.

effectively deferring receipt of their share of any loan proceeds until the other co-lenders are made whole. In exchange for the higher risk, these co-lenders receive a higher return or greater profit upon foreclosure of a property. Conversely, the other co-lenders receive a lower return on investment in exchange for receiving distributions first and taking losses last.

A common practice is to create multiple classes of co-lenders with the allocated risk varying by class. Often, one or more co-lenders agree to be the first to take a loss and the last to receive distributions,

HANDLING FUTURE ADVANCES Co-lenders should consider not only how risk of loss is allocated but also

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PRIVATE LENDER

how any advances will be funded. The simple solution is for co-lenders to split an advance pro rata; however, issues may arise if one co-lender refuses or is unable to fund the advance. Like any other aspect of the co-lender relationship, this can be determined at the outset of the transaction. The advances that may be made can be divided into two categories: (1) advances contemplated as part of the loan transaction, including construction holdbacks and debt service reserves (loan advances) and (2) advances to protect co-lenders’ security interest, including those to pay property taxes and insurance (protective

advances). Protective advances will be discussed in the Servicing section.

to pay, how notice is provided to each

respective share(s) of the loan advance

Co-lenders have a few options for handling loan advances. The best option is to require all co-lenders to fully fund their respective funding obligations under the loan and then hold back the amount of the expected loan advances from the loan proceeds. These funds are held by the loan administrator or servicer for distribution to the borrower according to the terms of the loan documents.

share of the loan advance, and when

There are two main approaches to the

If all co-lenders do not agree to fund the loan advances at the time the loan closes, two issues arise. The first is defining the obligation of each co-lender with respect to a loan advance, including how much each co-lender is required

Although the issue of the amount each

co-lender of the obligation to pay their that payment is due. The second and

more problematic issue occurs when one or more co-lenders cannot or will not pay their share of the loan advance.

The best solution to these issues is

for the co-lenders to agree in advance

about what each one is required to do with respect to a loan advance and

the consequences for failing to do so. co-lender must advance is typically

determined pro rata, and the questions of notice and deadlines to perform are relatively simple, what to do if one or

more co-lenders does not provide their

can be much more controversial.

treatment of nonperforming co-lenders and how to pay the other co-lenders

who make the loan advance on behalf of the non-performing co-lender. The less

punitive option is to treat the additional loan advances made by the performing

co-lenders as loans that accrue interest on

the amount advanced and such loans must be repaid under certain circumstances before any amounts being distributed

to all co-lenders. The second, and more drastic approach, is to decrease the

pro rata interest of the nonperforming co-lender and increase that of the

co-lender(s) that perform in their absence.

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OPER ATIONS

SERVICING The co-lenders next need to determine who will service the loan. They need to agree whether one of them or a thirdparty servicer will, among other things, receive payments from the borrower and distribute each co-lender’s share, monitor the loan (including status of payment of property taxes and insurance), collect in the event the borrower fails to pay, and handle tax reporting. A third-party loan servicer is generally recommended, but

co-lenders should be aware of any loan servicer licensing issues whether they have a third-party service the loan or not. In a third-party servicer scenario, co-lenders will appoint one of their ranks to direct the actions of the loan servicer.

Regardless of whether a third-party or one of the co-lenders services the loan, the parties need to determine how decisions will be made and acted upon and, in the case of a third-party servicer, how instruction will be conveyed to the servicer.

The most common method of decision making is requiring a majority vote for certain loan decisions, including collection

steps, whether to modify or forbear, or whether to initiate a foreclosure action.

An additional area that should be addressed is who is responsible to pay collection costs and protective advances—and what happens when a responsible co-lender fails to do so. The options in this instance are similar to those discussed previously for loan advances. The most common approach is to require these amounts to be repaid before distribution to the co-lenders of their respective shares of payments interest and/or principal. In rare instances, the more punitive option of recalculating co-lender interests is employed.

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74

PRIVATE LENDER

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ABOUT THE AUTHOR

FORECLOSURE

CO-LENDER AGREEMENTS

The foreclosure process can be complex when multiple lenders are involved.

There are numerous decisions required, ranging from whether to commence a foreclosure, timing of the sale (including postponements), whether to forbear or modify, bidding strategy, and what to do if the property is taken back by the co-lenders. To facilitate the process, co-lenders should agree in advance concerning the following.

(Note that all decisions are not required to be made in the same manner):

The manner in which co-lenders intend

W ho makes a given foreclosure

decision? Do all co-lenders have a say, or something less?

W ho is responsible for paying upfront

foreclosure costs? What happens if they fail to pay their share?

I s the unanimous consent of

all co-lenders required, or is a majority sufficient?

W ho is the point of contact that

will convey those decisions and receive information from the foreclosure trustee or counsel?

In addition, if allocation of foreclosure proceeds (or ownership of a reverted property) will be based on something other than the pro rata loan interest of each co-lender as discussed, the allocation should be memorialized in a written agreement to provide certainty. A written agreement between the co-lenders entered before making the loan will help to ensure the foreclosure process runs smoothly .

to address each of the considerations

discussed should be memorialized in

a written agreement separate from the

underlying loan documents. It is essential to have a clear understanding of each co-lender’s role and decision-making

power to avoid issues that can negatively impact the value of the loan and return

on investment. The co-lender agreement will detail the rights and obligations of

each co-lender and how conflicts between them will be handled. Co-lenders and

their counsel should carefully consider how best to document each individual transaction, keeping in mind each

co-lender’s goals, risk tolerance, and the considerations discussed previously.

CASEY BUSCH Casey Busch joined the Banking and Finance department in March 2022.

The Banking and Finance department represents banks, mortgage funds, joint ventures, and other private

lenders. Before joining Geraci, Busch represented insurance companies

in declaratory relief actions. While in law school, Busch clerked for

several business litigation firms and

participated in the 2021 UCLA Cyber

Crimes Moot Court Competition, where he won Best Brief.

Multi-lender loans are multi-faceted,

requiring consideration of several options before a loan can close. Many of these

decisions are ultimately determined by

each co-lender’s preferences as they relate to their counterparts. Although this

may increase the time it takes to make a deal, it is important that all co-lenders

have agreed on and memorialized their

decisions. Doing so not only makes for a

better co-lender relationship and leads to

the ability to make larger deals with higher profits but also helps avoid costs down the line. Co-lenders can avoid wasting time and money by taking the time to

discuss these considerations with their co-lenders and consult with counsel to ensure a smooth transaction occurs. ∞

MADELAINE RYAN Madelaine Ryan is a transactional

attorney on the Banking and Finance

team at Geraci LLP, working with private lenders. Her main responsibilities include preparing and reviewing

documents for various transactions

and providing compliance advice. She received her Juris Doctor from Wake

Forest University School of Law in May 2020 and holds a Bachelor of Arts in

political science from Miami University.

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FUNDAMENTALS

GET TING BOTH RIGHT: THE “HORSE” AND THE “JOCKEY” Use these tools for valuing a property and vetting your borrower.

by Michael Fordham

W

hen private lenders get

together, they may find themselves engaging in a discussion about which is more important for winning a race— the “horse” or the “jockey.” It goes something like this: When you underwrite a loan, do you rely more on the merits of the property (the “horse”) or the borrower (the “jockey”)?

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PRIVATE LENDER

Both are important, of course!

Following are tools a private lender can use to both value a property and vet a borrower.

PROPERTY VALUATION TOOLS Several good residential property valuation tools are available to private lenders.

Local MLS. The local Multiple Listing

Service (MLS) is a straightforward and inexpensive service that allows you to complete your own property valuation by reviewing similar, recently sold and on-market properties (comparables). Yes, completing your own value analysis can be time consuming, and you must be a real estate agent (or partner with one) to have

MLS access. That said, for “the buck stops here” underwriting, completing your own review of comparables using this primary source can be unbeatable, even if only as a check after using other resources.

Appraisers. Appraisers are professionals

Local Real Estate Professionals. Local

as a result, appraisals are considered the

who can determine the market value of a

property. They must comply with rigorous standards under state and federal law

when they complete an appraisal. Partly

real estate professionals, including real estate agents and real estate brokers, can be a wealth of property value information. In addition to the conversations you may have with these pros, they can also prepare a formal value estimate for you, either a Comparative Market Analysis (CMA) or a Broker Price Opinion (BPO). Both can be prepared inexpensively and relatively quickly.

“gold standard” in property valuation.

Although it varies by state, a CMA is usually a qualitative comparison of recently sold properties, often based on price per square foot.

A CMA also typically references active and pending listings.

(ARV). For an appraisal of ARV, appraisers

An appraiser uses several inputs,

including an in-person inspection, prices of comparable properties

recently sold, property price trends, and details specific to the property.

Often a private lender is not just interested in a property’s current market value. You may

need to know a property’s after-repair value use their experience (and imagination) to

determine this future value. The appraiser

Not surprisingly, getting an appraisal is more

a CMA or BPO include:

appraisal takes more time, so it makes sense

W hat is your experience producing this report?

property, most private lenders are now giving particular weight to recent comparables and discounting less recent comparables. Additionally, some lenders are now discounting values to reflect further possible downward price movement. Along these lines, today lenders may want to make their own adjustments to a property value provided by the valuation tools discussed.

expenses your borrower will provide. To

Sample questions you may ask a

W hat are the inputs you will use to estimate property value?

property values, when valuing a

outlining expected repairs and related

help the appraiser and to get the best ARV

W hich of these two reports can you provide?

Given recent downward shifts in

does this using a Scope of Work (SOW),

A BPO usually incorporates additional property information that allows them to use their own judgment to make price adjustments, etc. Sometimes a BPO also involves a property inspection. real estate professional preparing

CURRENT VALUE SHIF TS

appraisal result, require the borrower to

provide detailed information about planned

repairs and expenses (more than just a quick list of “$800 for carpet, $500 for tile,” etc.).

expensive than other valuation tools. Also, an to order an appraisal early in your process.

Sample interview questions you may ask an appraiser include:

W hat is your experience in the specific

area in which the property is located?

For ARV appraisals:

A re you willing to discuss the completed report if I have a question?

W hat is your experience with

W hat is your turn-around time for completing the report?

How do you analyze planned

ARV appraisals specifically? repairs to determine ARV?

W hat is your turn-around time

for completing the appraisal?

W hat will you need from me (and the

borrower)—and when will you need it?

AVMs. Automated Valuation Models

(AVMs) are computer-driven models that review property data, providing a value or value range for a property within seconds.

The freely available AVMs online are not known for their reliable valuations, though they can offer useful comparables.

Fee-based AVMs can be a worthy tool for a private lender. While instantly producing a property value report for you, an AVM also allows you to choose which comparables you think are most appropriate and filter possible comparables by specific parameters (e.g., date range of when built, WINTER 2023

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FUNDAMENTALS

“ YOUR RESULTS MAY VARY” Although the valuation resources discussed here can be useful for a private lender, lenders sometimes need to adjust a valuation to reflect the lender’s property due diligence.

Due diligence that can warrant adjusting a property’s value includes, for example: 1. Your personal inspection of the property (alternatively, a complete set of property photos).

2. A Google Earth review.

3. A contractor inspection (particularly where significant renovation is planned).

4. T he ability to get permits to complete planned work.

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PRIVATE LENDER

single- vs. double-car garage, etc.). Of course, AVMs are only as good as the data they use, so they may not include some external factors (e.g., a property that abuts a landing strip). It is also important to review the photos of comparables, because AVMs cannot discern property condition.

Although they are not perfect, AVMs have become extraordinarily popular due to the speed, ease, and flexibility with which you can get a property valuation.

AVMs are often best for private lenders with some volume, and a contract may be required. To learn more about an AVM, an AVM representative may offer you a “tour” of their website’s capabilities.

Sample questions you may consider

asking an AVM representative include: W hat data sources do you use, and

how often are they updated?

W hat adjustments do your

algorithms make to this data?

W hat parameters for valuing a

property can I select and change?

W hat is your pricing, and do

I need to sign a contract?

TOOLS TO VET THE BORROWER Most aspects of borrower vetting are best performed in-house. That said, several

external services can greatly assist with determining the strength of a borrower.

Here are some tools that can be helpful: Credit Reports. Some private lenders do not

pull a credit report for their borrowers. This may be based on an existing relationship with the borrower or a stellar referral. But if the saying “the best predictor of future behavior is past behavior” is true, then pulling a borrower’s credit provide invaluable insights.

Loan Origination Systems. In addition to providing software that processes and manages your loans, loan origination systems (LOS) provide the private lenders with the option to pull credit reports as an add-on service.

Besides asking about an LOS’ primary functions, consider asking questions about credit reports too: W ill reports be produced via a “soft” pull? (a “hard” pull can negatively affect a borrower’s credit) W hat is the pricing for this service?

Landlord Websites. Lenders can use the

same websites landlords use for background checks on prospective tenants to check a borrower’s credit. Usually, the borrower receives a link to request their own credit report, assuring a “soft pull.” A copy of the report is then immediately emailed to you.

Because the content and format of these reports vary, you may want to try several of these services to see which is best for you.

Often these services have a chat function that will answer questions such as:

Borrower Entity Documents. Whether

the entity you’ll be funding is a limited liability company, corporation, or other type of company formation, it is important to confirm, among other things, that it is properly organized and in good standing. A private lender will often complete this review themselves, but there is also help out there.

For example, private lenders may turn to legal counsel to review entity documents when there is a particular question or an unusual circumstance that needs consideration. Other lenders have an attorney complete this review along with preparing loan documents and reviewing the title.

Before engaging an attorney for help, specifically with entity review questions, consider asking them: W hat corporate law experience

do you have, including reviewing these types of documents and confirming good standing?

A re you willing to explain what you look

for when reviewing these documents?

How do you price your services?

As it relates to entity documentation, title companies will gather many of the same documents as you. Although your diligence around these documents may be stricter, it can be helpful to talk to the title company if you see a shared issue that must be resolved.

C an I pull credit reports without any other obligation or cost?

THE GREAT RACE!

W hat is the cost of each report, and can I have the borrower pay for it?

There is always more you can learn and improve as your private lending

practice grows. In this ongoing “race” for improvement, the resources discussed here can help you both value a property and vet a borrower, improving the quality and efficiency of your lending. ∞ Disclaimer: This article is not legal advice.

ABOUT THE AUTHOR

MICHAEL FORDHAM Michael Fordham is founder and CEO of Silverstream Funding, a private lender

funding loans for real estate investors, primarily in Texas and Utah.

Before launching Silverstream,

Fordham accumulated more than

20 years of banking and real estate

experience. He practiced corporate and securities law for 18 years with

investment banks JPMorgan Chase &

Co. (New York City) and Credit Suisse, A.G. (Zurich, Switzerland). His real

estate experience includes multiple

projects in the multifamily investment

space. For more information, visit www.

SilverstreamFunding.com.

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FUNDAMENTALS

Building a True Culture of Customer Service When you value and build a million-dollar service culture, you set your portfolio on a path to growth.

by Pam Hoepfl

A

ll roads lead to Rome, but

Precision Capital decided our customers

inquiries and questions within two hours.

determine how quickly you get

investors but also every employee and

one, it can be achieved only if leadership

the path you choose will

included not only our borrowers and

Although that goal sounds like an easy

there and how much you enjoy the trip.

every third-party partner, we began to

sets the example and you have a staff that

your portfolio, you can follow a variety of

create an actual “culture” of customer

Next, we embraced the larger goal of

When it comes to growing and servicing

truly revamp our customer service and

paths. At Precision Capital, we followed

service.

a path that has allowed our company to

evolve from selling two or three mortgage loans to individual investors each year to

doubling our assets under management in just more than two years. This path has allowed us to attain the prosperity that

comes with managing a portfolio in excess

of $100 million for the last three years, one that has resulted in selling nearly 1,900

loans totaling more half a billion dollars to our investors and fund offerings.

What path did we follow?

strives for million-dollar customer service and a holistic definition of success. When 80

PRIVATE LENDER

including employees and business partners

Further, we invested in the idea that

as customers and delivering million-dollar

getting an investment in the door; it is

stage is to listen first, understand one

loan portfolio and a healthy company.

For example, we began to have our

success is not just closing the loan or

service to them as well. Your aim at this

achieving the final product of a healthy

another, and then set common goals.

That’s when we truly united our entire

team behind one goal and eliminated a

lot of the “adversarial” relationships that

can impede growth and healthy servicing practices.

HOW WE DID IT

servicing specialists and underwriters

join our loan originators and processors in their biweekly pipeline meetings.

We called this “connecting the dots.”

These joint meetings allowed us to learn how each job affects the common goal

of a healthy loan portfolio. We had the

investment side of our business treat our

It’s a simple, straightforward one that you can follow too. We value a culture that

shares the same work ethic.

To build a culture of service, you need

lending side like customers and vice versa.

respond to emails, phone calls, loan

concerned with more than closing a loan.

to start with the basics. We aspired to

As a result, our loan officers became

and offering solutions before the borrower reaches dire circumstances—and we’re looking at foreclosure.

PUTTING PARTNERS ON THE TEAM Redefine your definition of “team.” We began to expand how we defined our team to include our partners who exist beyond our four walls: our various vendors, software providers, construction fund control partners, and our legal and compliance professionals (whom we rely on heavily).

As we began to align our goals for a customer service culture, we examined who would make the best partners to fulfill for our needs. We asked ourselves: W ho can help us streamline our processes?

W ho provides the most userfriendly interfaces for a borrower making a construction draw?

They knew the success of a borrower

to be proactive with loans that are not

investment sales job was dependent

late payments until some remedy needed

and the ease of the servicer’s job or

on their own customer service and job

performance. They began to care about

healthy loans from day one. They began to pre-underwrite loans as they came in

and to write narratives and details in their loan files, all with the investors and the investment sales team in mind.

As you are expanding on creating a

million-dollar service mindset, change your focus. Precision Capital moved

from a focus on loss mitigation to instead laser focus on asset management. We

stopped chasing problems and learned

paying on time. We went beyond chasing to be pursued or reacting to requests for

I s there an all-in-one origination and servicing software that also includes fund control and an investment software solution?

monitor progress on their projects or strides

We moved away from origination software that was designed for conforming lending to one that caters to private money lenders.

We invested in the development of custom applications, borrower portals, and investor portals. We found partners who sped up our application, constructions draw, and other internal processes. We found amazing legal partners to help us build a network of broker and referral partners, who see us as part of their team and vice versa.

monitoring includes looking for red flags

All of this gave us the ability to build compliant funds in order to power our

modifications and forbearances.

As we engaged the entire team in the process of proactively managing our

assets, we involved our underwriters with construction loan monitoring. Our loan

partners, who are already familiar with our borrowers through the origination process, continue to assist throughout the life of

the loan, checking in with borrowers to

toward their exit strategy, for example. The

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FUNDAMENTALS

loan production and protect our investors through a diverse portfolio.

TAKING CARE OF INTERNAL CUSTOMERS The foundation for ensuring customers are taken care of is to take care of your internal customers—your employees. We strive for a workforce that is invested and satisfied, because we know an invested workforce that feels cared for and has ownership in the process will be the most successful one.

Fostering a culture that empowers people to make decisions, take ownership, and innovate often enhances company profits and keeps your team and clients happy.

Each are a necessary ingredient in the recipe for success. When we reached over half a billion in funded loans, the growth was seamless because each person on our team is valued and cared for and, in turn, values and cares for their role. We wouldn’t be successful without each one.

Building your culture starts with the people you hire. They reflect you and your company and are often the first and last impression your investors and clients have of your company. They can create or alter your brand, so getting it right is the top priority.

Once you have the right people in the right seats, you need to take care of them. Beyond the standard benefits, we looked for “special treats” to offer, for example, a bonus day we call “Good Life Friday,” which is an extra day off each quarter. We cater “hump day” breakfast every Wednesday and seek reasons to have special meetings and “outof-the-box” perks.

82

PRIVATE LENDER

Leadership strives to set the example of fostering a culture that naturally promotes growth and million-dollar service. These invested employees have now taken the reigns in their own positions and suggested changes, sought out partners, improved processes, brought in referrals, and taken the kind of ownership that has made the company theirs and made them leaders in their own right, not just followers, or cogs in a wheel.

Creating a culture of million-dollar customer service takes a holistic approach to company success by investing in each and every employee, partner, and leader.

It’s not just about answering phone calls and questions quickly or finding the best partners. That’s a lot of it, but it’s also a lot of little “touches” that no one thinks about.

Here are some that you might consider: S end handwritten notes. These go a long way. Send thank you notes not just to the investor but also to the borrower—that amazing partner who smoothed out your process. Make them part of your team.

attracted quality employees and thirdparty partners and brokers who want to be part of something bigger.

B e flexible and never stop learning.

It is imperative to attend AAPL’s annual conferences to enhance your knowledge and better your skills. These events allow you to meet other like-minded people who share your attitude and eagerness to be part of something bigger. For example, partner with another company if you need capital. Be open to brokering or referring loans that you can’t do.

Your clients will remember your company

was the one that was a resource for their goals. Be the solution, the problem solver.

It’s not all about the money. It is the relationships that you build, both inside and outside your organization that will take you to the next level. ∞

ABOUT THE AUTHOR

S hare the wealth by giving back. We

have a 501(c)(3) nonprofit organization called the The Integrity Foundation that supports small local community organizations that benefit from cash donations.

A portion of the company profit goes in each month, and employees are also able to contribute through payroll deductions. The board members are volunteer staff who vote on where the funds are distributed. The Integrity Foundation has donated more than $80,000 to over 15 charities within the past few years. It has had an amazing impact on attracting more than just investors. It has also

PAM HOEPFL Pam Hoepfl has been the recipient of the Women of Excellence Award and

an award-winning speaker for decades.

Her 20 years of experience as Precision Capital’s director of capital has earned her over $120 million in assets under

management and hundreds of satisfied accredited investor relations.

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FUNDAMENTALS

Raising Private Lending Capital with Banks Many commercial banks are already funding private lenders in your area and are interested in expanding.

by Wade Comeaux

P

rivate lending can be

individuals; self-directed IRAs are a top

highly enjoyable. It is a

often demand higher returns, may have

financially rewarding and

source. However, wealthy individuals

WHY BANKS WANT YOUR BUSINESS

fantastic way to get exposure to short-

limited resources, and will put their

Many bankers in the space absolutely

real estate via a mortgage, without the

available. They often are not willing

01 Real estate exposure. Banks’ exposure

term investing, ultimately secured by

capital to work when deals become

heavy lifting of flipping properties.

to keep it on the sidelines until the

Private lending is a scalable business.

moment you are ready to transact.

love it for a few key reasons:

to different loan categories is closely regulated. Direct investment in real

Smaller private lenders have been able

Raising a fund is a more advanced source

estate is one area regulators heavily

few primary reasons: closing turn time,

costs and no guarantee of being able to

bank funding of private money loans

onerous loan-to-cost requirements, and

Many funds are abandoned each year

giving banks the ability to invest in

contacts. Closing turn time, in particular,

A great option for raising capital is

to dominate many local markets for a

of capital, but there are significant upfront

scrutinize. But, if structured properly,

construction draw turn time, lack of

raise the capital necessary to be viable.

is not considered a real estate loan,

access to local expertise and industry

because of this and other challenges.

real estate-backed transactions without

is an area in which national lenders,

usually with lower cost of funds and better pricing for borrowers, struggle to compete

with smaller lenders. Off-market deals and wholesalers drive a significant amount of

loan opportunities and, for the most part,

they prioritize speed over everything else.

Most private lenders start using their

own capital or raise money from wealthy 84

PRIVATE LENDER

commercial banks. Many commercial

impacting critical ratios or maximums.

02 Short-term notes. Due to many risks,

banks are already funding private

including difficulty in predicting

expanding their exposure to the space.

interest rate risk exposure, most

less familiar with private lending to get

as 12–18-month private money loans.

lenders in your area and are interested in

future economic conditions and

Although it is possible to persuade banks

banks prefer shorter term notes, such

involved, that is a much tougher task

than getting bankers already involved

to add your business to their portfolio.

03 Efficiency.

Direct lending in real

estate is taxing. Processing mortgage loans is time-consuming and has a

higher labor cost than many other revenue-generating activities.

Funding private money loans usually involves a relatively quick final review of the documents the private lender has acquired, saving time and money, compared to the heavy lifting that comes with acquiring documents such as appraisals, title policies, and other paperwork from third parties and borrowers.

PROS AND CONS FOR PRIVATE LENDERS The advantages to raising capital with commercial banks are many, including:

01 Lower interest rates. Interest rates

are usually set at some spread above an industry index, such as the Wall Street Journal Prime Rate, which is the average of the rates the 30

largest commercial banks charge to their most-favored customers.

02 Lower cost structure. Wealthy

individuals may require a fee associated with the funding of each transaction. Many banks will allow lenders to pay one fee for unlimited transactions on the commercial line for a certain period (e.g., one or two years).

03 Safety.

The risk of the capital not

being available when needed is incredibly low versus the much higher risk of it not being available when dealing with wealthy individuals.

04 Consistency.

Once capital is raised,

most banks will renew or even expand the line annually. It can be challenging to get the first line, but it is easy to maintain it if you are organized, responsive, and meet the expectations of the bank.

There are also challenges you should be aware of when raising money with commercial banks.

Here are a few to consider:

01 Higher accounting expectations.

Banks have high expectations for bookkeeping. All entities in which you have ownership must be highly organized. Although many small business owners emphasize their P&L, many bankers are passionate about the balance sheet. Both must be detailed, and you must be able to confidently answer questions about your business.

02 Personal financial statements.

Almost all banks will require a personal financial statement and ongoing financial updates on a quarterly or annual basis. You must provide a bank-approved document with an overview and supporting documentation.

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FUNDAMENTALS

03 Definitions of default. Many banks

can have broad definitions of default, so closely read all documents. Examples of default language may include not providing updated financials, changes in ownership structure, changes in financial situation, and even the bank’s perception that you might someday default. The default language can sometimes be negotiated, although that can be challenging if you don’t have strong banking relationships.

04 Changes in bank ownership and

structure. The primary objective of

some smaller commercial banks is to be acquired. It happens more than many bank clients would like. This can lead to changes in leadership and relationship management, risk appetite, or underwriting guidelines. In some instances, the new bank may not want to provide funding to private lenders.

05 Audited or reviewed financial statements. As you grow your

business, some banks will request and potentially require audited or reviewed financial statements.

An audit is the highest level of evaluation and the most expensive.

In most instances, by the time these evaluations are needed, the cost will be reasonable relative to your profits.

TIPS FOR WORKING WITH BANKS Here are some helpful hints on raising private lending capital with banks:

01 Build your network. Work to

build relationships with other lenders and bankers in the space.

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02 Identify banks that focus on

the business. If you are friends

with other private lenders, you can ask for referrals. If not, you can call lenders and ask if they are already in the space.

Getting the first commercial line for private lending can be difficult, but it is worth it. Remember, once one bank approves you, each additional line gets significantly easier. ∞

03 Raise your accounting bar. Ensure

your bookkeeping is accurate and strong by hiring better internal staff— or outsource the function to others.

ABOUT THE AUTHOR

04 Increase your understanding of

the P&L and the balance sheet.

There are many books, blogs, podcasts, and webinars that can greatly increase your knowledge in this area. Developing a stronger understanding of these documents will not only help you raise capital but also improve your ability to make solid financial decisions in general.

05 Focus on your bottom line. The

balance sheet and P&L will not lie.

There are many banks that want to provide capital, but they will insist you run a highly profitable business.

06 Maintain high quality. In private lend-

ing, you must take risks, but keep them reasonable. Bankers do not like cowboys.

07 Build guidelines and standard

operating procedures. This is

another category that will help you in countless ways. Banks want to know you have relatively consistent standards and well-defined processes.

08 Create a presentation. Your

presentation does not have to be over the top, but providing a clear message of your vision, team, standards, and performance will make an enormous difference to bankers.

WADE COMEAUX Wade Comeaux began his career in

1995 and has held senior roles in lending and management with large reputable companies such as Bank of America,

Fifth Third Bank, and Countrywide. He

has led teams in roles such as president and executive vice president, leading sales and operations teams of up to 1,400 employees.

In 2014, he launched Catalyst Funding, a lender focused on the real estate

investment space, built by real estate

investors. Catalyst prides itself on being

a one-stop shop for real estate investors and provides a wide array of short-term

bridge products and long-term products for buy-and-hold investors.

Comeaux is passionate about helping his clients achieve financial freedom through real estate investment.

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PROFESSIONAL DEVELOPEMENT

Titan of Real Estate Law: Garrett Sutton Writing books and educating clients drive this Titan.

by Katie Bean

T

he beauty of real estate

he “realized that real estate was a good way to provide for my family’s future.”

finance book. He’s built an entire

says, is there is something

In the beginning, he invested in apartment buildings. Though they worked with a management company, Jenny, a radiation oncologist, felt she spent too much time managing the management, he said. The couple transitioned to triple net leases, which suit them as a far more passive investment. (A triple net lease agreement is one in which the tenant agrees to pay all property expenses, including real estate taxes, building insurance, and maintenance, in addition to rent.) In many cases, a franchisor sells its building and lot to an investor who becomes the landlord.

including a team of seasoned experts

investing, Garrett Sutton

for everyone’s interests.

“Some people want to get in there and develop. Some people want to get in there and manage and raise rents and do all that. And then others, like myself—I’m busy with a law practice—don’t have time to do that,” he said. “There’s kind of a spectrum for people who want different levels of involvement.”

Sutton is the owner and operator of Sutton Law Center and Corporate Direct Inc., both based in Reno, Nevada. Ever since attending UC Hastings Law in San Francisco, he’s been interested in corporations and has built both businesses around that core: helping business owners incorporate to protect themselves and their assets.

In addition to his day job, Sutton and his wife, Jenny, are real estate investors. He said that after law school, 88

PRIVATE LENDER

Sutton has parlayed his breadth of experience into an elite advisory role: He serves as a “Rich Dad Advisor” for bestselling author Robert Kiyosaki.

BECOMING A “RICH DAD” EXPERT

network on the book’s popularity, who comprise the Rich Dad Advisors.

Sutton said he connected with Kiyosaki around 2000, when the author was looking for an attorney to join his advisory group. Sutton’s corporate expertise was appealing, but he also shared a mutual interest with Kiyosaki: rugby. Kiyosaki is a big fan of the sport and played for the Hawaii Harlequins; Sutton had played during law school.

Their love of the game has taken them to a number of rugby World Cup games around the globe, Sutton said.

Off the pitch, Sutton became the Rich Dad Advisor on entities and asset protection, and soon he was asked to write a book for the brand “Start Your Own Corporation.”

“I always wanted to write a book anyway,”

Kiyosaki is the author of “Rich Dad Poor Dad,” the all-time No. 1 personal

Sutton said. “I just put myself in a room and got it done in three weeks.”

His first book dealt with the basics of incorporating and became one of the top 10 bestselling business books in 2000. Since then, he’s written six additional titles for the Rich Dad brand, including “Loopholes of Real Estate,” which covers legal and some tax aspects of investing in real estate.

“You know, they don’t teach any of this in school, unfortunately, so you have to get the information on your own,” he said.

Sutton has another book coming out in March 2022, “Veil Not Fail,” that discusses the corporate veil of protection and how to keep it intact. The book features tips as well as horror stories about instances where the veil was pierced.

“Too many of these books are written in legalese. It’s hard to take in,” he said. “My preference is to tell stories about situations and then apply the law to the story.”

Lawsuits succeed in piercing the corporate veil in almost half of all cases, Sutton said, which means many business owners aren’t taking the right steps to protect their assets: “We don’t want the veil to fail.”

In addition to writing, Sutton serves as a speaker at Rich Dad seminars.

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PROFESSIONAL DEVELOPEMENT

He said he’s also a student when he attends, learning from the other experts.

He’s even brought his son, Ted, to the events, allowing him to absorb lessons in business that will serve him well once he graduates from law school in Wyoming and joins Sutton’s practice.

CAUTION FOR CORPORATIONS Currently, Sutton is educating his clients on a new law that goes into effect in January 2022. The Corporate Transparency Act is recognized as an amendment to the Anti-Money Laundering Act.

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PRIVATE LENDER

Though lawmakers may have had good intentions, Sutton said, the reality is the new rule will create a huge filing burden for nearly all corporations and LLCs in the country. The CTA requires all companies to report on an annual basis the beneficial owner, owner’s date of birth, business address, and an identifying number from a state-issued ID such as a passport or driver’s license. The information will be stored in a database maintained by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network.

Sutton said penalties for not filing or filing false information will be severe, including fines up to $10,000 or two years in jail.

Complicating matters, the Treasury has

“You know, they don’t teach any of this in school, unfortunately, so you have to get the information on your own.”

— G A R R E T T SU T TO N

been slow to release guidance on how to file the required information, Sutton said.

Sutton’s firm will offer a new service to help businesses file this information and remain in compliance. He’s well-

suited to help companies nationwide: The firm already offers a resident agent service in all 50 states.

That offering “aids in the efficiency of justice,” Sutton said, by making it

AAPL MEMBER SPOTLIGHT YOUR NAME HERE. >> ALSO YOUR COMPANY!

The AAPL Member Spotlight offers the opportunity for our entire network to get to know you, your experiences, and how you have benefited from your AAPL membership.

Check out past Spotlights at aaplonline.com/spotlight, then complete the form at aaplonline.com/spotlight-form to step into the spotlight yourself!* *Members are added to the Spotlight queue in the order in which they are received. You must have Named Member status at publish time.

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PROFESSIONAL DEVELOPEMENT

ADVICE FROM A TITAN Sutton looks to titans of history for inspiration, saying he particularly admires George Washington’s leadership and character that played a pivotal role in defining the U.S. and the role of president.

For those who may look to him for advice, Sutton recommends starting small to anyone interested in real estate investing.

“You don’t need to—and probably shouldn’t—do a big deal at the start,” he said. “Learn about real estate and your market by starting with smaller properties. Avoid the paralysis of analysis.

Too many potential investors focus just on the numbers and let the opportunities to learn and grow pass them by.

“Know that you are going to make some mistakes at the start. Everyone does!

You are creating future war stories and learning by doing to be a better investor.” ∞ easy for someone suing a company to make contact. Some business owners mistakenly think that if they can’t be found, they can’t be sued. In fact, Sutton said, that scenario makes it more likely that the entity suing will receive a default judgment and win the case.

“Hiding is not a good idea,” he said.

REFLECTING ON SUCCESS Though he’s gained Titan status in his industry, Sutton said the real measure of success is the satisfaction he’s found through writing books and educating clients.

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“If you provide a good service, the money takes care of itself. So, I’ve never really worried about that part of it,” he said.

He says he’s satisfied in life, being able to travel and provide opportunities for his son and twin daughters, Emily and Sarah. Sutton also has been able to invest his time in causes that resonate with him.

He’s on the executive committee of the Nevada Museum of Art in Reno, the only accredited art museum in Nevada. He’s on the boards of Sierra Kids Foundation as well as the American Baseball Foundation, which he has worked with for more than 25 years. His love of the game has spurred another project: a baseball documentary that will be released in the spring.

ABOUT THE AUTHOR

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

stories of businesses and great leaders.

She is based in Kansas City.

LIQUIDITY SOLUTIONS FOR PRIVATE LENDERS Fidelis Investors is a dedicated strategic capital partner for private money lenders throughout the United States. Our platform helps lenders, like you, raise capital by efficiently selling loans. Since 2009, the Residential Investment Team has successfully transacted in over $3.0 billion of whole loan purchases.

Institutional Note Buyer Fidelis Investors LLC 25 Commerce Dr, Suite 330 Cranford, NJ, 07016

Common Sense Purchase Guidelines

Long Term Strategic Partner info@fidelis-investors.com 908-402-8132 www.fidelis-investors.com WINTER 2023

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VENDOR GUIDE

VENDOR GUIDE Each issue, we publish a cross section of specialties. These providers do not pay for inclusion. Instead, we vet them by reviewing their product offerings and talking to private lender references.

If you’re looking for a service provider who has real experience working with private lenders, the Private Lender

AAPL members can access all service providers online at aaplonline.com/vendors. If you’re not a member, keep an eye on this publication for future updates. Then consider joining AAPL to support this and other initiatives!

Vendor Guide is your starting point.

WINTER THIS ISSUE!

SPRING

SUMMER

FALL

A ccounting

Appraisers & Valuations

Funds Control

C apital Providers

I nvestor Reporting

D evelopment Cost Estimates

D efault & Loss Mitigation L egal Services Warehouse Lenders

D ata & Metrics

L oan Origination

E nvironmental Services Lead Generation

Services L oan Servicing

N ote Buying/Selling

Education Fund Administration Insurance M arketing

Indicates AAPL Membership ACCOUNTING

CohnReznick https://www.cohnreznick.com/ (818) 205-2622 Advisory, accounting and tax services for private lenders

ACCOUNTING (CONT.) Acquavella, Chiarelli, Shuster LLP https://www.acsaccounting.com/ (732) 713-6305

ATM Professional Services, CPA P.C. www.atmcpas.com (301) 947-2860

DEFAULT & LOSS MITIGATION

S.B.S. Trust Deed Network https://sbstrustdeed.com/ (818) 991-4600 Non-judicial foreclosures, bankruptcy, post-foreclosure options for lenders, deed-in-lieu-of foreclosure

DEFAULT & LOSS MITIGATION Spiegel Accountancy Corp https://www.spiegelcorp.com/ (925) 949-5687 Accounting, tax, fund administration, consulting services for mortgage lenders, small businesses, and individuals 94

PRIVATE LENDER

Noble Capital Loan servicing, note buyer/seller https://noblecapital.com/ (512) 492-3818

(CONT.)

Total Lender Solutions www.TotalLenderSolutions.com (866) 535-3736 Non-judicial foreclosures, UCC sales, reconveyances, education

Indicates AAPL Membership

DEFAULT & LOSS MITIGATION

(CONT.)

LEGAL SERVICES

(CONT.)

Auction.com https://www.auction.com/ (949) 672-3668

Axylyum Charter LLC axylyum.com (212) 983-0262

Geraci LLP https://geracilawfirm.com/ (949) 379-2600 Foreclosures, real estate, corporate, securities, litigation, banking and finance, bankruptcy, consulting, asset protection

Law Office of Marc Weitz www.weitzlegal.com (323) 600-4805 California attorney helping private lenders recover investments from borrowers in bankruptcy

Service Link https://www.svclnk.com/ (800) 777-8759 LEGAL SERVICES Caballero Lender Services caballerolenderservices.com (225) 328-1071 Foreclosures, bankruptcies, and real estate closing representation for lenders and investors

Eric Feldman & Associates, P.C. Secondary Specialty: Default & Loss Mitigation www.efalaw.com (312) 344-3529 Legal services in the following areas: commercial/residential real estate and note transactions; closing/escrow/title services; initiate foreclosures and evictions; protect creditor rights in bankruptcy; litigation oversight nationwide; property violations, property tax appeal; due diligence, clerking, recording, document preparation

(CONT.)

Hajjar Peters LLP https://legalstrategy.com/ (512) 637-4956

DSI Inc. http://defaultservicesinc.com/ (512) 382-0366

iServe https://iserverealestate.com/ (858) 486-4213

LEGAL SERVICES

Law Offices of Lawrence Andelsman PC http://andelsmanlaw.com/ (516) 625-9200 Real estate transactions for lenders, developers, and individuals

Activist Legal https://activistlegal.com/ (202) 869-0804

Cohn & Dussi, LLC www.cohnanddussi.com (781) 494-0200

Hartmann Doherty Rosa Berman Bulbulia LLC www.hdrbb.com (917) 902-9617

Private Lender Law/LaRocca Hornik Rosen & Greenberg www.privatelenderlaw.com (212) 536-3529

Scheer Law Group, LLP https://www.scheerlawgroup.com/ (949) 263-8757

Syndication Attorneys, PLLC www.SyndicationAttorneys.com (904) 504-4055 WAREHOUSE LENDERS

Western Alliance Bank www.westernalliancebank.com (602) 952-5462 Providing committed revolving lines of credit to established private lenders specializing in residential fix-and-flip, commercial bridge, or NPL/RPL note purchases; loan sizes typically range from $10 million to $100 million

Want in? Nominate yourself or a company you’ve worked with at aaplonline.com/vendor-guide-nominations.

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OUR AUDIENCE IS WAITING FOR YOU. Each week, 1,300+ real estate investment aficionados download our podcast across 16 of the medium’s top platforms. Think Realty Podcast is their source for the latest industry trends, hard-hitting insights and news.

Contact us at sales@thinkrealty.com to reach our ever-growing audience now.

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L AST CALL WITH MELISSA MARTORELL A

WHEN FACED WITH A DIFFICULT CHOICE–MAKE THE LEAP!

by Melissa Martorella

out and moving to California. I decided to make the leap and head West. If I

hated it, I could always come home, I

thought, but if I loved it, then a new and wonderful experience would unfold.

The next few months were a whirlwind.

Seat deposits, applying for housing, and a cross-country move made my fly-in date creep up faster than I wanted. I

made a Boston bucket list when I knew I would be moving so I could try to

hit up local spots and take adventures

that always get taken for granted when

A

little more than 10 years

ago, I had to decide where I

wanted to attend law school.

The usual considerations were at play (scholarships, school reputation, job prospects, etc.), but the choice for me came down to where I wanted to live for (at least) the next three years.

I grew up in a small town in Massachusetts and spent six years living in the Boston area between undergraduate, graduate school, and working. I applied for and was accepted into many law schools, but ultimately my decision came down to either staying in Boston and attending my alma mater or branching 98

PRIVATE LENDER

they are in your backyard. I barely got

through any of the items on my list before I was on a flight to Orange County.

I landed one morning in August, a

few days before classes began, feeling

excited, nervous, and a bit overwhelmed.

Although my belongings were delayed by a few days, thankfully my new roommate had driven across the country and

loved camping. I was able to borrow her camping mattress and sleeping bag as I

anxiously waited for my things to arrive.

Lying on the camping mattress that night, with my perfect move-in plans wrecked, I couldn’t help but wonder if I had made

the right decision. I had left all my friends

and family behind to live in a place where I didn’t know anyone and start a new and difficult endeavor. I questioned whether I was crazy for doing so.

My things arrived a few days later, I got settled into my new apartment, and I started making friends with my future classmates. A rough start kicked off three wonderful years, and I stayed in California after graduating. I interviewed at Geraci, and here I am a little more than seven years later, thriving with my work team and my new friends and family. There have been ups and downs, hardships, and difficult decisions along the way, but I am happy to say I do enjoy how it has all worked out.

When I consider taking on a difficult endeavor, I always think back to how I felt during that transitional time in my life. I made a leap and moved across the country, to establish myself somewhere new and thrive. The decisions I have made since then may have been difficult, but not nearly as hard as that initial one.

And I always remember that with any decision, if you make the “wrong” choice, you always have a way out. It may not be pretty or perfect or easy, but you can always get back home if you need to. ∞

AAPL membership is the standard of excellence among private lenders and the foundation supporting the industry’s viability and growth.

Join the oldest and largest association providing for private lender education, ethics, and advocacy at aaplonline.com/join.

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Save the Date!

A APL’S

14T H

AN N UAL C ON F ER EN CE The Nation’s Largest Private Lender Event

NOV. 12-13 2023 LAS VEGAS aaplconference.com

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